Workers Compensation Fund v. Silicone Distributing, Inc.

• Decision Date: 12 April 1991
• Docket Number: No. 65312,65312
• Citation: 809 P.2d 1199,248 Kan. 551
• Parties: WORKERS COMPENSATION FUND, Appellant, v. SILICONE DISTRIBUTING, INC., Osborne Construction Company, Houston General Insurance Company, CNA Insurance Company, and Chong Sun Nedzia, Appellees.
• Court: Kansas Supreme Court

Page 1199

809 P.2d 1199

248 Kan. 551

WORKERS COMPENSATION FUND, Appellant, v. SILICONE DISTRIBUTING, INC., Osborne Construction Company Houston General Insurance Company, CNA Insurance Company, and Chong Sun Nedzia, Appellees.

No. 65312.

Supreme Court of Kansas.

April 12, 1991.

Syllabus by the Court

1. The interrelationship of K.S.A. 44-532a and K.S.A. 44-503 of the Workers Compensation Act is discussed and applied.

2. If the Workers Compensation Fund asserts a K.S.A. 44-532a(b) cause of action against an alleged principal, the references to "employer" in K.S.A. 44-532a may be substituted with references to "principal." K.S.A. 44-503(a).

3. If the Workers Compensation Fund is liable for payment of an award under K.S.A. 44-532a(a) because an immediate employer is financially unable to pay or cannot be located, the Fund shall have a cause of action against the principal or statutory employer under K.S.A. 44-532a(b).

4. The burden of exhausting remedies against all potential employers is not carried by the claimant alone. The claimant need only elect to assert a compensation claim against either the immediate or the statutory employer. If the employer from which compensation is sought is insolvent or cannot be located, the Workers Compensation Fund may be impleaded. If the Fund pays on a claim, it may assert a K.S.A. 44-532a(b) cause of action against either the insolvent or unlocated employer, or the solvent statutory employer, or both. However, the Fund may receive only one recovery.

Anne L. Baker of Davis, Wright, Unrein, Hummer & McCallister, Topeka, argued the cause, and Michael J. Unrein, of the same firm, was with her on the briefs for appellant.

John David Jurcyk, Jr. of McAnany, Van Cleave & Phillips, P.A., Lenexa, argued the cause, and Douglas M. Greenwald, of the same firm, was with him on the brief for appellees Osborne Const. Co. and CNA Ins. Co.

Steven Hornbaker of Harper, Hornbaker & Altenhofen, Chartered, Junction City, argued the cause and was on the brief for appellee Chong Sun Nedzia.

SIX, Justice:

This first impression workers compensation case examines the interrelationship of K.S.A. 44-532a and K.S.A. 44-503. The examination requires discussion and resolution of questions relating to the liability of the Workers Compensation Fund (the Fund).

The Fund appeals the district court's affirmance of the Workers Compensation Director's review awarding workers compensation benefits to the claimant, Chong Sun Nedzia. The district court held that the Fund is liable for the claimant's award under K.S.A. 44-532a. We affirm.

Our jurisdiction arises from K.S.A. 20-3017. We granted the Fund's motion to transfer the appeal from the Court of Appeals to this court.

Facts

The district court adopted 32 numbered statements of fact submitted by the Fund and 10 statements of fact stipulated to by all parties. A summary of the uncontroverted facts follows.

On March 3, 1986, claimant Nedzia was injured in the course of her employment with Silicone Distributing, Inc. (Silicone). Silicone had contracted with the Osborne Construction Company (Osborne) to perform a portion of the cleaning and repair of buildings at Fort Riley that Osborne was obligated to perform under a government contract. When the government contract was initially awarded, Osborne intended to perform all required work. However, Osborne decided to subcontract the job to Silicone because Silicone had originally bid the job at a price considerably lower than had Osborne. Osborne's purpose in subcontracting with Silicone was to allow Osborne to realize a profit on the work. Silicone had not been awarded the government contract because it was unable to provide a bond.

Under the terms of the government contract, Osborne was required to provide a certificate of workers compensation insurance evidencing that Silicone, as a subcontractor, had the required coverage. A certificate showing Houston General Insurance Company (Houston General) as Silicone's carrier was furnished to the government by Osborne. It is undisputed that Silicone was not insured by Houston General or any other insurer at the time of Nedzia's injury.

Nedzia filed a timely claim for workers compensation benefits, naming as respondents her immediate employer, Silicone, and its purported insurance carrier, Houston General. Shortly thereafter, Nedzia impleaded the Fund because she believed Silicone might be uninsured or insolvent. Nedzia later, under K.S.A. 44-503, named a potential statutory employer, Osborne, and its insurance carrier, CNA Insurance Company (CNA), as additional respondents. (K.S.A. 44-503 refers to "principal." The terms "statutory employer" and "principal" have been used in our opinions. The terms refer to the same employer.)

In August 1987, Osborne moved for dismissal on the grounds that a claimant may not proceed against both the claimant's immediate employer and the claimant's statutory employer, citing Coble v. Williams, 177 Kan. 743, 282 P.2d 425 (1955). In response to Osborne's motion, Nedzia moved to dismiss Osborne and CNA without prejudice. Nedzia's motion was granted in September 1987.

Between September 1987 and the date the Fund filed its petition for judicial review in the district court, neither Osborne nor CNA were parties to this proceeding.

The administrative law judge (ALJ) awarded Nedzia workers compensation benefits to be paid by Silicone. Silicone did not participate in the proceedings. The ALJ found that attempts to include Silicone and recover payment appeared to be unsuccessful and that Silicone had no insurance. Because Osborne had been dismissed, the ALJ was unable to enter an award against Osborne. The ALJ dismissed the Fund and indicated that Nedzia should pursue Osborne under K.S.A. 44-503.

Nedzia filed a motion to reinstate Osborne and CNA as parties. She also filed an application for the Director's review of the ALJ's decision. Osborne and CNA opposed the reinstatement motion, in part, on the basis that it was not timely. Nedzia's motion to reinstate Osborne and CNA has never been decided.

The Director ruled in his February 1990 order as follows: (1) The amount of the award is increased to correspond to an 87% permanent partial general bodily disability from a 75% permanent partial general bodily disability, and (2) the Fund is liable for the award under K.S.A. 44-532a.

The decision on Fund liability, which is challenged in the district court and here on appeal, was premised on the fact that Silicone did not appear at any of the compensation claim proceedings. Fund liability also was based on the ALJ's finding ("supported by the evidentiary record" and affirmed by the Director) that Silicone had no insurance coverage on the date of the accident.

The Director noted that, originally, Nedzia had named Osborne and CNA as respondents, but that "[p]ursuant to case law construing K.S.A. 44-503, the claimant chose to dismiss without prejudice the principal and proceed against the subcontractor, Silicone Distributing, Inc. and Houston General Insurance Company." The Director then cited and applied K.S.A. 44-532a, finding that Silicone was an employer without insurance who could not be located and required to pay compensation.

The Fund contended that a claim against it can only be made after the injured worker has made a claim against a principal under K.S.A. 44-503 and after that principal (or principal's insurance carrier) has been found to be unable to pay the award.

The Director responded that "[t]he answer to the contentions of the Workers' Compensation Fund is that K.S.A. 44-532a makes no additional reference to inability of the principal to pay the award." In the Director's analysis, K.S.A. 44-503 provides that the claimant may proceed directly against the principal if the claimant was injured while working for a subcontractor but, upon initiation of a compensation claim against the subcontractor, "the principal is no longer a party to the action." According to the Director, it is "only when the action is directly instituted against the principal that the statutory language referred to by the Workers' Compensation Fund that 'references to the principal shall be substituted for references to the employer' applies."

The Fund petitioned the district court for judicial review of the Director's order. In its petition, the Fund purported to name Osborne and CNA as parties even though they had been dismissed on the motion of claimant approximately 2 1/2 years earlier. The issues raised by the petition for judicial review were briefed by all named parties (including Osborne and CNA).

The district court affirmed the Director's order in all respects. The district court concluded initially "that there is insufficient evidence in the record clearly whether or not Osborne was a statutory employer." The district court rejected the Fund's contention that pursuit of a claim against Osborne (as a potential statutory employer) was a prerequisite for Fund liability under K.S.A. 44-532a.

We granted Houston General's motion to be dismissed from this appeal because the ALJ, the Director, and the district court all found that Silicone was not insured by Houston General. The Fund is not challenging the finding of Silicone's lack of insurance.

The District Court's View

The district court reasoned that workers compensation statutory provisions are to be construed liberally in favor of the claimant. Nedzia elected to proceed against Silicone and its insurance carrier and to dismiss the alleged statutory employer. The district court pointed out that this election was mandated by Coble v. Williams, 177 Kan. 743, 282 P.2d 425, and that K.S.A. 44-532a does not purport to overrule Coble. (We shall address the relationship of Coble and K.S.A. 44-532a in due course.)

The district court noted that Nedzia had waited almost four years to be compensated for her injuries. The primary purpose of the Workers Compensation Act is to expeditiously...