Schmidt v. Trademark, Inc.
| Decision Date | 28 May 2021 |
| Docket Number | No. 122,078,122,078 |
| Citation | 493 P.3d 958 |
| Court | Kansas Court of Appeals |
| Parties | Vicki SCHMIDT, Kansas Insurance Commissioner, Appellee/Cross-appellant, v. TRADEMARK, INC., Appellant/Cross-appellee, v. Doroteo Ballin and Ballin Company, LLC, Appellees. |
William L. Townsley III and Brian E. Vanorsby, of Fleeson, Gooing, Coulson & Kitch, L.L.C., of Wichita, for appellant/cross-appellee Trademark, Inc.
John C. Nodgaard, of Arn, Mullins, Unruh, Kuhn & Wilson, LLP, of Wichita, for appellee/cross-appellant Vicki Schmidt, Kansas Insurance Commissioner.
No appearance by appellees Doroteo Ballin and Ballin Company, LLC.
Before Hill, P.J., Bruns and Schroeder, JJ.
This is an appeal of a summary judgment granted to the Workers Compensation Fund. The Fund had paid compensation to an injured worker of an insolvent subcontractor that had no workers compensation insurance. Can the Fund, in a separate lawsuit, recover those costs from the contractor that hired the subcontractor? After considering the facts, the aims and provisions of the Workers Compensation Act, and the reasoning of our Supreme Court, we hold the Fund can recover from the contractor. Thus, we affirm.
The facts are undisputed.
Trademark, Inc., a construction general contractor, hired Doroteo Ballin, a sole proprietor of Ballin Company, LLC, to work as a subcontractor on a construction job. While working on the Trademark job, Juan Medina, an employee of Ballin, fell off a ladder and was injured. He received medical treatment. Medina started a workers compensation action against Ballin, his employer, but Ballin had no workers compensation insurance to cover his injury and lacked the financial means to pay any compensation to Medina.
This lack of insurance and insolvency led Medina to implead the Kansas Workers Compensation Fund into his workers compensation case. The Fund, then, tried to bring Trademark, the general contractor into the case but did not succeed because there is no statute allowing such a procedure. In the end, the administrative law judge awarded Medina $17,432.87 as compensation for his fall. The award was made jointly against Ballin and the Fund. Pertinent to the arguments here, Trademark was not a party to the case and the ALJ made no finding that Trademark was uninsured or insolvent. This brings us to the action that led to this appeal.
In a separate lawsuit, the Fund sued Trademark seeking to recover what it had paid to Medina, along with its attorney fees. Trademark answered by arguing that the Fund had not stated a cause of action against it because Trademark was not Medina's employer as required by K.S.A. 44-532a(b). Both the Fund and Trademark moved for summary judgment. The district court ruled the Fund could recover from Trademark under K.S.A. 44-503(a) and K.S.A. 44-532a(b) but denied the Fund's request for attorney fees.
The court, after considering several sections of the Act and some caselaw, reasoned that Trademark, as the principal employer, was responsible for workers compensation benefits for its insolvent uninsured subcontractors. In other words, the court ordered Trademark to pay the Fund what the Fund had paid Medina as workers compensation benefits. Trademark appeals the judgment, and the Fund cross-appeals the denial of its claim for attorney fees.
In our analysis, we first examine several provisions of the Act and note the interchangeable concept of "employer" in the law. We then move to the statute that is the center of the controversy between the Fund and Trademark. The Fund argues the law makes Trademark responsible for the benefits it has paid. Trademark says the law does not apply to it. Finally, we will review the Supreme Court's reasoning in Workers Compensation Fund v. Silicone Distributing, Inc. , 248 Kan. 551, 809 P.2d 1199 (1991), cited by the district court, relied on by the Fund, and rejected as nonbinding by Trademark. After that, we move to the question of attorney fees raised by the Fund in its cross-appeal.
We review several aspects of our workers compensation law.
The Legislature wants the Workers Compensation Act, K.S.A. 44-501 et seq., to work. It is to be liberally construed to bring employers and employees within the provisions of the law, and the Act's provision should be applied impartially to both employers and employees in cases arising under it. K.S.A. 2020 Supp. 44-501b(a). See Fernandez v. McDonald's , 296 Kan. 472, 479-80, 292 P.3d 311 (2013). The goal is inclusion of employers and employees, not their exclusion.
The Act considers how workers are employed and paid through the various levels of the construction industry. The roles of owners, contractors, subcontractors, and workers are all recognized by various sections of the law. But the overall aim of the Act is the swift assessment and payment of workers compensation benefits to workers injured on the job. The benefits must be paid—the party that is ultimately responsible to pay can be sorted out later. We are now engaged in sorting this out.
To meet this aim of prompt payment of benefits is why a principal contractor's obligation to pay workers compensation to an injured employee of its subcontractor has been a tenet of the Kansas Workers Compensation Act since its enactment. The purpose was to prevent employers from evading liability under the Act by subcontracting out work which they have undertaken to do. Robinett v. Haskell Co. , 270 Kan. 95, 98, 12 P.3d 411 (2000). This also promotes the goal of inclusion mentioned above.
The current law that promotes the concept of swift payment of benefits makes the principal contractor liable for the benefits as if the injured worker worked for the principal:
"(a) Where any person (in this section referred to as principal) undertakes to execute any work which is a part of the principal's trade or business or which the principal has contracted to perform and contracts with any other person (in this section referred to as the contractor) for the execution by or under the contractor of the whole or any part of the work undertaken by the principal, the principal shall be liable to pay to any worker employed in the execution of the work any compensation under the workers compensation act which the principal would have been liable to pay if that worker had been immediately employed by the principal." K.S.A. 44-503.
The Act makes it clear that when you construe its provisions, references to "employer" may refer to a principal contractor rather than the employee's direct employer (the subcontractor):
"[A]nd where compensation is claimed from or proceedings are taken against the principal, then in the application of the workers compensation act, references to the principal shall be substituted for references to the employer, except that the amount of compensation shall be calculated with reference to the earnings of the worker under the employer by whom the worker is immediately employed." K.S.A. 44-503.
But this responsibility to pay benefits is a substitutionary role. The principal contractor is secondarily liable if the subcontractor fails to provide workers compensation benefits to its employees. K.S.A. 44-503(g) ; Robinett , 270 Kan. at 100, 12 P.3d 411. This means if the subcontractor cannot pay workers compensation benefits, then the contractor will.
If a contractor is forced to pay benefits in its substitutionary role, then it may seek reimbursement for what is spent. The Act provides that a principal contractor, "when sued by a worker of a subcontractor, shall have the right to implead the subcontractor." K.S.A. 44-503(e). And the Act grants the principal contractor a right to recover against the subcontractor that has been impleaded. K.S.A. 44-503(f). This means that when an injured worker of a subcontractor sues the contractor for compensation, then the contractor may bring the subcontractor into the case.
But the Act does not grant an injured worker the right to implead the principal contractor when the worker sues a subcontractor. So Medina could not have impleaded Trademark into his workers compensation action against his employer, Ballin. This is because there is a public policy that comes into play here—a prohibition against double recovery.
This policy is found in Coble v. Williams , 177 Kan. 743, 751-52, 282 P.2d 425 (1955). The Kansas Supreme Court held that the principal contractor is not a necessary or proper party in such an action, but the principal still remains contingently liable should the subcontractor be unable to pay the award. In Coble , unlike the facts here, both the principal contractor and subcontractor were solvent. The Coble court was concerned about the prospect of a double recovery. We note that all of this was before the Fund was created.
The Legislature created the Fund in 1974. An injured worker of an uninsured "employer" can receive compensation from the Fund under K.S.A. 2020 Supp. 44-532a. This is the key statute in this appeal. Subsection (a) allows injured workers to apply to the director to pay compensation:
"(a) If an employer has no insurance or has an insufficient self-insurance bond or letter of credit to secure the payment of compensation, as provided in subsection (b)(1) and (2) of K.S.A. 44-532, and amendments thereto, and such employer is financially unable to pay compensation to an injured worker as required by the workers compensation act, or such employer cannot be located and required to pay such compensation, the injured worker may apply to the director for an award of the compensation benefits, including medical compensation, to which such injured worker is entitled, to be paid from the workers compensation fund."
The statute makes the procedure for processing these claims to be like all others:
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Schmidt v. Trademark, Inc.
...an action against Trademark but that it could not recover attorney fees under K.S.A. 2020 Supp. 44-532a. Schmidt v. Trademark, Inc., 60 Kan. App. 2d 206, 221, 493 P.3d 958 (2021). On review, we consider both issues and affirm. FACTS AND PROCEDURAL BACKGROUND In December of 2016, Medina was ......