Ellis v. Fairchild

• Decision Date: 05 March 1977
• Docket Number: No. 48410,48410
• Citation: 221 Kan. 702,562 P.2d 75
• Parties: Nancee K. ELLIS, widow, et al., Appellants, v. Kenneth FAIRCHILD, d/b/a Kenneth Fairchild Mid-Continent Aviation, Inc., et al., Appellees.
• Court: Kansas Supreme Court

Page 75

562 P.2d 75

221 Kan. 702

Nancee K. ELLIS, widow, et al., Appellants, v. Kenneth FAIRCHILD, d/b/a Kenneth Fairchild Mid-Continent Aviation, Inc., et al., Appellees.

No. 48410.

Supreme Court of Kansas.

March 5, 1977.

Syllabus by the Court

1. K.S.A. 44-508(h) (L.1968, ch. 102, § 2) cannot be applied to all lessor/lessee situations. A lessor who merely leases a building or facilities for the lessee's business should not be held liable for workmen's compensation under 44-508(h), supra, of the Kansas Workmen's Compensation Act.

2. In connection with K.S.A. 44-503(a) under the Workmen's Compensation Act, this court had laid down two rather definite tests by which to determine whether the work covered by a contract is part of the principal's trade or business, i.e.: (1) Is the work being performed by the independent contractor and the injured employee necessarily inherent in and an integral part of the principal's trade or business? (2) Is the work being performed by the independent contractor and the injured employee such as would ordinarily have been done by the employees of the principal? If either of the foregoing questions is answered in the affirmative the work being done is part of the principal's 'trade or business,' and the injured employee's sole remedy against the principal is under the Workmen's Compensation Act.

3. The fundamental premise upon which liability is predicated in the Workmen's Compensation Act under 44-503(a) is the existence of a contract between two employers.

4. In an appeal wherein the surviving dependents of a deceased workman were awarded workmen's compensation benefits against the workman's direct employer who had just two weeks prior to the fatal aircraft accident purchased a flight training school from the deceased workman's former employer, and being unable to collect the award from the deceased workman's direct employer, brought an action against various insurers of the deceased workman's former employer, the record is examined and it is held: (a) The trial court's refusal to recognize a lessor/lessee relationship as a vehicle to impose liability pursuant to K.S.A. 44-508(h) against the former employer was proper; (b) the work of the deceased, a flight instructor, was not a necessary or integral part of the former employer's business of conducting a ground school for aviation mechanics after the sale was made to the direct employer; (c) the flight instruction work performed by the deceased would not ordinarily have been done by the employees of the former employer after the sale was made to the direct employer; (d) there was not contract covering any employment aspects between the direct employer and the former employer which would support a contractor/subcontractor relationship under K.S.A. 44-503(a); and (e) no error is shown in the record.

George W. Earnshaw, of Ivan & Earnshaw, Shawnee Mission, argued the cause, and Janine D. Hassler, and David T. Martindale, Kansas City, Mo., were with him on the brief for appellants.

Richmond M. Enochs, of Wallace, Saunders, Austin, Brown & Enochs, Overland Park, argued the cause, and Barry E. Warren, Overland Park, was with him on the brief for appellees.

SCHROEDER, Justice:

This is an appeal wherein the surviving dependents of a deceased workman were awarded workmen's compensation benefits against Kenneth Fairchild, d/b/a Kenneth Fairchild Mid-Continent Aviation, Inc., the workman's direct employer who had just two weeks prior to the fatal aircraft accident purchased a flight training school from Mid-Continent Aviation, Inc. Unable to collect the award from the deceased workman's direct employer, the surviving dependents brought an action against the insurance carrier, the insurance agent and the agency which had previously written workmen's compensation insurance on Mid-Continent Aviation, Inc., the entity from which Mr. Fairchild had purchased his business. (The action was also against the deceased workman's direct employer, but he was dismissed by the trial court without prejudice to the plaintiffs, and this appeal does not concern him.) The trial court found against the plaintiffs and refused to permit recovery against the insurance defendants.

On appeal the surviving dependents of the deceased workman seek to establish a relationship which will render the insurance defendants liable for the award against Kenneth Fairchild, d/b/a Kenneth Fairchild Mid-Continent Aviation, Inc. They contend there was either a lessor/lessee or a contractor/subcontractor relationship, as provided by K.S.A. 44-508(h) or K.S.A. 44-503(a), which makes the workmen's compensation insurance carrier of Mid-Continent Aviation, Inc., liable for the award.

Mancee K. Ellis, Randal Scott Ellis and Jeffery Charles Ellis (plaintiffs-appellants) are, respectively, the wife and minor children of Charles Lindell Ellis, a deceased employee of Kenneth Fairchild, d/b/a Kenneth Fairchild Mid-Continent Aviation, Inc. (Kenneth Fairchild repeatedly denied that he was incorporated. However, the trial court used 'incorporated' in its journal entry.) Southeastern Aviation Underwriters, Inc., Insurance Company of the State of Pennsylvania, Mann-Kline, Inc., Division of Marsh & McLennan, and Corky Nason, agent for Mann-Kline, Inc., (defendants-appellees) are, respectively, the insurance carriers, insurance agency and insurance agent which procured, brokered, underwrote or issued a policy of workmen's compensation insurance covering Mid-Continent Aviation, Inc. By court order dated November 21, 1973, American Home Assurance Company, subsequent to the filing of the action, was added as a party defendant.

Mid-Continent Aviation, Inc., (hereafter also referred to as Mid-Continent) leased land at the Fairfax Airfield from the Board of Public Utilities of Kansas City, Kansas. Mid-Continent conducted two different aircraft schools, a 'flight' school which trained pilots and a 'ground' school which trained aviation mechanics.

Prior to October of 1968, Kenneth Fairchild and Charles Lindell Ellis worked as flight instructors for Mid-Continent's 'flight' school.

On October 1, 1968, Kenneth Fairchild and his financial backer, Mr. Horridge, entered into a purchase agreement with Mid-Continent, to buy the 'flight' school. Mid-Continent retained the 'ground' school. Mr. Fairchild's name was used in the business name of the newly acquired 'flight' school business, which was named Kenneth Fairchild Mid-Continent Aviation, Inc., because it was well-known in aviation circles.

Under the purchase agreement, Mid-Continent sold, transferred and assigned to Kenneth Fairchild:

'(T)he right to train the current active flight school students of Mid-Continent, seventy-five per cent (75%) of the existing prepaid receipts of Mid-Continent for active flight school students . . ., the right to the telephone numbers FAirfax 1-3035, 3036, and 3037, and the right to use the name 'Mid-Continent Aviation Flight' in connection with the operation of a flight school.'

The above assets were the only assets included in the sale and transferred. Mid-Continent continued to operate the 'ground' school. Mr. Fairchild continued to use the same premises for the 'flight' school a before, but he did not report or answer to anyone at Mid-Continent. Mr. Horridge had no connection with Mid-Continent.

Nothing in the purchase agreement mentioned workmen's compensation. Mr. Fairchild testified he thought he was covered by workmen's compensation insurance for his employees, and he had never received any notice of cancellation by the insurance company. He testified Mr. Horridge took care of all the paper work.

Nothing in the purchase agreement mentioned renting facilities from the Board of Public Utilities. Although Mr. Fairchild was not clear about whether he leased facilities from the Board of Public Utilities or from Mid-Continent, cross-examination produced the following exchange:

'Q. Did you ever execute a lease with the City of Kansas City, Kansas or the

Board of Public Utilities yourself with regard to the premises? Yes or no?

'A. I believe so, yes, sir.'

Mr. Fairchild employed Charles Ellis as a pilot instructor for Kenneth Fairchild Mid-Continent Aviation, Inc. Mr. Fairchild testified he never told Mr. Ellis of the change in employer status. The last check Mr. Ellis received while living was signed by Mid-Continent.

On October 14, 1968, Charles Ellis died in an aircraft accident while working for Kenneth Fairchild Mid-Continent Aviation, Inc. On November 22, 1968, Kenneth Fairchild Mid-Continent Aviation, Inc., issued its first and last check to Mrs. Ellis to pay for Mr. Ellis' work. Mrs. Ellis testified this was the first time she became aware that Mr. Fairchild had become Kenneth Fairchild Mid-Continent Aviation, Inc.

Approximately a year later, Mrs. Ellis filed a workmen's compensation claim. On May 14, 1971, Duane E. West, examiner, made a workmen's compensation award in favor of the claimants in the sum of.$17,250. From the record it appears that Kenneth Fairchild, d/b/a Kenneth Fairchild Mid-Continent Aviation, Inc., was the only respondent in the workmen's compensation action. Apparently Kenneth Fairchild Mid-Continent Aviation, Inc., never acquired workmen's compensation insurance and claimed insolvency.

On October 18, 1972, the plaintiffs filed a direct action in the district court of Wyandotte County. The petition alleged the compensation award in favor of the plaintiffs, demand upon Kenneth Fairchild Mid-Continent Aviation, Inc., and Southeastern Aviation Underwriters, Inc., and their refusal to pay. It then alleged:

'That by reason of the refusal and failure of the defendants to pay the plaintiff in accordance with the award, the entire balance of the award in the amount of $17,250.00 together with interest has become due and payable.'

On March 26, 1973, and December 7, 1973, the plaintiffs filed their first and second amended petitions respectively. The petition and the ...