Goetz v. Aetna Cas. and Sur. Co., 82-6027

• Decision Date: 13 July 1983
• Docket Number: No. 82-6027,82-6027
• Citation: 710 F.2d 561
• Parties: Linda M. GOETZ, Ryan Craig Goetz, Robert Stephen Goetz, Plaintiffs-Appellants, v. AETNA CASUALTY AND SURETY COMPANY, Aetna Life and Casualty, and Casualty and Surety Division, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 561

710 F.2d 561

Linda M. GOETZ, Ryan Craig Goetz, Robert Stephen Goetz Plaintiffs-Appellants, v. AETNA CASUALTY AND SURETY COMPANY, Aetna Life and Casualty and Casualty and Surety Division, Defendants-Appellees.

No. 82-6027.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 6, 1983.

Decided July 13, 1983.

W. Mike McCray, Newport Beach, Cal., for plaintiffs-appellants.

John L. Endicott, Gibson, Dunn & Crutcher, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before SKOPIL, SCHROEDER, and FARRIS, Circuit Judges.

FARRIS, Circuit Judge:

Plaintiffs appeal the dismissal of their action seeking damages for defendant Aetna Casualty and Surety Company's refusal to pay and delay in paying workers' compensation benefits. The district court dismissed for lack of subject matter jurisdiction. We affirm.

FACTS

The essential facts are not disputed. Greg R. Goetz, plaintiffs' husband and father, died in a plane crash in May 1979 while working within the course and scope When Aetna failed to pay the accrued benefits claimed by plaintiffs, they filed an action with the Industrial Accident Commission. The Workers' Compensation Appeals Board held a hearing on their claim in April 1981. The Board issued an award providing that the plaintiffs were to receive workers' compensation benefits to be adjusted by and between the parties or upon further petition. Aetna thereafter paid plaintiffs $13,208.00, constituting full benefits for the 102 weeks from the date of death through May 8, 1981, less attorney's fees as provided by the award. Aetna made a subsequent payment of $308.00, constituting benefits for the period May 8, 1981, through May 22, 1981. Thereafter Aetna failed, prior to the filing of this action, to make the payments ordered by the Appeals Board.

of his employment. His employer filed a report with Aetna, its workers' compensation insurer, which then requested further documentation from Goetz and her children. After receiving the requested documents, Aetna still refused to pay the benefits. Aetna stated it would honor the claim only if the Goetzes agreed to discount the total by fifteen percent. Aetna sought the discount as reimbursement for the cost of retaining subrogation counsel to intervene in the Goetzes' action against American Airlines and McDonnell Douglas for negligently having caused the death of the insured. The Goetzes refused.

In September 1981 the Goetzes filed a complaint in the district court alleging that Aetna's conduct in delaying and refusing to pay workers' compensation benefits due them violated Section 790.03(h) of the California Insurance Code. In October 1982 the district court granted Aetna's motion to dismiss on the ground that the court lacked jurisdiction over the subject matter of the action. It ruled that California law vested exclusive jurisdiction of the dispute in the Appeals Board.

ISSUES

The Goetzes contend, first, that the California workers' compensation scheme violates the equal protection clause of the fourteenth amendment; second, that the facts alleged here fall within a judicially created exception to the statutory exclusivity scheme; and third, that the dual capacity doctrine should be applied to this case in order to allow the Goetzes to prosecute their action in the district court.

STANDARD OF REVIEW

Review of the federal constitutional issue is de novo. As to the second and third issues, however, we do not disturb a district court's rulings on the law of the state in which it sits unless they are "clearly wrong." Airlift International, Inc. v. McDonnell Douglas Corporation, 685 F.2d 267, 269 (9th Cir.1982).

ANALYSIS

Equal Protection

The California workers' compensation law establishes an exclusive system of compensation in all but certain designated employments for injuries which result in disability or death to employees and which arise out of and in the course of their employment. Cal. Labor Code Sec. 3200 et seq. The right to compensation is incident to the status of employment and arises regardless of fault. Employees and their dependents give up their common law right to sue the employer in exchange for the right to workers' compensation benefits.

Section 3700 requires employers to acquire workers' compensation insurance or a certificate of self-insurance. Section 3850 deems a workers' compensation insurer the alter ego of the employer. Thus, the exclusive remedy provision normally bars suit by an employee against his or her employer's insurer as a third party. Unruh v. Truck Insurance Exchange, 7 Cal.3d 616, 623-29, 498 P.2d 1063, 102 Cal.Rptr. 815 (1972). However, this rule is subject to a judicially created exception when the insurer becomes a "person other than the employer" within the meaning of section 3852 through its independent commission of an intentional tort. Id. at 629-32, 498 P.2d 1063, 102 Cal.Rptr. 815.

In addition, section 5814 authorizes the award of a ten-percent penalty when payment of compensation has been unreasonably delayed or refused.

The constitutionality of the substitution of an exclusive remedy in workers' compensation benefits for the common-law right to sue an employer--the foundation of virtually all workers' compensation schemes--has long been settled. See, e.g., Lower Vein Coal Company v. Industrial Board, 255 U.S. 144, 41 S.Ct. 252, 65 L.Ed. 555 (1921); New York Central Railroad v. White, 243 U.S. 188, 37 S.Ct. 247, 61 L.Ed. 667 (1917); Nelson v. Metalclad Insulation Corp., 44 Cal.App.3d 474, 118 Cal.Rptr. 725 (1975). Moreover, as a general rule, a legislature may abolish common law rights without implicating individual constitutional guarantees when acting in pursuit of legitimate state ends. Duke Power Company v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 88 n. 32, 98 S.Ct. 2620, 2638 n. 32, 57 L.Ed.2d 595 (1978); Morris v. Hotel Riviera, Inc., 704 F.2d 1113, 1114 (9th Cir.1983). To satisfy the equal protection clause, classifications embedded in economic legislation need only "bear some rational relationship to a legitimate state end." McDonald v. Board of Election Commissioners, 394 U.S. 802, 808-09, 89 S.Ct. 1404, 1408, 22 L.Ed.2d 739 (1969); see New Orleans v. Dukes, 427 U.S. 297, 303, 96 S.Ct. 2513, 2516, 49 L.Ed.2d 511 (1976) (per curiam); McGowan v. Maryland, 366 U.S. 420, 81 S.Ct. 1101, 6 L.Ed.2d 393 (1961). The California statute at issue meets that threshold.

The Goetzes argue, however, that in light of the high interest rates which have prevailed for the last several years, the exclusivity provision now fails this constitutional standard because the ten-percent penalty which section 5814 authorizes the Board to add to an award when an insurer has unreasonably delayed or refused payment is inadequate to fulfill its purpose to compel employers promptly and fairly to deal with claims. Thus, they contend, the class of insurance beneficiaries created by the workers' compensation statute is effectively denied the protection of the remedy created by the Unfair Practices Act, Cal.Ins.Code Sec. 790 et seq., which the California Supreme Court has held to subject insurers to a civil action for damages for enumerated unfair practices. See Royal Globe Insurance Company v. Superior Court, 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329 (1979). We recognize the problem but it requires a legislative solution.

The Goetzes' equal protection argument challenges not classifications apparent from the face of a statute but categories which result from the differing reaches of the workers' compensation and unfair practices laws. While the challenge is unusual, we do not reject it for this reason. A statute does not escape equal protection scrutiny simply because it does not expressly effect the objectionable variation. See Logan v. Zimmerman Brush Company, 455 U.S. 422, 438-39, 102 S.Ct. 1148, 1159, 71 L.Ed.2d 265 (1982) (separate opinion of Blackmun, J.); Id. at 443-44, 102 S.Ct. 1161-62 (Powell, J., concurring in the judgment). The California workers' compensation law does not arbitrarily deprive claimants of their rights, however. The remedy provided by section 5814 of the Labor Code may not be as effective as that provided by section 790.03 of the Insurance Code, but this is merely an aspect of the exclusivity trade-off underlying the workers' compensation statute. The respective legislative classifications reasonably relate to the legitimate state ends underlying the workers' compensation and unfair practices statutes. Since they "advance[ ] legitimate legislative goals in a rational fashion," Schweiker v. Wilson, 450 U.S. 221, 234, 101 S.Ct. 1074, 1082, 67 L.Ed.2d 186 (1981), they do not offend equal protection.

The Unruh Exception to Statutory Exclusivity

In Unruh, the California Supreme Court recognized an exception to the exclusive jurisdiction established by statute where an employer's insurance carrier intentionally engages in outrageous and extreme conduct which cannot be justified by the needs of normal investigation or defense of claims. 7 Cal.3d at 629-31, 498 P.2d 1063, 102 Cal.Rptr. 815. Under such circumstances, the insurer acts as a "person other than the employer" and thereby loses the immunity otherwise conferred upon it as the employer's alter ego. Thus, it is liable to an aggrieved employee for its intentional torts and those of its agents.

The Goetzes contend that the facts they allege bring this suit within the Unruh exception. Therefore, they reason, they may avail themselves of the civil damages remedy under section 790.03(h) of the Insurance Code recognized in Royal Globe.

Plaintiff in Unruh alleged that the insurer's investigator had made romantic overtures to her for the sole purpose of arranging dates during which his colleague could surreptitiously film the plaintiff performing acts beyond her normal physical capabilities. 7 Cal.3d at 620-21, 498 P.2d 1063, 102...