Workers’ Compensation Is Exclusive Remedy

Tort Judgment Against Employer Is Only Good for Wallpaper

The workers’ compensation system across the United States provides benefits to injured workers without regard to fault. When the injury is serious or results in death the workers’ compensation benefits do not feel sufficient to indemnify the injured worker or his or her estate for the loss incurred. As a result, the injured worker or his estate will attempt a tort action and then try to collect that judgment by means of a suit against the employer’s insurer.

Employers and employes make a bargain: the employer will not require proof of negligence if the employee is injured and the employee agrees that he or his estate will accept the statutory benefits provided by state law and give up the right to sue the employer for tort damages.

In Morales v. Zenith Ins. Co., — F.3d —-, 2015 WL 265445 (C.A.11 (Fla.) 1/22/15) the estate of an injured worker successfully sued an employer and sought to recover by means of a breach of contract claim filed by plaintiff-appellant Leticia Morales, on behalf of herself, the Estate of Santana Morales, Jr., and two minor children  against Zenith Insurance Company (“Zenith”).

FACTS

Santana Morales, Jr. was crushed to death by a palm tree while working as a landscaper for Lawns Nursery and Irrigation Designs, Inc. (“Lawns”). At the time of Morales’s death, his employer Lawns maintained a “Workers’ Compensation and Employers Liability Insurance Policy” with Zenith. The policy contained two types of coverage: (1) workers’ compensation insurance under Part I and (2) employer liability insurance under Part II. After Morales’s death, Zenith began paying workers’ compensation benefits to the Estate in accordance with its obligation under Part I of the policy.

Under Part II, Zenith was obligated: (1) to “pay all sums [Lawns] legally must pay as damages because of bodily injury to [its] employees, provided the bodily injury is covered by this Employers Liability Insurance”; and (2) to defend lawsuits for such damages. In relevant part, Part II contained an exclusion barring employer liability insurance coverage for “any obligation imposed by a workers compensation … law” (the “workers’ compensation exclusion”).

On December 3, 1999, the Estate filed a wrongful death action against Lawns in Florida circuit court and obtained a default jury award to the Estate of $9.525 million in damages against Lawns.

While the Estate’s wrongful death lawsuit was still ongoing, Zenith continued to pay workers’ compensation benefits on Lawns’s behalf until August 2003, when Zenith made a final lump sum payment of $20,000 in full settlement of the Estate’s workers’ compensation claim against Lawns. The parties entered a settlement agreement where the Estate waived all rights to any and all benefits under The Florida Workers’ Compensation Act. Further, the settlement and agreement constituted an election of remedies by the Estate with respect to the employer and the carrier as to the coverage provided to the employer.

In all, the Estate received over $100,000 in workers’ compensation benefits from Zenith, pursuant to the Florida Workers’ Compensation Act and Part I of the policy.

After Zenith refused to pay the $9.525 million tort judgment entered against Lawns, the Estate sued Zenith in Florida state court, asserting that Zenith had breached its insurance policy with Lawns. After Zenith removed the case to the Middle District of Florida, Zenith and the Estate cross-moved for summary judgment.

The district court granted Zenith summary judgment on the Estate’s breach of contract claim, ruling that the workers’ compensation exclusion in Part II of the policy barred Zenith’s coverage of the employee Estate’s $9.525 million tort judgment against the employer Lawns. Observing that Florida law provides workers’ compensation benefits as the exclusive remedy for an employee injury caused by an employer’s negligence, the district court determined that the Estate’s state court lawsuit alleging Lawns’s negligence triggered an “obligation imposed by” Florida’s Workers’ Compensation Act, and thus the judgment issued in that lawsuit fell within the policy exclusion in Part II.

APPELLATE COURT’S CERTIFIED QUESTIONS TO FLORIDA SUPREME COURT

In the first panel decision in this case, the court certified the following questions to the Florida Supreme Court:

“(1) DOES THE ESTATE HAVE STANDING TO BRING ITS BREACH OF CONTRACT CLAIM AGAINST ZENITH UNDER THE EMPLOYER LIABILITY POLICY?

“(2) IF SO, DOES THE PROVISION IN THE EMPLOYER LIABILITY POLICY WHICH EXCLUDES FROM COVERAGE “ANY OBLIGATION IMPOSED BY WORKERS’ COMPENSATION … LAW” OPERATE TO EXCLUDE COVERAGE OF THE ESTATE’S CLAIM AGAINST ZENITH FOR THE TORT JUDGMENT?

“(3) IF THE ESTATE’S CLAIM IS NOT BARRED BY THE WORKERS’ COMPENSATION EXCLUSION, DOES THE RELEASE IN THE WORKERS’ COMPENSATION SETTLEMENT AGREEMENT OTHERWISE PROHIBIT THE ESTATE’S COLLECTION OF THE TORT JUDGMENT?”

The Florida Supreme Court answered all three certified questions in the affirmative, holding that “under Florida law, the estate has standing, but that the workers’ compensation exclusion and the release prevent it from collecting the tort judgment from Zenith.” Morales v. Zenith Ins. Co., ––– So.3d ––––, 2014 WL 6836320, at *1 (Fla. Dec. 4, 2014).

As to the workers’ compensation exclusion, the Florida Supreme Court stated as follows: “[T]he estate’s tort judgment arises from an injury that plainly falls within the exclusivity of Florida’s Workers’ Compensation Law and therefore within the coverage provided by Lawns’ workers’ compensation policy. Given the mutually exclusive nature of workers’ compensation and employer liability coverages, Zenith has no obligation under the employer liability policy to pay the tort judgment.”  Accordingly, the Florida Supreme Court held that “the workers’ compensation exclusion bars coverage of the estate’s tort judgment under the employer liability policy.”

CONCLUSION

Given the Florida Supreme Court’s resolution of the certified issues, the district court correctly determined that the workers’ compensation exclusion in Part II of the policy barred Zenith’s coverage of the $9.525 million tort judgment against Lawns.

ZALMA OPINION

I can have empathy for the plaintiffs who lost a husband and father. I can imagine their joy at receiving a judgment of $9.525 million only to have that joy dashed by a bankrupt employer and the fact that workers’ compensation is an exclusive remedy.  They can frame the judgment and hang it on the wall but they can never collect it.

ZALMA-INS-CONSULT© 2015 – Barry Zalma

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. 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.

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary. The new books are Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide.

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available.

Mr. Zalma e-book, “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;” “Random Thoughts on Insurance” a collection of posts on this blog; “Zalma on Diminution in Value Damages – 2013,”“Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm.

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com.

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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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