Exclusive Remedy of Workers’ Compensation

General Buys Workers’ Compensation Insurance for Sub-Contractor

It is axiomatic, applied universally, that recovery of workers’ compensation benefits is the exclusive remedy of an employee covered by workers’ compensation insurance coverage against the employer or an employee of the employer. The purpose of workers’ compensation law is to provide an injured worker with benefits immediately without a need to prove negligence or any other cause of the injury, just that the injury happened when working.

When an employee is seriously injured at work the benefits provided by the policy is inadequate and he will seek tort damages from people not the injured person’s employer to gain additional damages to compensate for the serious injury.

The Texas Supreme Court was asked, in TIC Energy and Chemical, Inc. v. Martin, Supreme Court of Texas — S.W.3d —-,  2016 WL 3136877 (June 3, 2016) in a personal-injury case to determine whether a subcontractor is entitled to the exclusive-remedy defense as a fellow employee of the general contractor’s employees by virtue of the general contractor’s written agreement to provide workers’ compensation insurance to the subcontractor.

THE STATUTES

Under section 406.122(b) of the Labor Code, a subcontractor is not an employee of the general contractor if the subcontractor (1) is operating as an independent contractor and (2) has agreed in writing to assume the responsibilities of an employer for the performance of the work.  However, section 406.123 of the Labor Code expressly confers statutory-employer status on general contractors who provide workers’ compensation insurance to their subcontractors pursuant to a written agreement. This case involves a written agreement that ostensibly meets the terms of both sections.

The trial court denied the subcontractor’s summary-judgment motion asserting the exclusive-remedy defense, and in a permissive interlocutory appeal, the court of appeals affirmed.

FACTUAL BACKGROUND

Union Carbide Corporation employed Kevin Martin at its facility in Seadrift, Texas. Martin lost one of his legs in a workplace accident and recovered workers’ compensation benefits through an owner-controlled insurance program (OCIP) administered by Union Carbide’s parent company, Dow Chemical Company.  Martin subsequently sued TIC Energy & Chemical, Inc., a subcontractor providing maintenance services at the Seadrift facility, alleging TIC’s employees negligently caused his injury.

TIC filed a traditional motion for summary judgment based on the Workers’ Compensation Act’s exclusive-remedy provision.  TIC claimed the statutory defense as Martin’s deemed fellow employee. TIC produced evidence of a written agreement with Union Carbide that extended workers’ compensation insurance coverage under the OCIP to TIC and its employees, with the cost of coverage premiums excluded from TIC’s bid.

In response, Martin argued the exclusive-remedy provision does not apply because TIC was an independent contractor and had entered into a written contract with Union Carbide under which TIC “assume[d] the responsibilities of an employer for the performance of work.

STATUTORY REVIEW

The Texas Workers’ Compensation Act provides reciprocal benefits to subscribing employers and their employees. Covered employees sustaining work-related injuries are guaranteed prompt payment of their medical bills and lost wages without the time, expense, and uncertainty of proving liability under common-law theories. In exchange, the Act prohibits employees from seeking common-law remedies from their employers by making workers’ compensation benefits an injured employee’s exclusive remedy. The exclusive-remedy defense extends to the employer’s servants, meaning covered employees secure additional benefits under the Act in the form of protection from personal-injury claims by co-workers. The issue in this case is the extent to which statutory benefits and protections afforded to a subscribing general contractor and its employees may be shared with subcontractors and their employees.

A general contractor who has, pursuant to a written agreement, purchased a workers’ compensation insurance policy covering its subcontractors and its subcontractors’ employees becomes the statutory employer of its subcontractor’s employees, and is thus entitled to the benefits conferred on employers by the Act.  Furthermore, because a contractor can provide workers’ compensation, even when it has not purchased the insurance directly, multiple tiers of subcontractors thereby qualify as statutory employers entitled to the exclusive-remedy defense.

Such a scheme seems consistent with the benefits offered by controlled insurance programs, which are designed to minimize the risk that the subcontractors’ employees will be left uncovered. The Supreme Court explained that a construction and application of the statute that favors blanket coverage to all workers on a site accords with legislative intent and the Legislature’s decided bias’ for coverage.

In this case, the summary-judgment record conclusively establishes that Union Carbide and TIC had an agreement complying with the statute and for purposes of this appeal, TIC does not dispute it was engaged as an independent contractor for Union Carbide under an agreement meeting the criteria specified in the statute, the matter in dispute is the legal effect the statutes have in the subcontractor relationship.

DISCUSSION

Applying well-established statutory-construction principles, the Supreme Court discerned no ambiguity in the relevant statutory provisions and construed it according to its plain language as informed by the statutory context without resorting to canons of construction and extrinsic aids.

The Workers’ Compensation Act defines the terms “employee” and “employer” in different ways depending on the context. Even acknowledging the potential for redundancy, however, that circumstance alone is too thin a reed to justify contorting the statute’s natural flow and creating disharmony in the application of the statutes in multi-tier contractor scenarios.

Affording the legal effect of the statutes dictated by plain terms and supported by the statutory structure, reciprocal-benefit scheme, and Texas precedent, the Supreme Court held that TIC is entitled to rely on the Workers’ Compensation Act’s exclusive-remedy defense as Martin’s co-employee.

ZALMA OPINION

Although we can feel for the plaintiff who lost his leg should receive the benefits of the workers’ compensation law he must take the benefits of the workers’ compensation law and by so doing must give up his right to sue his employer or fellow employees. When the general contractor buys workers’ compensation insurance for itself and all of its subcontractors all of the employees of the general and the subcontractors are covered and the exclusive remedy applies.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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