Wickert: State Supreme Court Weighs In on Horizontal Immunity

Monday, August 29, 2016 | 0

Exclusive remedy protection is being handed out to non-employers like candy on Halloween by courts and legislatures across the nation, and Ohio is the latest state to join the giveaway.

Gary Wickert

On April 19, 2016, the Ohio Supreme Court ruled for the first time that on construction projects costing more than $100 million and constructed in less than six years, all contractors and subcontractors (vertically and horizontally) will enjoy the exclusive remedy protection afforded the actual employer of an injured employee. Seriously injured employees looking to hold negligent and careless employers liable for causing life-ending or life-altering injuries in Ohio will now be turned away without recourse.

Subrogated carriers seeking to place significant economic losses on the party responsible for creating them, in order to help keep the employer’s experience modifier low and hold down workers’ compensation premiums for small businesses in Ohio, will likewise be left without recourse.

In a frantic, but miscalculated, effort to ensure that all employees on a work site are covered by workers’ compensation, the Supreme Court has, with the stroke of a pen, thrown the baby out with the bathwater, leaving critically injured workers with no legal recourse, allowing the most careless companies to walk away scot-free, and saddling Ohio small businesses with the bill in the form of significantly increased workers’ compensation premiums.

In Stolz v. J & B Steel Erectors Inc., 2016 WL 1592951 (Ohio 2016), Daniel Stolz was working for Jostin Construction Inc. (“Jostin”) as a concrete finisher in January 2012 on the construction of the Horseshoe Casino in Cincinnati. He fell through the floor after the metal decking gave way and was critically injured.

Jostin was subcontracted to Messer Construction Co. (“Messer”), the general contractor on the project. After Stolz was paid workers’ compensation benefits and his medical bills were paid, he filed a third-party lawsuit in state court against Messer, and subcontractors D.A.G. Construction Co., J & B Steel Erectors Inc., Triversity Construction Co., Pendleton Construction Group and Terracon Consultants, for negligence, and sought punitive damages. Stolz, a Kentucky resident, then moved his case to the U.S. District Court for the Southern District of Ohio. The federal district court determined that Ohio law granted exclusive remedy immunity to Messer, but not to all of its subcontractors. Recognizing a potential conflict between the common pleas court and the district court, the district court asked the Ohio Supreme Court in a certified question of law to interpret the question of horizontal versus vertical immunity.

Vertical and horizontal Immunity

A complex body of inconsistent, confusing case and statutory law has developed with regard to when and against whom an employee can file a third-party lawsuit on a construction project. Naturally, an injured construction employee cannot sue his or her own employer. As in every other state, an Ohio employer providing workers’ compensation coverage to its employees is given protection from third-party lawsuits filed by its employees — immunity known as the “Exclusive Remedy Rule” (Ohio Rev. Code Ann. § 4123.74).

Vertical immunity runs from the actual employer, vertically, to the general contractor and/or owner of the project above. Horizontal immunity runs horizontally from the actual employer to other subcontractors of the general contractor or owner of a project. It prevents an employee of one subcontractor from suing another subcontractor.

Ohio Rev. Code Ann. § 4123.35

Section 4123.35(O) of the relatively new Ohio workers’ compensation statute allowed general contractors like Messer to self-insure construction projects that are scheduled for completion within six years with estimated costs of more than $100 million. These programs are either controlled by the owner of the project (known as an owner controlled insurance program or “OCIP”) or the general contractor (known as a contractor controlled insurance program or “CCIP”). Section 4123.35(O) works in concert with § 4123.74 to provide a self-insuring employer in compliance with § 4123.35 vertical immunity from lawsuits brought by one if its own employees. Section 4123.74 reads as follows:

§ 4123.74 Employer’s liability in damages.

Employers who comply with section 4123.35 of the Revised Code shall not be liable to respond in damages at common law or by statute for any injury, or occupational disease, or bodily condition, received or contracted by any employee in the course of or arising out of his employment, or for any death resulting from such injury, occupational disease, or bodily condition occurring during the period covered by such premium so paid into the state insurance fund, or during the interval the employer is a self-insuring employer, whether or not such injury, occupational disease, bodily condition, or death is compensable under this chapter. Ohio Rev. Code Ann. § 4123.74.

To better understand how these statutes work, it is important to understand the concept of an OCIP and CCIP.

Wrap-up (OCIP/CCIP) programs

OCIPs are part of a family of project-specific insurance, also known as CIPs (controlled insurance programs), or “wrap-up” insurance. Most common in large construction projects, they are sponsored by either the owner or the general contractor, with the latter being known as a CCIP. In a project without an OCIP or CCIP, all participants have their own insurance, and the owner is usually required to be made an “additional insured” on the general contractors’ policies, and the owner, the general contractor and all subcontractors being made “additional insureds” on their lower-tier subcontractors’ policies.

An OCIP, on the other hand, is an umbrella insurance program obtained by the owner for on-site risks, losses and casualties that protects most project participants, including workers’ compensation insurance. The idea is that all the vendors and contractors bid on a project, which would include liability insurance. After the bids are awarded and the contractors are selected, the considerable cost of liability insurance is backed out of each of the bids, and the owner (OCIP) or contractor (CCIP) then goes out and obtains insurance covering everybody for just the single project.

The owner or contractor sponsoring the program secures coverage for every person working on the project by way of a wrap-up agreement. It provides workers’ compensation coverage (among other coverages) to all employees of the contractors and subcontractors covering any injuries sustained during the construction project. Section 4123.35 further provides that a self-insuring general contractor is entitled to exclusive remedy protection (i.e., vertical immunity) with respect to the “employees of the contractors and subcontractors,” as if those employees were employees of the self-insuring general contractor. The statute also states that contractors and subcontractors covered by the CIP are entitled to those same protections with respect to “the contractor’s or subcontractor’s employees who are employed on the construction project.”

Stolz decision

Until the Stolz decision, horizontal subcontractors were entitled to exclusive remedy protection from lawsuits filed by their own employees. Subcontractors had to carry additional CGL coverage to address the possibility of suit by employees of other subcontractors. After Stolz, a subcontractor enrolled in a CCIP under § 4123.35(O) is for the first time entitled to “horizontal” immunity from a lawsuit brought by an injured employee of any other subcontractor working on the project. This significantly limits, and in most cases completely eliminates, the pool of tort defendants available from whom an injured employee or subrogating workers’ compensation carrier can seek a third-party recovery in tort.

Surprisingly, nearly one-third of Ohio employers self-insure. These employers pay workers’ compensation benefits directly to their injured employees and pay medical expenses directly to the health care providers. As long as an Ohio employer meets the self-insuring criteria of § 4123.35 of the Ohio statutes, and § 4123-19-03 of the Ohio Administrative Code, an employer can self-insure for workers’ compensation (Ohio Rev. Code Ann. § 4123.74). These self-insuring employers are given decision-making authority similar to that of the Bureau of Workers’ Compensation Administrator (“BWC”), and agree to abide by BWC and Industrial Commission of Ohio (“IC”) rules and regulations.

Conclusion

Stolz claimed that vertical immunity should be granted, while the defendants all claimed they should benefit from horizontal immunity. The Ohio Supreme Court felt that the unambiguous language of § 4123.35 and § 4312.74 indicated that horizontal subcontractors enrolled in a self-insured construction project plan are immune from tort claims made by the employees of other enrolled subcontractors while working on the project.

The court jumped on the “who cares about the benefits of subrogation” bandwagon by relying mostly on authority from other states that have addressed the OCIP/CCIP situation. Little thought was given and no comment was made about the devastating, unintended consequences the ruling would have on workers’ compensation premiums for Ohio’s small businesses. The rule should be that the entity that ultimately is responsible for providing workers’ compensation benefits is entitled to exclusive remedy protection, and the others are not. Providing a “lawsuit-free” safe zone on construction sites does nothing but let the guilty walk free and force the innocent to do the time.

Gary Wickert is a partner with the Matthiesen, Wickert & Lehrer law firm in Hartford, Wisconsin. This blog post is reprinted with permission.