Remedy Temp and What it Means to the Employer

Saturday, April 12, 2003 | 0

The "Remedy Temp" case Miceli vs. Jacuzzi, Inc.(68 CCC (2003) (En Banc), 3/28/03) issued just recently by the CA Workers' Compensation Appeals Board Revisited has caused quite a bit of controversy in the workers' compensation industry as employers, carriers and attorneys alike try to gauge its impact. The parties have promised to take the case up to the Court of Appeal for review, but in the meantime, Miceli is controlling law as to the issue of an employer's liability in a "special" vs. "general" employer situation where the general employer's carrier goes insolvent. Attorney Jake Jacobsmeyer recently analyzed the case's impact and the following are his thoughts.

The "Remedy Temp" decision itself is 11 pages of analysis justifying the W.C.A.B.'s action in determining that California Insurance Guarantee Association (CIGA) should be released from liability and finding coverage with the special employer to be "additional insurance" for purposes of Insurance Code 1063.1. The one thing that we can say with some degree of certainty is that the W.C.A.B. decision is not likely to be the final word on the matter. Even the Board anticipates this case going up to the appellate level and presumably to the California Supreme Court as evidenced by the continuation of the Order staying enforcement of the decision.

In reviewing my past comments to clients and some of the responses to it, I believe some additional discussion regarding this decision is warranted, especially as to issues that are not really discussed in the opinion and in particular the public policy discussion by the W.C.A.B. The Board, of course, emphasized the need for CIGA to be the insurer of "last resort" and much of its justification is based upon this interpretation of CIGA's position and the perceived need to protect CIGA's assets.

There are other public policy issues that weigh against releasing CIGA as well as issues in interpretation of insurance policies and insurance law that will certainly be raised in the upcoming Petition for Writ of Review to an Appellate Court. One of the issues will be a challenge to the W.C.A.B. interpretation of "other insurance" as coverage written for the special employer (Jacuzzi) that carried no premium for the employees that were specifically covered in the Reliance policy for the general employer, Remedy Temp.

That Jacuzzi was a named insured on the policy for Remedy Temp can be argued as a clear showing the policy for Jacuzzi's own employees was not intended to cover the leased employees. It will certainly be argued that the lack of inclusion of the special employees in the premium paid by Jacuzzi to AHA demonstrates specific intent to exclude them from coverage, an intent that the Board finds did not exist. Such lack of premium is unquestionably an indication that Jacuzzi's carrier (AHA) did not intent to insure for that risk. The W.C.A.B. decision barely mentions this as an issue other than to imply that Jacuzzi or AHA is attempting to evade their responsibility to provide benefits. However that responsibility had already been assumed by Reliance and paid for by both Remedy Temp (and presumably as part of the contract price by Jacuzzi) in the premium dollar to Reliance. Given there was no intent on the part of Jacuzzi or AHA to assume risk, no premium for risk and the specific intent to cover the leased employees through Reliance, the Board's implication that the Jacuzzi or AHA is attempting to evade their responsibility to provide benefits to be difficult to comprehend.

Additionally the W.C.A.B.'s position that CIGA's assets must be preserved ignores the current crisis for both insurers and employers in the workers' compensation insurance market. With the economy hitting employers very hard in their bottom line at the same time that carriers are having to significantly increase premiums to cover ever rising benefits and costs, it is equally arguable from a public policy standpoint that the State has as many, if not more, resources to address the cost of providing these benefits as does private industry. It is also arguable that regardless of the financial resources of CIGA currently, this is an issue within the control of the State of California and that the public policy is more properly served by having the State using its resources to protect injured workers, rather than cost shifting to employers who have already paid the premium once for this coverage. Indeed, it can even be hypothesized that the employer is being required to pay the premium 3 times; once to the insolvent carrier (through the contractual arrangement with Remedy Temp), once to their own carrier and finally in a surcharge to the State which intended to cover the cost of potential insolvent carriers.

The State is also able to use its considerable resources to look at those who caused the problem initially (the insolvent carriers and their owners) for recovery of as many assets as can be made available to ameliorate CIGA's financial needs, something that private employers and carriers are simply not able to do.

The W.C.A.B.'s analysis of this case is intended to support its decision and appears to give short shrift to some of the compelling arguments that have been raised and will be raised in further appeals by the employer and carrier communities. One can also wonder whether the W.C.A.B., as a state agency with its own financial issues (and looking at the rather severe financial issues addressing the Department of Worker's Compensation over the next several years), is not overly concerned with the need to protect state assets based on the Board's own perception of the difficulties that CIGA is going to face in getting funding and is trying to shift the financial burden into the private sector. In doing so the W.C.A.B ignores the potential impact this decision has on the employers and carriers who are going to be saddled with these significant additional costs.

Employers and Carriers are certainly entitled to question whether shifting these costs on their backs, at a time when their ability to meet the burden is also compromised, makes good sense from a public policy standpoint. From employers' perspective, the question of paying a surcharge for CIGA, only to have CIGA push the exposure back toward the employer for an insolvent carrier's direct exposure is a question that will have to be addressed by the Appellate Courts, or perhaps even the Legislature.

The issues in this arena are considerably more complex than one is likely to understand from the W.C.A.B.'s analysis in its decision. There will undoubtedly be extensive efforts at amicus activity in the filing before the appellate court by both employers and the insurance industry. Given the significance of this case for the industry as a whole, the likelihood of further consideration by the Court of Appeals seems high.

Attorney Jake Jacobsmeyer is a member of the firm Adelson, Testan & Brundo. He can be reached by e-mail at RichardJacobsmeyer@atblaw.net, or by phone at (925) 609-1990.