Salem: Court May Order Benefits Even When Declaratory Action Is Pending

Friday, December 29, 2023 | 0

Parties to a workers’ compensation lawsuit don’t have to wait for a judgment from a collateral court before the workers’ compensation judge can order a party to furnish benefits.

Jane Salem

This ruling came from the Tennessee Workers' Compensation Appeals Board earlier this month, and it was the latest in a series of decisions in 2023 that considered the trial court’s jurisdiction. To reach that conclusion, the board harmonized several statutes in Perez v. J&J Tovar Construction. The opinion is an important read for anyone involved in a case where coverage is disputed.

Oscar Romero Perez suffered serious injuries while working on a construction site. The immediate employer, J&J Tovar, was uninsured, so Perez turned to Homestead Construction, a contractor that hired Tovar, for benefits under its policy as the statutory employer.

Homestead’s carrier, Northstone Insurance Co., filed a declaratory judgment action in Knox County seeking to nullify the insurance contract between it and Homestead, asserting that Homestead misrepresented information on its application.

In an expedited hearing order on the record, the trial court ordered Homestead “and/or” Tovar to provide ongoing medical benefits. Tovar appealed, arguing that the judge should’ve ordered Northstone to pay the benefits.

The appeal focused solely on which party was responsible for benefits; no one disputed compensability, that Tovar was uninsured and that Homestead had a policy.

Northstone’s central contention was that the trial court’s authority to order an insurer to pay benefits was “suspended” when an insurer has filed a declaratory judgment action challenging the validity of the insurance contract.

As a threshold concern, it argued that the parties waived the issue by not asking the trial court to rule on it. The board disagreed for two reasons. First, in Perez’s trial court brief, he listed as an issue the applicability of Section 50-6-409 to argue that he was entitled to immediate benefits regardless of the outcome of the declaratory action. Second, the board reminded that a court’s subject matter jurisdiction isn’t waivable and may be raised at any time during litigation, either by a party or a court.

The board then tackled the primary question by listing the applicable portions of the statute and then explaining their interplay.

An “employer” includes its insurer under section 50-6-102(11).

Section 50-6-408(2) states that the Court of Workers’ Compensation Claims is “expressly given jurisdiction over both the employer and the insurer.” Further, Subdivision -408(3) says that an insurer “shall in all things be bound by and subject to the awards, orders, judgments[,] or decrees rendered against the insured employer, whether a formal party to the proceedings or not.”

Section 50-6-237 established the Court of Workers’ Compensation Claims to have “original and exclusive jurisdiction over all contested claims for workers’ compensation benefits.” Section 50-6-238(a)(3) lists the judges’ duties: hearing and determining claims for compensation, approving settlements and making “orders, decisions and determinations” about an employee’s eligibility and an employer’s liability for benefits.

Section 50-6-409 covers workers’ compensation insurance contracts and states in Subsection (a) that a policy cannot be issued “unless it contains an express agreement of the insurer that it will promptly pay to the person entitled to them all benefits conferred by this chapter and all installments of all compensation that may be awarded or agreed upon.” In addition, Subsection (b) states that the agreement “shall be construed to be a direct promise by the insurer to the person entitled to compensation … and may be enforced directly by that person in that person’s name[.]”

Juxtaposing these provisions, the board concluded that Northstone “conflated its statutory obligations with its legal right to challenge the validity of the insurance contract in a declaratory judgment action.”

Northstone issued an insurance policy to Homestead with effective dates covering the injury date. So unless a court of competent jurisdiction determines that the insurance contract is voidable, Northstone is subject to the jurisdiction and authority of the Court of Workers’ Compensation Claims under Sections 50-6-102(11), 50-6-408(2) and (3), and 50-6-409.

“It is therefore liable to provide any and all workers’ compensation benefits to which employee is entitled to the same extent as the employer and the statutory employer,” the board wrote.

The board rejected Northstone’s assertion that if the trial court were to order it to provide benefits, the court was, in effect, deciding the coverage dispute. It reminded that the Court of Workers’ Compensation Claims cannot decide coverage disputes, but it does have the statutory authority to order the payment of workers’ compensation benefits, and under Subdivision -408(3), an insurer is “bound by and subject to the awards, orders, judgments[,] or decrees” of the court.

The trial court’s order compelling the payment of benefits is “automatically binding” on the employer, the statutory employer and the statutory employer’s insurer, “unless and until a court voids the insurance contract,” the board wrote.

The board continued, “The trial court has not been placed in the position of resolving a coverage dispute because Northstone became subject to the provisions of Sections 50-6-408 and 50-6-409 when it issued the policy of workers’ compensation insurance to Homestead.”

Further, Northstone has the burden of proof in the declaratory judgment action, and “until that burden has been satisfied, it is an insurer subject to the jurisdiction and authority of the Court of Workers’ Compensation Claims.” If Northstone prevails in the Chancery Court, it may seek indemnification or reimbursement against Homestead and/or Tovar.

“As to the injured employee, however, the immediate employer, the statutory employer and its insurer are jointly and severally liable to provide whatever benefits are mandated by Tennessee’s Workers’ Compensation Law, and employee may pursue enforcement of the trial court’s order against any liable entity.”

The case was in the interlocutory stage, so Northstone can’t appeal the board’s decision.

Jane Salem is a staff attorney in the Tennessee Court of Workers' Compensation Claims, Nashville. This entry is republished with permission from the court's blog.