Yocum v. Phillips Petroleum Co.

• Decision Date: 14 June 1980
• Docket Number: No. 51947,51947
• Citation: 612 P.2d 649,228 Kan. 216
• Parties: Ray R. YOCUM, Plaintiff, v. PHILLIPS PETROLEUM COMPANY, Defendant.
• Court: Kansas Supreme Court

Page 649

612 P.2d 649

228 Kan. 216

Ray R. YOCUM, Plaintiff, v. PHILLIPS PETROLEUM COMPANY, Defendant.

No. 51947.

Supreme Court of Kansas.

June 14, 1980.

Syllabus by the Court

1. Where an employee asserted a claim for compensation against an employer under the Kansas Workmen's Compensation Act and a settlement agreement was obtained as a result of the employer's fraud, the employee was required to seek relief under K.S.A. 1978 Supp. 44-528 to have the settlement agreement and award set aside by the director on the ground of fraud and to have the award modified to a just amount.

2. The relief provided under K.S.A. 1978 Supp. 44-528 to set aside a workmen's compensation award because of the employer's fraud was the exclusive remedy available to the employee so as to bar the employee from maintaining a common-law action for fraud against the employer.

Lynn R. Johnson, of Schnider, Shamberg, & May, Chartered, Kansas City, argued the cause, and Mark A. Johnson, Kansas City, was with him on the brief for plaintiff.

Bill E. Fabian, of McAnany, Van Cleave, & Phillips, P.A., Kansas City, argued the cause, and J. Nick Badgerow, Kansas City, was with him on the brief for defendant.

PRAGER, Justice:

This case was originally filed in the United State District Court for the District of Kansas and comes to this court on certification from that court under authority of the Uniform Certification of Questions of Law Act (K.S.A. 1979 Supp. 60-3201 et seq.). This action was filed following a settlement agreement in a workmen's compensation proceeding. Plaintiff, Ray R. Yocum, fractured his left hip on October 16, 1974, in an accident that arose out of and in the course of his employment with defendant, Phillips Petroleum Company. Plaintiff's injury was treated by Robert M. Drisko, M.D., who was acting as an agent of the defendant. Pursuant to the workmen's compensation act, a claim was filed by the plaintiff against Phillips Petroleum Company, as employer and self-insurer.

Plaintiff was not represented by legal counsel on his claim, but did receive advice and guidance on this matter from the defendant. On September 20, 1976, plaintiff and defendant entered into a settlement agreement, final receipt, and release of liability for plaintiff's compensation claim. This agreement was based on the assumption that plaintiff had a scheduled injury under K.S.A. 1974 Supp. 44-510d and provided for a 15% permanent partial disability rating for loss of use of the left leg in accordance with Dr. Drisko's final report. This rating provided workmen's compensation to plaintiff in the amount of $2,258.42. According to plaintiff, his injury qualified him to be classified as having a general bodily disability which would have entitled plaintiff to compensation for permanent partial disability in the sum of $16,989.06. In his complaint, plaintiff alleged that he was fraudulently induced to enter into the settlement agreement as a result of his reliance on misrepresentations concerning his disability rating made by defendant through its agents and employees. Plaintiff sought actual and punitive damages for defendant's fraudulent misconduct. Plaintiff prayed for actual damages in the amount of $214,730.04 plus interest and punitive damages in the amount of $1,000,000. For the purpose of determining the question of law certified to this court, we will assume that the facts and allegations set forth in plaintiff's complaint are true. We will further assume that the remedy afforded plaintiff under K.S.A. 1978 Supp. 44-528 to have the settlement agreement and release set aside for fraud is available to plaintiff.

Defendant Phillips moved to dismiss plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on the proposition that plaintiff was provided with a remedy for his cause of action through the provisions of K.S.A. 1978 Supp. 44-528 which declared, in substance, that an award may be modified by the workers' compensation director where it has been obtained by fraud, and that this statute provided plaintiff an exclusive remedy under the Kansas Workmen's Compensation Act, thus barring a common-law action to recover damages for the fraud. Counsel submitted briefs on the motion to dismiss and, on March 21, 1979, the Honorable Earl E. O'Connor granted the motion and dismissed the action. Judge O'Connor ruled that 44-528 provided the exclusive remedy for attacking a compensation award on the basis of fraud. Plaintiff then filed a motion for reconsideration. After the hearing, Judge O'Connor again sustained the motion to dismiss but allowed time for the plaintiff to consider either appealing to the Tenth Circuit, United States Court of Appeals, or certifying the question to the Kansas Supreme Court. Plaintiff selected the latter alternative and that election has brought the parties before this court.

The question of law certified for our determination is this: Under the stipulated factual circumstances set forth above, does K.S.A. 1978 Supp. 44-528 provide the exclusive remedy available to plaintiff, so as to bar him from proceeding against his employer in a common-law action for fraud? Before considering the contentions of counsel, we should first review the applicable provisions of the Kansas Workmen's Compensation Act. K.S.A. 1978 Supp. 44-501 provided in part as follows:

"44-501. The obligation; burden of proof; defenses. If in any employment to which the workmen's compensation act applies, personal injury by accident arising out of and in the course of employment is caused to a workman, his or her employer shall be liable to pay compensation to the workman in accordance with the provisions of the workmen's compensation act. . . . Except as provided in the workmen's compensation act, no such employer, or other employee of such employer, shall be liable for any injury for which compensation is recoverable thereunder . 27 . ." (Emphasis supplied.)

K.S.A. 1978 Supp. 44-528 provided in part as follows:

"44-528. Review, modification, reinstatement or cancellation of awards. (a ) Any award or modification thereof agreed upon by the parties, whether said award provides for compensation into the future or whether it does not, may be reviewed by the director for good cause shown upon the application of the workman, employer, dependent, insurance carrier or any other interested party. . . . The director shall hear all competent evidence offered and if he shall find that the award has been obtained by fraud or under influence . . . the director may modify such award, or reinstate a prior award, upon such terms as may be just by increasing or diminishing the compensation subject to the limitations provided in the workmen's compensation act." (Emphasis supplied.)

Plaintiff contends that the above statutes are not applicable to bar his common-law action for fraud, because the injury suffered by plaintiff is not a compensable injury under the workmen's compensation act. In support of this contention, the plaintiff maintains that the defendant's fraud did not "arise out of and in the course of employment," and was intentional rather than accidental, as required by 44-501. Plaintiff argues that the injury was not a secondary injury, since it was not a natural consequence flowing from the first injury. Plaintiff further argues that 44-528 does not bar his action, because it does not specifically purport to limit a worker's common-law right to recover for fraud. Plaintiff emphasizes that he is not seeking to recover only the difference between the amount of compensation which he should have received under the proper classification and the amount which he did receive as the result of defendant's fraud. Rather, plaintiff seeks damages for the fraud which include other elements of actual damages and punitive damages in addition to the amount of workmen's compensation which he lost.

Before considering the specific question presented, it would be helpful to review prior Kansas case law on the subject of the exclusivity of remedy under the workmen's compensation act and the applicability of the provision for award modification because of fraud, as provided by 44-528. In Duncan v. Perry Packing Co., 162 Kan. 79, 174 P.2d 78 (1946), this court reviewed the purpose and origin of workmen's compensation statutes, stating as follows:

"These acts are largely the outgrowth of modern industrial life. They give recognition to a broad social obligation, in furtherance of sound public policy. The public has come to realize that in many cases an injured employee engaged in a hazardous employment will be unable to establish actionable negligence on the part of the employer, but that it is unjust to deny relief to the employee on that account. For this and similar reasons, workmen's compensation acts have shifted from the employee to the industry and indirectly to the general public certain burdens incidental to modern industrial operations (71 C.J. 242-249). Compensation is thus provided for injuries by accident arising out of and in the course of the employment, regardless of any showing of negligence on the part of the employer. On the other hand, the amount of compensation so provided is in many cases substantially less than might be secured by the injured employee in a common-law action, where the employer's negligence is established. There is thus a sort of balancing of benefits in the common interest. Some employees may receive less compensation for injuries received than they would have been able to recover in a common-law action, while many other employees will receive benefits which they otherwise would not be able to receive because of the inability to establish the employer's negligence." (p. 84, 174 P.2d p. 82.)

Other designated purposes of the workmen's compensation act include placing the burden of accidental injuries in employment upon the industries themselves, rather than upon the individual employer (Green v. Burch, 164 Kan. 348,...