Workers' Compensation Fund v. Wadman Corp.

• Decision Date: 24 March 2009
• Docket Number: No. 20070160.,No. 20070180.,20070160.,20070180.
• Citation: 210 P.3d 277,2009 UT 18
• Parties: WORKERS' COMPENSATION FUND and Iverson Steel and Erection Company, Plaintiffs and Appellants, v. WADMAN CORPORATION, Defendant and Appellant, v. State of Utah Department of Administrative Services, Division of Risk Management; Argonaut Insurance Co.; and Washington County School District, Defendants and Appellee.
• Court: Utah Supreme Court

210 P.3d 277

2009 UT 18

WORKERS' COMPENSATION FUND and Iverson Steel and Erection Company, Plaintiffs and Appellants, v. WADMAN CORPORATION, Defendant and Appellant, v. State of Utah Department of Administrative Services, Division of Risk Management; Argonaut Insurance Co.; and Washington County School District, Defendants and Appellee.

No. 20070160.

No. 20070180.

Supreme Court of Utah.

March 24, 2009.

Rehearing Denied June 24, 2009.

James R. Black, Dennis V. Lloyd, Salt Lake City, for appellant Workers' Compensation Fund.

Theodore E. Kanell, Russell W. Hartvigsen, Salt Lake City, for appellee.

NEHRING, Justice:

INTRODUCTION

¶ 1 In this appeal, we determine who was responsible for paying workers' compensation benefits to Corey Searle, an employee of Iverson Steel and Erection Company, who was injured while working on the Santa Clara Middle School in Santa Clara, Utah. Iverson had a subcontract with Wadman Corporation to perform the steel erection component of the construction of the Santa Clara Middle School; Wadman was the entity retained by the Washington County School District to be the general contractor on the project. Argonaut Insurance Company provided the workers' compensation coverage for the project through an Owner-Controlled Insurance Program, which we will refer to as the OCIP. After Mr. Searle was injured, Argonaut refused to pay his claims. The Workers' Compensation Fund¹ then sued the Washington County School District; the State of Utah Department of Administrative Services, Division of Risk Management; Willis of Utah, Inc.; Wadman; and Argonaut. The WCF stipulated to a dismissal of its claim against Willis. The School District, the Division of Risk Management, and Argonaut successfully moved for summary judgment. The WCF appealed. It claims that the district court erred when it concluded that the defendants were not responsible for providing coverage to Iverson that covered Mr. Searle. After the appeal was filed but before oral argument, the WCF settled with the School District and the Division of Risk Management, leaving only the WCF's claim against Argonaut to be decided. As we conclude that Mr. Searle was Wadman's statutory employee, we reverse.

BACKGROUND

¶ 2 While working on the Middle School project for the School District, Mr. Searle severely injured both legs when he fell two stories and landed on concrete. Insurance coverage for the Middle School project was controlled by the OCIP, which was initially created by the Division of Risk Management. After the OCIP's creation, each school district within Utah had the option of participating in the OCIP to help reduce construction costs. The School District chose to participate in the OCIP for the Middle School project. Argonaut was the designated workers' compensation insurance carrier for all contractors and subcontractors who enrolled in the OCIP. As part of its contract with the School District, Wadman agreed to purchase workers' compensation insurance through the OCIP. Wadman also agreed to be responsible for ensuring that all subcontractors were enrolled with the OCIP carrier, Argonaut.

¶ 3 Although Wadman initially verified that all subcontractors were properly enrolled in the OCIP, the steel erection subcontractor originally retained by Wadman fell behind schedule and Wadman replaced it with a new subcontractor, Iverson, to complete the steel erection work. Wadman rejected Iverson's initial bid for the work, but an agreement was reached after Iverson reduced its price to pass through to Wadman the savings in workers' compensation premiums that Iverson would realize because of the OCIP. After Iverson agreed to the contract, Wadman trained Iverson in the safety practices required by the OCIP, but it failed to send the OCIP enrollment form for Iverson to Willis, the insurance broker that was assigned to be the OCIP administrator. Iverson began working on the project on January 28, 2002, and Argonaut began receiving insurance premiums for the job. The WCF, Iverson's alternate insurance provider, did not receive premiums for the Middle School project. Argonaut's Senior Safety Management Consultant, J. Lemanski, later inspected the construction site for safety, but he did not comment on Iverson's enrollment status. On February 7, 2002, Mr. Searle was injured. The following day, Wadman submitted the enrollment form for Iverson to Willis. Argonaut later issued Iverson an insurance policy, but the effective date of the policy was February 8, the day after the accident.

¶ 4 Iverson submitted a claim for Mr. Searle's injury to Argonaut, which Argonaut denied. Argonaut based its denial on the fact that the enrollment form was not submitted until the day after Mr. Searle's accident. The WCF then sued Argonaut, the Division of Risk Management, the School District, Willis, and Wadman. The defendants moved to dismiss. First, they contended that the WCF did not have standing to bring its claim because it was not injured. The WCF successfully overcame the challenge to its standing by noting that it had obtained an assignment of rights from Iverson and had paid Mr. Searle's claim.

¶ 5 Following discovery, the WCF stipulated to a dismissal of its claims against Willis. The School District and the Division of Risk Management moved for summary judgment. They asserted that they could not be considered the employers or insurers of Iverson because no contractual obligation existed that required them to pay workers' compensation. Argonaut also moved for summary judgment, arguing that it did not have a responsibility to provide insurance for Mr. Searle because Wadman did not have agency authority to act for Argonaut, Iverson's employees were not loaned, the enrollment form for Iverson was not submitted until after the accident, and Wadman was not the statutory employer of Mr. Searle. Wadman opposed the other defendants' motions for summary judgment and amended its answer to include cross-claims against Argonaut, the School District, and the Division of Risk Management. The district court held a hearing on all the motions before it and granted summary judgment in favor of the School District, the Division of Risk Management, and Argonaut. It also held that the grant of summary judgment to those defendants made Wadman's cross-claims moot.

¶ 6 The WCF appealed. Wadman filed a separate appeal. The cases were assigned together for mediation. On September 7, 2007, prior to the mediation, Wadman assigned its rights to the WCF. Mediation between the WCF, the School District, the Department of Risk Management, and Argonaut was not successful. A briefing schedule was set, and the WCF timely filed a brief in which it advanced the claims of Iverson and Wadman that had been assigned to it. The WCF argued that the district court's grant of summary judgment to Argonaut, the School District, and the Division of Risk Management was in error. Prior to oral argument, the WCF stipulated to the dismissal with prejudice of its claims against the School District and the Division of Risk Management. The WCF's only remaining claim on appeal is, therefore, that the district court erred in granting summary judgment to Argonaut. The WCF advances the following arguments for requiring Argonaut to provide coverage for Mr. Searle's accident: (1) Wadman was Argonaut's agent and bound Argonaut to provide coverage, (2) Iverson's employees were loaned employees and were covered by the Alternate Employer Endorsement of the Argonaut Policy, (3) Argonaut must provide coverage because the Middle School was an OCIP project and Argonaut was an OCIP insurer, and (4) Argonaut must provide coverage because Wadman was the statutory employer of Mr. Searle and because Argonaut was bound to cover workers' compensation claims against Wadman.

STANDARD OF REVIEW

¶ 7 In order for summary judgment to be granted, there must be no issue of material fact and the moving party must be entitled to judgment as a matter of law. Utah R. Civ. P. 56(c); Bowen v. Riverton City, 656 P.2d 434, 435 (Utah 1982). The essential facts of the case regarding the terms and manner of Mr. Searle's employment are undisputed. As a result, the responsibility of Argonaut to pay compensation for Mr. Searle's accident is an issue of law that we will decide. Bennett v. Indus. Comm'n, 726 P.2d 427, 429 (Utah 1986); Whitehead v. Safway Steel Prods., Inc., 304 Md. 67, 497 A.2d 803, 806 (1985). The court has jurisdiction over this matter pursuant to Utah Code section 78A-3-102(3)(j) and gives no deference to the district court's conclusions of law, Krantz v. Holt, 819 P.2d 352, 353 (Utah 1991).

ANALYSIS

¶ 8 The purpose of the Workers' Compensation Act is to provide compensation to injured employees "by a simple and speedy procedure which eliminates the expense, delay and uncertainty" in proving fault. Wilstead v. Indus. Comm'n, 17 Utah 2d 214, 407 P.2d 692, 693 (1965); see Shupe v. Wasatch Elec. Co., 546 P.2d 896, 900 (Utah 1976) (Maughan, J., dissenting). When a dispute arises regarding workers' compensation insurance, "inferences ... constituting a worker's right to recover are liberally construed" in favor of the employee. Baker v. Indus. Comm'n, 17 Utah 2d 141, 405 P.2d 613, 614 (Utah 1965). The WCF argues that various doctrines have been created to afford employees compensation and to prevent employers from avoiding responsibility. Specifically, it argues that Argonaut should have been required to provide coverage based on the theory of agency authority, the loaned employee doctrine, the requirement that insurance contracts be interpreted in favor of the employee, and the statutory employer doctrine. We will discuss each of these theories in turn, concluding that despite shortcomings of the first three, Mr. Searle was the statutory employee of Wadman and therefore covered by its compensation carrier, Argonaut.

I. WADMAN DID NOT HAVE AGENCY AUTHORITY TO ACT FOR ARGONAUT

¶ 9 The WCF claims that Wadman acted as Argonaut's...