CWS 3.0: February 22, 2012

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Law: Contingent Worker Can't Sue in Temp Death Case

One benefit companies realize by using contingent workers is the ability to avoid the impact of workers' compensation claims from contingent workers. Companies would be less likely to use contingent workers if they could be sued by them over injuries incurred on the job, despite the fact that the workers are covered by the provider's policy. A recent decision out of Texas illustrates these concerns.

In Port Elevator Brownsville v. Casados, the Texas Supreme Court decision addressed whether a contingent worker could sue a worksite employer for injuries incurred at the worksite. The temporary employee in question was assigned by a staffing firm to work at Port Elevator-Brownsville, and he was killed in an accident on that assignment. His family, which received benefits under the staffing provider’s workers’ compensation policy, sued Port Elevator and was initially awarded $2.7 million by the trial court and court of appeals. However, the Texas Supreme Court reversed those rulings.

Trade-off
The family’s lawsuit prompted an analysis of the underlying purpose of workers’ compensation laws, that it is a “trade off”: Workers trade the right to sue in exchange for specified guaranteed benefits provided under the workers’ compensation law of the state. This is often referred to as the “exclusive remedy rule.” (In some states, including Texas, personal injury claims due to gross negligence are not barred by the exclusive remedy rule. However, this case did not involve gross negligence allegations.)

Of course, each individual employee does not enter into an agreement to accept this trade off. That has been done by the state thru the adoption of the worker’s compensation law. And sometimes employees do not like the bargain that has been struck, especially when a personal injury claim might net a much bigger payout. From time to time cases are presented to the courts attempting to avoid the impact of the exclusive remedy rule.

Contingent workers have been the source of many personal injury cases challenging the exclusive remedy rule. These cases present questions such as: Who pays for injuries to a contingent worker under workers’ compensation the worksite company or the staffing provider? Can one or both be sued for the injuries outside of workers’ compensation? The Texas court was asked to examine these questions in the Port Elevator case.

Texas’ Wrinkle
This case is somewhat unique because of a wrinkle in Texas law. Most states mandate that all employers purchase workers’ comp. insurance coverage. Under Texas law, employers are allowed to opt out of workers’ compensation, but by doing so, they lose the exclusive remedy rule protections — they can be sued.

In the Port Elevator case, Port Elevator provided workers’ compensation insurance for its workforce. The policy did not specify that it covered contingent workers, nor did the codes for the regular workers for which it paid insurance premiums match the appropriate codes for the type of work being performed by the deceased contingent worker. In short, Port Elevator only paid premiums for its traditional workers. The staffing firm that employed the deceased worker provided workers’ compensation insurance, and the family of the deceased employee received benefits under that insurance policy. Port Elevator was not named as an additional insured under the workers’ compensation insurance policy of the staffing firm.

The family of the deceased staffing firm employee sued Port Elevator, claiming that because Port Elevator did not pay for workers’ compensation insurance for the deceased staffing firm employee, and since Port Elevator was not a named insured under the staffing firm’s policy, Port Elevator essentially opted out of workers’ compensation for that employee by not insuring him. Therefore, argued the family, the exclusive remedy rule should not bar the personal injury claim. The family prevailed at trial, a Texas court of appeals agreed, and the family obtained an award of $2.7 million.

The Supreme Court reversed the award. It held that Port Elevator’s workers’ compensation insurance covered all workers’ compensation liability, even though it did not pay premiums on its contingents. Why? Because Texas law prohibits “split insurance” in which the employer only covers part of the workforce. Thus, the court reasoned that the company’s coverage was complete. In other words, whatever the terms of the insurance policy might have been, Texas law would reform the policy to provide full coverage for all workers, because split coverage was not allowed by law.

Double Coverage?
This case was reported in many articles, journals and magazines, some of which suggested that a staffing employee may make a claim against the worksite employers’ workers’ compensation insurance. In this case, though, the Texas Supreme Court did not hold that the worksite customer’s insurance as primarily responsible to pay workers’ compensation benefits.

In the Port Elevator case, the staffing firm did provide insurance and that insurance paid workers’ compensation benefits. Had the staffing firm failed to provide workers’ compensation coverage, then the worksite employer’s policy likely would have had to pay those benefits. This makes sense, because the public policy of Texas, and most other states, is to assure there is workers’ compensation coverage for work-related injuries, so that the employee gets the benefit of the trade-off struck under the workers’ compensation law.

Because most states do not provide the option to opt out of workers’ compensation, the arguments in the Port Elevator case are not likely to arise again in another state in the same way. Moreover, because reputable staffing firms purchase workers’ compensation coverage for the contingent workers they lease to customers, their policies generally will be the source of benefits when a contingent worker is injured. The Port Elevator case affirms the exclusive remedy rule, prohibiting contingent workers from suing the worksite customer (borrowing employer) for personal injury.

Chuck Palmer is a partner and Douglas Selky is an attorney with the law firm Michael Best & Friedrich LLP, headquartered in Milwaukee (www.michaelbest.com). They represent employers in labor, employment and employee benefits law matters.

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