Opinion
W.C. Nos. 4-447-171 4-449-330
February 18, 2004
FINAL ORDER
Terra Firma d/b/a Resource One L.L.C. (Terra), and Zurich American Insurance Company (collectively the Zurich respondents), Rocky Mountain Panel L.L.C. (RMP), Sovereign Homes of Colorado L.L.C. (Sovereign Homes), Sovereign Companies L.L.C., and Settlers Chase L.L.C., seek review of an order of Administrative Law Judge Harr (ALJ) which determined the claimant suffered a compensable injury and ordered Zurich American Insurance Company (Zurich) to provide workers' compensation benefits. We affirm.
On December 27, 1999, the claimant was injured while working as a framing carpenter for Hipolito Gonzales (Gonzales) d/b/a H G Framers (H G). At the time of the injury, H G was a subcontractor hired by RMP to install trusses at a housing project. Sovereign Homes was the general contractor on the project. Sovereign Companies L.L.C. is the parent company of Sovereign Homes and RMP.
H G procured a workers' compensation insurance policy from the Colorado Compensation Insurance Authority d/b/a Pinnacol Assurance (CCIA). The ALJ found CCIA effectively canceled the policy on November 10, 1999, for nonpayment of periodic premiums. Although the CCIA reinstated the policy in January 2000, the ALJ found the reinstated policy was void ab initio. Consequently, the ALJ determined H G was uninsured at the time of the claimant's injury.
Terra is a professional employer organization which entered into a "Subscriber Service Agreement" (Subscriber Agreement) with Sovereign Homes to provide human resource services. The Subscriber Agreement obligated Terra to provide workers' compensation coverage for Sovereign Homes employees. Terra secured workers' compensation insurance through Zurich.
The ALJ found the Subscriber Agreement created a "co-employer" relationship between Terra and Sovereign Homes. Accordingly, the ALJ determined Terra and Sovereign Homes were the claimant's statutory employers. Therefore, the ALJ held Zurich responsible for temporary disability and medical benefits awarded on account of the claimant's injury.
In an order dated January 28, 2003, we concluded the ALJ erroneously determined that the CCIA effectively canceled H G's insurance prior to the industrial injury. Therefore, we reversed the ALJ's order and held the CCIA solely liable for the injury. The CCIA filed a notice of appeal.
The Court of Appeals concluded that we erroneously considered the Zurich respondents' argument concerning cancellation of H G's insurance policy because the Zurich respondents lacked standing to raise the argument. Therefore, the court set aside our order and remanded the matter with directions that we consider the additional issues raised on review of the ALJ's order. The Court's mandate issued on June 3, 2003.
I.
The appealing parties contend the ALJ misapplied the law and argue there is insufficient evidence to support the ALJ's finding that the CCIA's reinstatement of the workers' compensation insurance policy to H G is void ab initio. We disagree.
Relying in part on an investigation report by Bart Stites (Stites), the ALJ found Gonzales was present at the time of the claimant's injury and that his attorney in fact, Robert Martinez (Martinez) was aware of the injury before January 12, 2000. The ALJ also found that on January 12, 2000, Gonzales or Martinez, contacted CCIA to request reinstatement of the policy that was canceled on November 10, 1999. The CCIA underwriter, Terry Dorchak (Dorchak) offered to reinstate the policy if Gonzales paid the back-due premium. Gonzales submitted the back payment, which was posted on January 28, 2000, and the policy was reinstated on February 1, 2000. However, at the time of the reinstatement, Dorchak was unaware of the claimant's injury. The ALJ determined that H G's failure to disclose the claimant's injury was a material misrepresentation. Therefore, the ALJ determined there was no "meeting of the minds" for the reinstatement of the policy. In addition, the ALJ relied on Hunt v. Aetna Casualty and Surety Company, 153 Colo. 584, 387 P.2d 1405 (Colo. 1963), to find that the reinstated policy was void ab initio.
A.
The appealing parties argue that the ALJ erroneously relied on Hunt v. Aetna Casualty and Surety Company, supra, as legal authority that an insurance policy procured through an insured's material misrepresentation is void ab initio. We disagree.
Initially, we reject the contention that this claim is factually distinguishable from Hunt. The plaintiff in Hunt sustained injuries in an industrial accident. Prior to the injury, the employers' workers' compensation insurance was canceled for non-payment of a periodic premium. However, the employer obtained another policy after the plaintiff's injury by calling the insurer from the hospital where the plaintiff was being treated for the industrial injury, without revealing that the injury had occurred.
Here, as in Hunt, CCIA canceled H G's workers' compensation policy for non- payment of a premium prior to the date of the claimant's injury. As in Hunt, the ALJ also found that H G obtained a reinstatement of the policy without revealing the claimant's injury.
In Hunt, the Supreme Court held there was no insurance coverage for the plaintiff's injury. The court reasoned that there was no valid contract for workers' compensation coverage backdated to the date of the claimant's injury where the employer did not disclose the existence of the claimant's injury at the time coverage was requested. Thus, Hunt stands for the proposition that a policy which purports to reinstate coverage for an undisclosed injury that occurred after the policy was canceled and prior to the date of the reinstatement is void ab initio.
B.
The appealing parties alternatively contend the reinstated policy was not void ab initio because the CCIA failed to prove it inquired about H G's losses before reinstating the policy. In support, the Zurich respondents rely on Connecticut Fire Insurance Co. v. Colorado Leasing Mining Milling, 116 P. 154, 50 Colo. 424 (1904). We reject this argument.
In State Compensation Insurance Fund v. Industrial Commission, 737 P.2d 1116, 1118 (Colo.App. 1987) [ citing Hollinger v. Mutual Benefit Life Ins. . Co., 192 Colo. 377, 560 P.2d 824, 827 (Colo. 1977)], the court held that an insured's concealment of a fact voids an insurance policy upon proof that: 1) the applicant knowingly concealed the fact; 2) the concealed fact materially affected either the acceptance of the risk or the hazard assumed by the insurer; 3) the insurer was ignorant of the concealment of fact and is not chargeable with knowledge of the fact; and 4) the insurer relied to its detriment on the concealment of the fact in issuing the policy.
Nothing in Hunt v. Aetna Casualty and Surety Company, supra; State Compensation Insurance Fund v. Industrial Commission, supra; or Hollinger v. Mutual Benefit Life Ins. . Co., supra, suggests that an insurer is also required to prove it inquired about the concealed facts. Neither are we persuaded that Connecticut Fire Insurance Co. v. Colorado Leasing Mining Milling, supra, requires such proof to establish that a policy is void ab initio.
In Connecticut Fire Insurance Co. v. Colorado Leasing Mining Milling, supra, the owner of a factory purchased fire insurance. When the building was destroyed by fire, the insurer denied coverage on grounds the insured failed to disclose several facts relative to the ownership and condition of the building. A jury entered judgment against the insurer. On appeal, the insurer alleged it was error to allow the jury to decide whether the concealed facts were material to the policy. The court concluded that there is a distinction between cases where an inquiry is made and cases where no such inquiry is made. The following language from Connecticut is pertinent:
"If an inquiry is made about a material fact and that fact is not disclosed upon such inquiry, it is very likely that the person questioned intended to withhold it; but if no inquiry is made, the intention to withhold the fact is not so plain."
The court then applied the rule that:
"[w]hen no inquiries are made, the intention of the assured becomes material, and to avoid the policy, they must find, not only that the matter was material, but also that it was intentionally and fraudulently concealed." [citations omitted] Ibid at 431.
Accordingly, the court held that because there was no inquiry by the insurer, the materiality of the concealed facts, as well as the fraudulent intent of the insured were factual issues to be resolved by the jury. However, the Connecticut court did not require the insured to prove it inquired about the concealed facts.
Further, we are unable to locate any Colorado case and the respondents cite none in which Connecticut Fire Insurance Co., is cited as authority that an insurer must prove it inquired about the facts which were concealed by the insured to establish there is no valid contract for insurance. Consequently, we are not persuaded the ALJ erred in failing to require CCIA to prove it inquired whether H G's incurred any losses between November 1999 and January 12, 2000.
Similarly, we are unpersuaded by the appealing parties' reliance on Balkind v. Telluride Mountain Title Co., 8 P.3d 581 (Colo.App. 2000). Balkind is cited in support of the contention that the CCIA cannot avoid coverage based on H G's non-disclosure because the CCIA had equal access to the information that would have led to the discovery of the claimant's injury. However, Balkind involves civil claims of fraud and negligent misrepresentation concerning land use restrictions. We perceive no indication that holding is applicable to the determination of whether CCIA is liable for workers' compensation benefits payable to the claimant under the insurance policy issued to H G. In any event, the ALJ did not find that CCIA had equal access to the information, nor does the record compel such a finding.
C.
We do agree that the Stites investigation report was not part of the record before the ALJ and the ALJ erroneously relied on the report. ( See Transcript September 8, 2000, pp. 33, 35). However, the ALJ's finding that the contract was void ab initio is supported by substantial evidence in the testimony of Martinez. Therefore, the ALJ's error in relying on the Stites investigation report was harmless. See § 8-43-310, C.R.S. 2003; A R Concrete Construction v. Lightner, 759 P.2d 831 (Colo.App. 1988) (error which is not prejudicial will be disregarded).
Martinez testified that he learned about the claimant's injury during a discussion with Gonzales in which Martinez told Gonzales why he should have workers' compensation insurance. (Vol 2; Martinez depo. p. 32). The ALJ reasonably inferred that the discussion must have occurred prior to January 12, 2000, the date Martinez contacted the CCIA about reinstatement of the policy and after the claimant's injury on December 27, 1999, since the discussion occurred at a time when H G was uninsured. Further, the ALJ's finding supports his determination that H G intentionally concealed the claimant's injury for the purpose of securing insurance on January 12, 2000.
Further, Dorchak testified that she would not have reinstated the policy had she known of the claimant's injury. (Vol. 7, Tr. September 8, 2000, p. 157). Therefore, the evidence is sufficient to support the ALJ's finding that the concealed facts constitute a material misrepresentation and the CCIA relied to its detriment on the concealed information to reinstate the coverage. Moreover, these findings support the conclusion that there was no valid contract for workers' compensation insurance backdated to December 1999. See Hunt v. Aetna Casualty and Surety Company, supra. Consequently, the ALJ correctly determined that H G was an uninsured subcontractor of Sovereign Homes at the time of the claimant's injury.
D.
However, the appealing parties contend it violates public policy, and peculiarities in the Colorado Workers' Compensation Act (Act) to allow the CCIA to avoid liability where an innocent third-party such as the claimant is affected. In support, the Zurich respondents rely on our conclusions in Goodwin v. Architectural Exteriors, Inc., W.C. No. 3-848-988 (May 30, 1989). We are not persuaded.
In Hunt v. Aetna Casualty and Surety Company, supra, the court concluded that the pertinent issue related to the law of contracts and not an interpretation of the Act. Further, the court explicitly rejected the argument that a fraudulently obtained workers' compensation policy must be enforced for the benefit of an innocent injured worker. To the contrary, the court concluded there was no insurance contract which covered the injury that could be enforced for the benefit of the innocent worker. Ibid at 407. We have no basis for ignoring the holding in Hunt. C.A.R. 35(f).
Goodwin v. Architectural Exteriors, Inc., is factually and legally distinguishable. The employer in Goodwin had a policy for workers' compensation insurance which was canceled. On November 14, 1986, a binder was issued for a new policy, conditioned upon payment of a premium as well as the payment of an arrearage on the canceled policy. Although the employer issued premium checks, a stop-payment order prevented the insurer from negotiating the checks. Under these circumstances, the insurer advised the employer that the policy would be canceled as of its inception date unless a check for the arrearage was received. No payment was received and therefore, in February 1987, the insurer notified the employer that the policy was canceled effective November 1986.
Goodwin was injured in December 1986 and the insurer denied liability. On appeal, we upheld an ALJ's determination that former § 8-54-114, C.R.S. (1986 Repl. Vol. 3B), did not allow the retroactive cancellation of an insurance policy for failure to pay a premium. Therefore, we concluded that the injury which occurred after a binder was issued for a new policy, but prior to the insurer's notice that the policy was being canceled for non-payment, was covered by the policy.
Unlike the facts presented here, Goodwin does not involve a policy procured as a result of the insured's misrepresentation of a material fact. Rather, in Goodwin the insurer sought to cancel coverage due to nonpayment of a premium under § 8-54-114. For similar reasons, we reject the appealing parties' argument based on Potomac Insurance Co. v. Industrial Commission, 744 P.2d 765 (Colo.App. 1987). In that case, the court held the insurer was bound by the acts of its agent in binding coverage without receipt of the insured's premium payment. Those circumstances are not analogous to the concealment present here.
II. A.
Because we uphold the ALJ's determination that H G was uninsured at the time of injury, we shall proceed to consider the Zurich respondents' contention that the ALJ erroneously held Terra and Sovereign Homes jointly liable for the claimant's injuries and erred in requiring Zurich to pay all workers' compensation benefits due on account of the injury. In particular, the Zurich respondents contend the workers' compensation insurance policy Terra secured with Zurich only covered employees leased by Terra to Sovereign Homes as defined by the terms of the Subscriber Agreement, and the claimant was not a leased employee. Therefore, the Zurich respondents contend Sovereign Homes is the uninsured statutory employer of the claimant. We reject these arguments.
Initially we disagree with the Zurich respondents' contention that the record is insufficient to support the ALJ's finding that Terra and Sovereign Homes were "co- employers." The ALJ's finding is supported by the testimony of Terra's owner, Kirk Kilpatrick (Kilpatrick) (Vol. 9; Tr. September 11, 2000, p. 25).
Next, we note that § 8-41-401(1)(a), C.R.S. 2003, provides that a company which contracts out part or all of its work to any subcontractor is the statutory employer of the subcontractor and the subcontractor's employees. The purpose of the statute is to prevent employers from "avoiding responsibility under the workers' compensation act by contracting out their regular business to uninsured independent contractors." Finlay v. Storage Technology Corp., 764 P.2d 62 (Colo. 1988). Under this statute, if the immediate employer is uninsured, the immediate employer becomes the claimant's co-employee who is immune from liability for the claimant's injuries, and the injured worker becomes the "employee" of the contracting employer, who is directly liable for the injury. Frohlick Crane Service, Inc., v. Mack, 510 P.2d 891 (1973) ; Herriott v. Stevenson, 172 Colo. 379, 473 P.2d 720 (1970); Stewart v. Industrial Commission, 428 P.2d 367 (1967).
On review, it is undisputed that if H G is uninsured, then Sovereign Homes is the claimant's statutory employer. Further, ALJ's finding that Terra and Sovereign Homes were co-employers supports the conclusion Terra was a co-employer of the claimant by virtue of Sovereign's status as a contracting employer.
Contrary to the Zurich respondents' further argument, the Subscriber Agreement does not preclude Terra from being the claimant's statutory employer. The Subscriber Agreement is a contract and thus, interpretation of the agreement is a question of law. See Cary v. Chevron U.S.A., Inc., 867 P.2d 117 (Colo.App. 1993).
A contract is ambiguous if "fairly susceptible" to more than one interpretation. In those circumstances, extrinsic evidence may be considered to determine intent of parties. Dorman v. Petrol Aspen Inc., 914 P.2d 909 (Colo. 1996). Furthermore, insofar as the Agreement is ambiguous, it must be construed against the drafter, which was Terra. See City of Englewood v. Commercial Union Assurance, 940 P.2d 948 (Colo.App. 1996) (ambiguous insurance policy must be construed in favor of insured and against the insurer who drafted the policy).
Section II of the Subscriber Agreement limits the term "employees" to those persons who have been accepted and approved for hire by Terra. (Vol. 6, Sovereign Homes Hearing Exhibit AAA). However, the Subscriber Agreement also contains language that Terra agreed to provide workers' compensation insurance coverage for all employees filling Sovereign Homes "job positions" shown on attached Exhibit A. Exhibit A includes the position of "laborer" and the claimant was employed as a laborer. Consequently, the Subscriber Agreement is ambiguous on the scope of Terra's obligation to provide workers' compensation coverage for Sovereign Home employees.
The Subscriber Agreement further states that:
"workers' performing services for [Sovereign Homes] not covered by this Agreement and not on Terra Firm's payroll shall not be covered by this Agreement and not on Terra Firma's payroll shall not be covered by workers' compensation insurance specified in this Agreement."
However, Ed Garnow (Garnow), the manager for Sovereign Homes, testified that in practice, ninety percent of Sovereign Homes employees began working prior to completing the formal paperwork for the leasing process. (Vol. 9, September 11, 2000, Tr. pp. 125-126).
Further, the doctrine of equitable estoppel has been applied to preclude a party from denying coverage. See State Compensation Insurance Fund v. Wangerin, 736 P.2d 1246 (Colo.App. 1986) (insurer estopped from denying coverage by acceptance of premium after knowledge of loss) ; Leland v. Travelers Indemnity Co., 712 P.2d 1060 (Colo.App. 1985). In order to obtain relief under an estoppel theory, proof is required that: 1) the party to be estopped knew the relevant facts; 2) the party to be estopped intended that its conduct be acted on or must so act that the employer had a right to believe that the conduct was so intended; 3) the employer was ignorant of the true facts; and 4) the employer detrimentally relied on the conduct of the party to be estopped. See Johnson v. Industrial Commission, 761 P.2d 1140 (Colo. 1988). The determination of whether an employer has sustained this burden of proof was a question of fact for resolution by the ALJ. See Eisnach v. Industrial Commission, 633 P.2d 502 (Colo.App. 1981); General Cable Co. v. Industrial Claim Appeals Office, 878 P.2d 118 (Colo.App. 1994). Consequently, we are bound by the ALJ's determination if supported by substantial evidence and plausible inferences drawn from the record. Section 8-43-301(8), C.R.S. 2003; F.R. Orr Construction v. Rinta, 717 P.2d 965 (Colo.App. 1985).
Garnow stated he believed the Subscriber agreement obligated Terra to accept all Sovereign employees as Terra employees and provide workers' compensation insurance for all of these employees. (Vol 4; Garnow depo. pp. 11, 35, 81, 88). In addition Garnow stated that Terra's President, Kirk Kilpatrick (Kilpatrick) assured him on several occasions that all uninsured subcontractors were covered under the workers' compensation policy with Zurich. (Vol. 9, September 11, 2000, Tr. p. 124).
Kilpatrick testified that Terra only agreed to procure workers' compensation insurance for employees leased to Sovereign Homes. (Vol 9, September 11, 2000, Tr. pp. 28, 35). However, Kilpatrick admitted Terra was aware Sovereign Homes employed framing subcontractors, and recognized that Zurich might become liable for injuries sustained by Sovereign Homes's uninsured subcontractors unless Sovereign Homes obtained proof of insurance from the subcontractors. (Vol 9, Tr. September 11, 2000, p. 37).
There is also substantial evidence in Garnow's testimony to support the ALJ's finding that Sovereign Homes entered into the Subscriber Agreement with Terra to obtain expert advice on employment and human resource matters. The ALJ also reasonably inferred that the terms of the Subscriber Agreement obligated Terra to advise Sovereign Homes of potential workers' compensation exposure for non-insured subcontractors, and that Sovereign Homes relied on Terra's expertise to assume Sovereign Homes was covered for all workers' compensation liability. (Finding of Fact 22). Because the record also supports the ALJ's finding that Terra knew Sovereign Homes was contracting out its work to potentially uninsured subcontractors, we perceive no error in the ALJ's implicit determination that Terra is estopped from denying it obtained workers' compensation coverage for all Sovereign Homes employees.
As to whether Zurich is liable for the claimant's injuries, it is well established that the insurance policy and not the liability of the insured, that measures the liability of the insurer . State Compensation Insurance Fund v. Dean, 689 P.2d 1146 (Colo.App. 1984). However, the record does not contain a copy of the workers' compensation policy issued by Zurich.
Further, a certificate of insurance is not a policy of insurance. Rather it is an informational document which cannot confer coverage and does not create any type of contractual relationship for the benefit of the certificate holder. Broderick Investment v. Strand Nordstrom et. al., 794 P.2d 264, 266 (Colo.App. 1990). This is especially true where the certificate expressly states that it is subject to the terms and conditions of the policy. See Taylor v. Kinsella, 742 F.2d 709 (1984).
The record contains a copy of a Certificate of Insurance issued by Zurich to Terra, (Vol 6, Sovereign Homes Hearing Exhibit BBB), which states that "coverage is provided for only those employees leased to but not subcontractors of: Sovereign Companies dba: Rocky Mountain Panel." However, the certificate also states that it is "subject to all the terms, exclusions and conditions of such policies" and is "issued as a matter of information only and confers no rights upon the certificate holder." Under these circumstances, we conclude the Certificate of Insurance is not dispositive of whether Zurich provided coverage for Terra's statutory employees.
More importantly the statutory language currently codified in § 8-44-102 C.R.S. 2003, provides that:
"Every contract for the insurance of compensation and benefits as provided by [the Act] or against liability therefor shall be made subject to all the provisions of said articles, and all provisions in such contract for insurance inconsistent with the provisions of said articles shall be void."
Based upon § 8-44-102. an insurance policy for the coverage of Terra's "employees" necessarily includes coverage for Terra's "employees" by virtue of statutory employment. See Oliver Construction v. Industrial Commission 680 P.2d 1308 (Colo.App. 1983); Evergreen Investment and Realty Company, 666 P.2d 166 (Colo.App. 1983) (the effect is to place the cost of coverage of statutory employees on the entity best able to spread the risk). Consequently, the ALJ did not err in holding Zurich liable for workers' compensation benefits payable to the claimant by virtue of his statutory employment with Terra and Sovereign.
We recognize that United States Fidelity Guaranty Co. v. Turkey Creek Stone Clay Gypsum Co., 227 P. 569 (1924), suggests an insurer can expressly exclude coverage for the statutory employees of a contracting employer. However, the court expressly noted that the pertinent facts in that case arose prior to the enactment of the 1919 version of the predecessor statute to § 8-44-102.
The remaining arguments have been considered and do not persuade us to reach a different result.
IT IS THEREFORE ORDERED that the ALJ's order dated November 20, 2000, is affirmed.
INDUSTRIAL CLAIM APPEALS PANEL
______________________________ Kathy E. Dean
______________________________ Dona Halsey
NOTICE
This Order is final unless an action to modify or vacate this Order is commenced in the Colorado Court of Appeals, 2 East 14th Avenue, Denver, CO 80203, by filing a petition for review with the Court, within twenty (20) days after the date this Order is mailed, pursuant to § 8-43-301(10) and § 8-43-307, C.R.S. 2003. The appealing party must serve a copy of the petition upon all other parties, including the Industrial Claim Appeals Office, which may be served by mail at 1515 Arapahoe, Tower 3, Suite 350, Denver, CO 80202.
Copies of this decision were mailed February 18, 2004 to the following parties:
Gumaro Gomez, 9280 Hooker St., Westminster, CO 80031
Hipolito Gonzales d/b/a H G Framing, 1901 Peoria St., #201, Aurora, CO 80010
AGO Builders, Inc., Anthony Osborn, 22296 County Road 150, Agate, CO 80101
Gary Hoover, General Counsel, Rocky Mountain Panel L.L.C. et al, 140 E. 19th Ave., #500, Denver, CO 80203
Kirk Kilpatrick, Terra Firma d/b/a Resource One, L.L.C., 600 Grant St., #500, Denver, CO 80203.
Legal Department, Colorado Compensation Insurance Authority d/b/a Pinnacol Assurance — Interagency Mail
Gayle Trottnow, Zurich American Insurance Company, P. O. Box 370308, Denver, CO 80237
Pepe J. Mendez, Esq., 700 Broadway, #1101, Denver, CO 80203 (For Claimant)
W. Berkeley Mann, Jr., Esq., P. O. Box 22833, Denver, CO 80222 (For Respondents Rocky Mountain Panel, L.L.C. et al)
Frank M. Cavanaugh, Esq., 1801 Broadway, #1500, Denver, CO 80202 (For Respondents Terra Firma d/b/a Resource One, L.L.C. and Zurich American Insurance Company)
Paul D. Feld, Esq. and Jennifer S. Cavel, Esq., 999 18th St., #3100, Denver, CO 80202
(For Respondent Colorado Compensation Insurance Authority d/b/a Pinnacol Assurance).
BY: A. Hurtado