Miller v. Federated Mut. Ins. Co.

• Decision Date: 10 March 1978
• Docket Number: No. 47408,47408
• Parties: Harvey MILLER, Appellant, v. FEDERATED MUTUAL INSURANCE COMPANY, Respondent.
• Court: Minnesota Supreme Court

Page 631

264 N.W.2d 631

Harvey MILLER, Appellant, v. FEDERATED MUTUAL INSURANCE COMPANY, Respondent.

No. 47408.

Supreme Court of Minnesota.

March 10, 1978.

Syllabus by the Court

1. Consistent with the law of worker's compensation, the two employees involved in this case are properly deemed coemployees within the meaning of the insurance policy at issue.

2. Pursuant to the legislative policy embodied in Minn.St.1971, § 170.40, subd. 2, a cross-employee exclusion in an automobile liability insurance contract is operative only when both the injuring employee and the injured employee are employed by the person who is the named insured in the insurance contract.

Hansen, Dordell & Bradt and William M. Bradt, St. Paul, for appellant.

Jardine, Logan & O'Brien and Charles E. Gillin, St. Paul, for respondent.

Heard before KELLY, TODD, and SCOTT, JJ., and considered and decided by the court en banc.

TODD, Justice.

Harvey Miller, appellant, while operating a dump truck in the course of his employment with the village of Hokah, Minnesota backed into and injured Edward Von Arx. The truck was owned by Joseph Miller and loaned to the village. Von Arx was employed by S.E.M.C.A.C., under a Federally-funded program, and his services were provided at no cost to the village. Benefits based on Von Arx' temporary disability were paid to him by S.E.M.C.A.C.'s worker's compensation carrier, which in turn brought an action for subrogation against Joseph Miller and Harvey Miller. The company insuring the dump truck, respondent Federated Mutual Insurance Company, declined to defend Harvey Miller in the subrogation action, and the latter brought this action for a declaratory judgment. The trial court ruled in favor of the insurer, resting its decision on the "cross-employee exclusion" contained in the insurance policy covering the dump truck. We reverse.

The essential facts in this case are not in dispute. Edward Von Arx, a 16-year-old high school student, qualified for temporary summer employment under a Federal job program administered in his locale by S.E.M.C.A.C., a nonprofit corporation which places a number of youths in part-time positions with a variety of nonprofit agencies. The program participants are paid directly by S.E.M.C.A.C. and are covered by its worker's compensation insurance. The agency to which each youth is assigned, however, provides the day-to-day supervision of his or her work. S.E.M.C.A.C. placed Von Arx with the village of Hokah, Minnesota, as a maintenance worker. Harvey Miller was the only maintenance worker employed by the village and he became responsible for the immediate supervision of Von Arx' labors. The village provided Von Arx with whatever tools were necessary in the performance of his assigned tasks and also kept a record of his working hours.

The incident giving rise to this litigation occurred on June 28, 1974, while Harvey Miller and Von Arx were working together on a minor street repair project. In the course of operating a dump truck, Harvey Miller backed the truck into Von Arx, pinning the latter against a guardrail and injuring him. At the time of the accident, the dump truck was on loan to the village of Hokah from its owner, Joseph Miller.

As a result of the injuries he sustained, Von Arx was paid temporary disability benefits by S.E.M.C.A.C.'s worker's compensation insurer, Liberty Mutual Insurance Company. Liberty in turn became subrogated to Von Arx' rights and brought a negligence action against Joseph Miller as owner and Harvey Miller as the driver of the dump truck. The liability policy on the truck was carried by the Federated Mutual Insurance Company. Federated agreed to defend Joseph Miller as its named insured but declined to defend Harvey Miller on the ground that he was not a person insured within the terms of the policy. Harvey Miller instituted this action for a declaration of his rights under the Federated policy.

The insurance policy in question complied with the requirements of the statute in effect at the time of the accident, Minn.St.1971, § 170.40, subd. 2(2), and afforded coverage to permissive users of the insured vehicle. Although Harvey Miller was undisputedly a permissive user of the truck in this case, Federated's refusal to defend him rests on a provision of the policy which purports to exclude from coverage injuries to an employee caused by the actions of a coemployee. This standard form provision, known in the insurance industry as a "cross-employee exclusion," states:

"III. Definition of Insured: (a) * * * The insurance with respect to any person or organization other than the named insured or such spouse does not apply :

"(2) to any employee with respect to injury to * * * another employee of the same employer injured in the course of such employment in an accident arising out of the maintenance or use of the automobile in the business of such employer." (Italics supplied.)

The issues presented for determination on this appeal are thus:

(1) Whether Von Arx was "employed" by the village of Hokah and was therefore a coemployee of Harvey Miller for the purposes of the cross-employee exclusion contained in the insurance policy; and if so,

(2) Whether the cross-employee exclusion is properly applicable on the facts of this case.

The trial court found that Von Arx was an employee of the village and that under the cross-employee exclusion there was no coverage available to Harvey Miller.

1. In order for the cross-employee exclusion to be operative, Harvey Miller and Von Arx must have worked for a common employer. Harvey Miller argues that since Von Arx was originally hired and directly paid by S.E.M.C.A.C., he must be deemed to be employed by S.E.M.C.A.C. rather than the village. The trial court found otherwise, and with that portion of its decision we are in accord.

As a threshold matter, we observe that the function of the cross-employee exclusion is to eliminate potentially overlapping coverage between automobile liability and worker's compensation insurance in a single accident. See, Annotation, 45 A.L.R.3d 288, § 3. The meaning of the term "employee" in automobile insurance contracts should thus be construed in a manner consistent with the definition given that term in the law of worker's compensation. Mutual Creamery Ins. Co. v. Gaylord, 290 Minn. 47, 50, 186 N.W.2d 176, 179 (1971).

The question of who actually employs, for compensation purposes, a worker injured on the job is an issue frequently litigated in worker's compensation actions. In particular, the triangular relationship between S.E.M.C.A.C., Von Arx, and the village of Hokah is closely analogous to labor broker cases which arise under worker's compensation statutes. "Labor broker" is the term used to describe a business which hires employees and in effect sells their services to other secondary employers who are in need of temporary assistance. The broker is paid directly by these special employers, and in turn pays each of its employees a fixed wage. Problems arise, however, when a broker's employee is injured while working for a special employer. For readily apparent reasons, it is somewhat difficult to ascertain who employs the worker as between the general and special employer for the purpose of establishing compensation liability.

To resolve this difficulty, the courts of many jurisdictions have adopted the so-called "loaned-servant doctrine," which provides that when certain criteria are established, both a general and a special employer will be deemed to employ an injured worker and be liable for worker's compensation benefits. Prior to our recent decision in Danek v. Meldrum Mfg. & Engineering Co. Inc., Minn., 252 N.W.2d 255 (1977), this court did not have occasion to apply the loaned-servant rule. In that case, however, we adopted the doctrine for application to a St. Paul labor broker. The rule set forth in 1A Larson, Workmen's Compensation Law, § 48.00 was quoted as follows (252 N.W.2d 258):

" 'When a general employer lends an employee to a special employer, the special employer becomes liable for workmen's compensation only if

" '(a) the employee has made a contract of hire, express or implied, with the special employer;

" '(b) the work being done is essentially that of the special employer; and

" '(c) the special employer has the right to control the details of the work.

" 'When all three of the above conditions are satisfied in relation to both employers, both employers are liable for workmen's compensation. (Emphasis supplied.)' "

The Danek opinion makes it clear, then, that under proper conditions an employee can be said to have two employers. In the present case, S.E.M.C.A.C.' § position is strikingly similar to that of an ordinary labor broker. It hires and places employees in temporary positions and pays them directly for their services. S.E.M.C.A.C.'s only distinguishing feature is the source of its reimbursement. Were S.E.M.C.A.C. a normal labor broker, it would be paid by the village of Hokah for the services of Von Arx. Instead, a Federal grant is the source of Von Arx' wages. We do not consider this distinction material, however, and believe that Von Arx' employment falls squarely within the requirements set forth in Danek. Von Arx (a) was employed under a contract of hire; (b) performed work for the village of Hokah only; and (c) was under the constant supervision of village employees.

Appellant recognizes the logical force of the Danek opinion but argues that the contract of hire requirement of the loaned-servant doctrine is not met in this case. He reasons that because the village of Hokah made no payment for Von Arx' labors, there could not have been a contract of hire within the meaning of part (a) of the loaned-servant rule. Examining the rationale of the contract of hire language, however, we are persuaded that this contention is not well founded.

In the law of worker's compensation, a "contract of hire" is a requisite element of any...