In Travelers Property Casualty Co. of America v. WCAB (CIGA) (Filed 9/18/19; Certified for Publication 10/2/19), the Court of Appeal for the 2nd District of California determined that in a workers’ compensation policy the absence of an employer’s signature on an endorsement to exclude Special Employees from coverage did not invalidate the coverage limitation.
In 2008, Jessie Lord Bakery, LLC (“Jessie Lord”) entered into a labor and service agreement for StaffChex to provide workers to Jessie Lord, and to cover those workers with a workers’ compensation policy that StaffChex procured from Ullico Casualty Company (“Ullico”). Jessie Lord separately maintained workers’ compensation coverage with Travelers for employees it hired. The Travelers’ policy included an endorsement excluding coverage for special employees.
In 2011, Jose Luis Mastache had been placed at Jessie Lord as a StaffChex employee when he suffered an industrial injury. As an employee of StaffChex, Mr. Mastache was provided workers’ compensation benefits initially by Ullico. Ullico filed for bankruptcy in 2013.
After Ullico’s bankruptcy CIGA began to provide benefits, then in 2015 joined Travelers and Jessie Lord as defendants in the workers’ compensation case. CIGA asserted that the contract between StaffChex and Jessie Lord created a Special-General Employer relationship in which StaffChex, the Special Employer, and Jessie Lord, the General Employer, were jointly responsible for workers’ compensation benefits. Thus, both shared responsibility for workers’ compensation benefits payable to injured Special Employees provided to Jessie Lord by StaffChex. CIGA, an unincorporated association of insurers was established to pay claims of insolvent carriers when no other insurance coverage is available. The courts have consistently held CIGA is not responsible for benefits if another carrier shares coverage for an industrial injury. Travelers responded that the policy issued to Jessie Lord was not coverage for Mastache, because it included an endorsement to exclude coverage for Special Employees.
The parties submitted the issue of coverage to arbitration. CIGA argued that Travelers was “other insurance” as defined by the Insurance Code because the endorsement excluding coverage for Special Employees was made invalid by the absence of the employer’s counter-signature. The arbitrator disagreed and ruled Travelers was not “other insurance” for the purpose of providing coverage for Mastache’s injury and that there was no joint and several liability as between Jessie Lord and StaffChex based on their labor and service agreement. The WCAB overturned the arbitrator’s decision and held that the Travelers’ endorsement was ineffective as it failed to comply with the Insurance Commissioner’s regulations in effect at the time the Travelers’ policy with Jessie Lord issued. The regulations required an endorsement excluding coverage for Special Employees to be affirmed in writing by the named employer to confirm that other insurance coverage had been obtained for its own employees. The WCAB interpreted this regulation to require a countersignature by the policy holder.
Travelers appealed the WCAB decision to the Court of Appeal. The appeals court relied upon language of the contract between Jessie Lord and StaffChex, and cited the terms of the policy between Travelers and Jessie Lord in reaching its conclusion. It held that the intent of the parties was clear and that they intended to exclude Special Employees from the Travelers’ policy. The Court determined that both the labor and service agreement and the endorsement attached to the Travelers’ policy affirmed the coverage exclusion and would be considered a “writing” as required by the regulation in effect in 2011. It found that there was no requirement in the administrative regulation that the endorsement be countersigned and there was no language in the endorsement requiring a countersignature to be valid.
The scope of the impact of this decision is open to question. Here the Court relied upon very specific language in the contracts to determine that Travelers’ endorsement was effective to bar CIGA’s claim against it as “other insurance.” The court’s opinion should impress upon employers and their attorneys the importance of the contract terms governing Special Employees and how those will integrate with the terms of any workers’ compensation policy maintained by the Special Employer.
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