Dagenhardt v. Special Mach. & Engineering, Inc.

• Decision Date: 27 July 1981
• Docket Number: No. 49476,49476
• Citation: 108 Mich.App. 75,310 N.W.2d 41
• Parties: Patricia DAGENHARDT, as Administratrix of the Estate of Frank Dagenhardt, Deceased, Plaintiff-Appellant, v. SPECIAL MACHINE & ENGINEERING, INC., a Michigan corporation, Defendant-Appellee, and Naturalite, Inc., a foreign corporation, Defendant.
• Court: Court of Appeal of Michigan — District of US

Page 41

310 N.W.2d 41

108 Mich.App. 75

Patricia DAGENHARDT, as Administratrix of the Estate of Frank Dagenhardt, Deceased, Plaintiff-Appellant, v. SPECIAL MACHINE & ENGINEERING, INC., a Michigan corporation Defendant-Appellee and Naturalite, Inc., a foreign corporation, Defendant.

No. 49476.

Court of Appeals of Michigan.

July 27, 1981.

Gary M. Bloom, Livonia, for plaintiff-appellant.

John A. Kruse, Detroit, for defendant.

Richard B. Poling, Jr., Birmingham, for defendant-appellee.

Before BRONSON, P. J., HOLBROOK and RANSOM, ^* JJ.

BRONSON, Presiding Judge.

Frank Dagenhardt died as a result of injuries he sustained when he fell through a skylight on a building owned by defendant-appellee, Special Machine & Engineering, Inc. (hereinafter defendant). At the time this tragic accident occurred, Frank Dagenhardt was employed by Slasor Heating & Cooling Company, which had contracted with defendant to perform certain heating and cooling work. This work required Dagenhardt to go out onto the roof of defendant's plant.

In the contract between Slasor and defendant, Slasor represented that it was fully covered by workers' disability compensation insurance. In fact, on the day of the accident Slasor did not carry such insurance, in violation of M.C.L. § 418.611; M.S.A. § 17.237(611). Consequently, defendant petitioned the Bureau of Workmen's Compensation to determine its liability under M.C.L. § 418.171; M.S.A. § 17.237(171), as a statutorily-substituted employer. Notice of the proceedings were provided to plaintiff, Patricia Dagenhardt, Frank's widow. At the hearing, the administrative law judge ruled that, for purposes of the Worker's Disability Compensation Act, defendant would be liable for the payment of compensation benefits.

A wrongful death action was commenced by plaintiff against defendant and Naturalite, Inc., a manufacturer of skylights who is not involved in this appeal. Defendant moved for summary judgment on the basis that M.C.L. § 418.131; M.S.A. § 17.237(131) operated to transfer to it the immunity to suit Slasor would have enjoyed under the act as decedent's employer. The trial court granted summary judgment in an order dated January 4, 1980. Plaintiff appeals as of right from this order.

The precise question of the extent to which a statutorily-substituted employer assumes the rights of a direct employer under the Michigan Worker's Disability Compensation Act has not been previously addressed. Other jurisdictions with comparable acts which have considered this question have disagreed as to the correct resolution of this problem as will be seen, infra.

M.C.L. § 418.171(1); M.S.A. § 17.237(171)(1) provides:

"If any employer subject to the provisions of this act, in this section referred to as the principal, contracts with any other person, in this section referred to as the contractor, who is not subject to this act or who has not complied with the provisions of section 611, and who does not become subject to this act or comply with the provisions of section 611 prior to the date of the injury or death for which claim is made for the execution by or under the contractor of the whole or any part of any work undertaken by the principal, the principal shall be liable to pay to any workman employed in the execution of the work any compensation under this act which he would have been liable to pay if that workman had been immediately employed by him; and if compensation is claimed from or proceedings are taken against the principal, then, in the application of this act, reference to the principal shall be substituted for reference to the employer, except that the amount of compensation shall be calculated with reference to the earnings of the workman under the employer by whom he is immediately employed. A contractor shall be deemed to include subcontractors in all cases where the principal gives permission that the work or any part thereof be performed under subcontract." (Emphasis added.)

The exclusive remedy provision is found in M.C.L. § 418.131; M.S.A. § 17.237(131), which states:

"The right to the recovery of benefits as provided in this act shall be the employee's exclusive remedy against the employer. As used in this section and section 827 'employee' includes the person injured, his personal representatives and any other person to whom a claim accrues by reason of the injury to or death of the employee, and 'employer' includes his insurer, a service agent to a self-insured employer, and the accident fund insofar as they furnish, or fail to furnish, safety inspections or safety advisory services incident to providing workmen's compensation insurance or incident to a self-insured employer's liability servicing contract."

The language of §§ 171 and 131 is ambiguous as concerns the resolution of this case. Consequently, we must construe the language of the statutory provisions by considering the objects sought to be accomplished by the Legislature through enactment of the act. See Hamilton v. Superior Mushroom Co., 91 Mich.App. 52, 56, 282 N.W.2d 831 (1979). As will be detailed below, we do not believe defendant is entitled to immunity from tort liability on the facts of this case. ¹

Some 43 states have "statutory-employer" provisions in their worker's compensation disability acts. 2A Larson, Workmen's Compensation Law, § 72.31, p. 14-47. However, these provisions vary in scope and the construction given them by the courts of the individual jurisdictions. The vast majority of those states in which it has been determined that the statutory employer is immune from suit generally reach this result because the principal or general contractor is involved in the same "course of employment" as the direct employer. These jurisdictions do not distinguish between who ultimately was responsible for providing the compensation benefits in a particular case the direct employer or the statutory employer. Rather, the statutory employer receives the benefit of immunity from suit even where the benefits were paid by the direct employer. ² The possibility that the statutory employer might become liable for workers' compensation benefits is seen as sufficient reason to hold such an employer immune from tort liability. In Michigan, however, neither the worker's disability compensation statute nor court decisions preclude suits against third-party principals or general contractors who are statutory employers immune from suit in other jurisdictions. Indeed, in Funk v. General Motors Corp., 392 Mich. 91, 220 N.W.2d 641 (1974), the Michigan Supreme Court held that a plumber who was seriously injured when he fell from the roof of the building construction site could sue both the general contractor and the owner of the plant where the work was taking place, even though the subcontractor provided compensation benefits.

In those jurisdictions like Michigan whose law provides that third-party principals and general contractors can be sued in tort despite the fact that in some circumstances they might become liable for the payment of compensation benefits, there is a difference of opinion concerning whether a substituted employer may be sued where it, in fact, has provided compensation benefits. In Fonseca v. Pacific Construction Co., Ltd., 54 Haw. 578, 513 P.2d 156 (1973), the Hawaiian Supreme Court rejected the position that a general contractor who might become liable for compensation benefits was immune from tort suit under all circumstances. The Fonseca Court did hold, however, that, in the relatively rare circumstances in which the general contractor actually did become liable for the payment of benefits, it was immune from common-law liability. See, also, Ryan v. New Bedford Cordage Co., 421 F.Supp. 794 (D.Vt., 1976) (applying Vermont law).

The opposite result was reached by the Illinois Supreme Court in Laffoon v. Bell & Zoller Coal Co., 65 Ill.2d 437, 3 Ill.Dec. 715, 359 N.E.2d 125 (1976). ³ In that case, a salvage company employee was injured on defendant's premises. Because plaintiff's direct employer did not carry the required workers' compensation insurance, defendant became liable for the payment of benefits. Plaintiff also brought suit against defendant. The trial court granted summary judgment for defendant. The appellate court affirmed, one judge dissenting, and the Supreme Court reversed on a 5-2 vote. The Supreme Court noted that statutory-employer immunity would be an incentive to a contractor or third-party principal to engage uninsured subcontractors. We agree. Supposing statutory-employer immunity, if an injury occurred, the substituted employer would be liable for workers' compensation benefits but all other suits against it would be barred. Since compensation insurance would already be carried by the typical substituted employer for the benefit of its own employees, no additional expenses would be incurred by said employer. If no injury occurred, the substituted employer would not even be responsible for compensation benefits, and likely will have obtained the services of a subcontractor at a lower cost due to the subcontractor's failure to maintain workers' compensation insurance.

The Laffoon rationale has been characterized by Professor Larson, perhaps the most eminent scholar in the field of workers' compensation, as having an "Alice-in-Wonderland Through-the-Looking-Glass air about it". 2A Larson (Supp), 2A Supplement: Workmen's Compensation Law, § 72.31, p. 14-56. In deference to Professor Larson's status in this field, we have decided to respond to his criticism of Laffoon. Larson notes that the statutory-employer principle was devised in the first place to serve as an incentive for the principal to engage insured subcontractors. The fact is, however, that in Michigan and other states which continue to allow an injured worker to sue the principal or prime contractor where compensation benefits are provided by the employee's direct employer, the statutory-employer...