Smith v. Liberty Mut. Ins. Co.

Decision Date03 March 1976
Docket NumberNo. C-74-262-D.,C-74-262-D.
CourtU.S. District Court — Middle District of North Carolina
PartiesSusan Jacobs SMITH, Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant.

E. K. Powe, J. G. Billings, and Charles R. Holton, Durham, N. C., for plaintiff.

James L. Newsom, E. C. Bryson, Jr., and James M. Tatum, Jr., Durham, N. C., for defendant.


GORDON, Chief Judge.

The plaintiff Susan Jacobs Smith asserts that she was seriously injured in June, 1973, while working as an employee in a textile plant owned and operated by Collins and Aikman Corporation. She alleges the following:

(1) that her hair was caught in a drive-shaft of a loom and that the rotation of the shaft pulled the hair from her head inflicting serious and grievous injuries;
(2) that the defendant Liberty Mutual Insurance Company, the workmen's compensation carrier for Collins and Aikman, undertook or should have undertaken safety inspections of the plant in which she worked;
(3) that the uncovered drive-shaft was hazardous and unsafe; and
(4) that Liberty Mutual was negligent in that it failed in its duty to see that this hazardous and unsafe working condition was corrected.

She, therefore, seeks recovery of compensatory damages, the costs she has incurred in bringing this action, and such other relief as the Court may deem just and proper.

The defendant Liberty Mutual asserted six defenses in its answer to plaintiff Smith's complaint. One of the defenses (the third defense) challenged the plaintiff's interpretation of the North Carolina Workmen's Compensation Act. The plaintiff moved, in timely fashion, to have the Court strike that defense, and the defendant, in turn, moved for summary judgment in its favor on the basis that the defense in question barred the plaintiff from recovery as a matter of law. Briefs were filed to support the contentions of the parties, and a hearing was held in order to permit counsel to further state their positions on the matter.

The question at issue is relatively simple to set forth but, for all its simplicity, is difficult to resolve. Under the provisions of the North Carolina Workmen's Compensation Act, is a workmen's compensation insurance carrier to be considered as an "employer" or a "third party" for the purpose of deciding whether recovery can be had under common law against the carrier by an injured worker?

This question in a similar context first appeared in the 1960 New Hampshire case of Smith v. American Employers' Insurance Co., 102 N.H. 530, 163 A.2d 564 (1960).1 Although this issue has been the focus of opinions in many jurisdictions during the intervening decade and a half, the present case is one of first impression here in North Carolina. Since the provisions of workmen's compensation statutes vary considerably from state to state, it is necessary to consider the specific terms of the North Carolina act. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

The North Carolina Workmen's Compensation Act is set forth in Chapter 97 of the state's General Statutes. Like similar statutes in sister states, North Carolina's act is designed to provide for the clear and certain resolution of claims of employees against their employers when an employee is injured in the course of employment. The act serves to provide ready compensation for injured employees and to limit the possible liability faced by employers. Barnhardt v. Yellow Cab Company, 266 N.C. 419, 146 S.E.2d 479 (1966). The act is designed to replace common law rights of action by injured employees against their employers. Branham v. Denny Roll and Panel Co., 223 N.C. 233, 25 S.E.2d 865 (1943). The courts of North Carolina have consistently held that the provisions of the act must be liberally construed to achieve its purpose to provide compensation for injured employees or their dependents, and, to that end, the courts have insisted that its benefits should not be denied by a technical or narrow construction of the language of the statute. Hollman v. City of Raleigh, 273 N.C. 240, 159 S.E.2d 874 (1968); Keller v. Electric Wiring Co., 259 N.C. 222, 130 S.E.2d 342 (1963); West v. J. P. Stevens Co., 12 N.C.App. 456, 183 S.E.2d 876 (1971).

There are various sections of Chapter 97 which the parties assert are relevant and material to the question under consideration. They are as follows in the order of their appearance in the statute and as worded at the time of the events under consideration:

"§ 97-2. Definitions. — When used in this Article, unless the context otherwise requires . . ..
"(3) Employer. — The term "employer" means the State and all political subdivisions thereof, all public and quasi-public corporations therein, every person carrying on any employment and the legal representative of a deceased person or the receiver or trustee of any person. The board of commissioners of each county of the State, for the purposes of this law, shall be considered as "employer" of all deputy sheriffs serving within such county, or persons serving or performing the duties of a deputy sheriff, whether such persons are appointed by the sheriff or by the board of commissioners and whether serving on a fee basis or salary basis. Each county is authorized to insure its compensation liability for deputy sheriffs to the same extent it is authorized to insure other compensation liability for employees thereof: Provided, that the last two sentences herein shall not apply to Alleghany, Avery, Bladen, Carteret, Cherokee, Gates, Hyde, Macon, Pender, Perquimans, Union, Watauga and Wilkes Counties. . . .
"(7) Carrier. — The term "carrier" or "insurer" means any person or fund authorized under G.S. 97-93 to insure under this Article, and includes self-insurers.
"§ 97-9. Employer to secure payment of compensation. — Every employer who accepts the compensation provisions of this Article shall secure the payment of compensation to his employees in the manner hereinafter provided; and while such security remains in force, he or those conducting his business shall only be liable to any employee who elects to come under this Article for personal injury or death by accident to the extent and in the manner herein specified.
"§ 97-10.1. Other rights and remedies against employer excluded. — If the employee and the employer are subject to and have complied with the provisions of this Article, then the rights and remedies herein granted to the employee, his dependents, next of kin, or personal representative shall exclude all other rights and remedies of the employee, his dependents, next of kin, or representative as against the employer at common law or otherwise on account of such injury or death.
"§ 97-10.2. Rights under Article not affected by liability of third party; rights and remedies against third parties. (a) The right to compensation and other benefits under this Article for disability, disfigurement, or death shall not be affected by the fact that the injury or death was caused under circumstances creating a liability in some person other than the employer to pay damages therefor, such person hereinafter being referred to as the `third party.' The respective rights and interests of the employee-beneficiary under this Article, the employer, and the employer's insurance carrier, if any, in respect of the common-law cause of action against such third party and the damages recovered shall be as set forth in this section.
"(b) The employee, or his personal representative if he be dead, shall have the exclusive right to proceed to enforce the liability of the third party by appropriate proceedings . . . .
"(f)(1) If the employer has filed a written admission of liability for benefits under this Chapter with, or if an award final in nature in favor of the employee has been entered by, the Industrial Commission, then any amount obtained by any person by settlement with, judgment against, or otherwise from the third party by reason of such injury or death shall be disbursed by order of the Industrial Commission for the following purposes and in the following order of priority: . . .
"c. Third to the reimbursement of the employer for all benefits by way of compensation or medical treatment expense paid or to be paid by the employer under award of the Industrial Commission.
"d. Fourth to the payment of any amount remaining to the employee or his personal representative. . .
"(g) The insurance carrier affording coverage to the employer under this Chapter shall be subrogated to all rights and liabilities of the employer hereunder but this shall not be construed as conferring any other or further rights upon such insurance carrier than those herein conferred upon the employer, anything in the policy of insurance to the contrary notwithstanding. . . .
"§ 97-93. Employers required to carry insurance or prove financial ability to pay for benefits. — Every employer who accepts the provisions of this Article relative to the payment of compensation shall insure and keep insured his liability thereunder in any authorized corporation, association, organization, or in any mutual insurance association formed by a group of employers so authorized, or shall furnish to the Industrial Commission satisfactory proof of his financial ability to pay direct the compensation in the amount and manner and when due, as provided for in this Article. In the latter case the Commission may require the deposit of any acceptable security, indemnity or bond to secure the payment of the compensation liabilities as they are incurred.
§ 97-94. Employers required to give proof within 30 days that they have complied with preceding section; fine for not keeping liability insured; review; liability for compensation; failure to secure payment of compensation a misdemeanor. (a) Every employer accepting the compensation provisions of this Article shall, within 30 days, after this Article takes effect, file with the Commission, in form

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