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Settlement of Claims Against Statutory Employers

Posted by: Steven J. Picardi
Date: October 24, 2012

In an effort to ensure that an injured worker will receive workers’ compensation benefits even when his actual employer fails to maintain workers’ compensation insurance, Section 8-41-401 provides that any person or company conducting any business by contracting out any part of its business to any subcontractor shall be liable for workers’ compensation benefits if the actual employer fails to maintain workers’ compensation coverage. Essentially, the Act makes the corporation contracting out the work the “statutory employer” of the injured worker. Statutory employer liability is not limited to construction jobs. Essentially, any employer can be held liable under § 8-41-401 if it contracts out work (even maintenance work) and the employer which employs the claimant fails to secure workers’ compensation coverage for its employees.

When an employer preforming work for another person or company fails to secure workers’ compensation coverage for its employees, the claimant usually files a claim against the claimant’s employer and any of the contractors that hired the claimant’s employer. The Court of Appeals recently held that if the claimant settles with any of the respondents, the settlement precludes an award of benefits against any of the other respondents. Read v. Industrial Claim Appeals Office, 12 CA 0253 (October 18, 2012)(not selected for official publication). In Read, the claimant was employed by A&S Heating and Air as a service technician. A retail store hired A&S to fix its swamp cooler. Read was injured while removing the swamp cooler. A&S did not have workers’ compensation coverage, so Read filed a claim against A&S and the retail store, pursuant to § 8-41-401. Read then settled the claim against the retail store, and proceeded to hearing against the employer. The Administrative Law Judge found that the retail store was claimant’s statutory employer pursuant to § 8-41-401. The Administrative Law Judge then concluded that because claimant had settled and closed his claim with the retail store, he could not pursue a claim against A&S for the same workers’ compensation benefits.

The claimant appealed the dismissal of his claim. The Court of Appeals affirmed the dismissal, holding that the statutory employer statutes contemplate that there can be only one employer liable under the Act. The Court of Appeals found that the claimant’s division-approved settlement not only closed his claim against the retail store, but it also constituted an “award.” Since there can be only one employer, the settlement with the retail store (the statutory employer) precluded any claim against the actual employer.

The Court of Appeals decision is somewhat vague, but it appears that the Court of Appeals missed the point of the argument in the appeal. The claimant argued that there was insufficient evidence for the Administrative Law Judge to find that the retail store was the statutory employer. The Court of Appeals did not consider that issue, because it concluded that only one employer can be liable under the Act, and the settlement with the retail store, therefore, ended the litigation in the claim. Implicit in the Court of Appeals decision is the assumption that the Director’s approval of the settlement with the retail store constitute a finding that the retail store was liable for benefits under the Act. This assumption is inconsistent with the language of the uniform settlement documents used in workers’ compensation claims, which include a specific denial of liability. Thus, if the settlement itself was not an admission that the retail store was liable for benefits, then the Court of Appeals holding that the claim must be dismissed against the other respondents is in error because there was no finding of liability against the retail store. If the Court of Appeals had considered the issue as phrased by the claimant – whether there was sufficient evidence to conclude that the retail store was a statutory employer – it might have found that there was not sufficient evidence to so conclude, and, therefore, might have reversed the denial of the claim against the other employers.

Because the basis for the Court of Appeals’ decision is not clear, it is equally unclear whether this case can be read to hold that a settlement with one respondent, where that respondent denies liability for the claim, is an absolute bar to liability against any other respondent in a statutory employer claim.

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