Opinion
No. 1999-CA-002783-WC.
November 22, 2000. Ordered Not For Publication by Supreme Court File No. 2000-SC-001121-WC.
Petition for Review of a Decision of the Workers' Compensation Board, Action No. WC-97-01382.
Ronald M. Sullivan, Owensboro, Brief and Oral Argument for Appellant.
T. Steven Poteat, Owensboro, Brief and Oral Argument for Appellee.
Before COMBS, JOHNSON and KNOPF, Judges.
OPINION REVERSING
Kentucky Associated General Contractors Self-Insurance Fund (AGC) has petitioned for review of an opinion of the Workers' Compensation Board rendered on October 22, 1999, that affirmed a decision by the Administrative Law Judge that ordered it to reimburse CNI for workers' compensation benefits paid by CNI to Paul F. Aldridge. Having concluded that the Board was without jurisdiction to order the reimbursement, we reverse.
The appellant Ladegast Heffner was the third-party administrator for AGC. These two appellants will be referred to as "AGC." The appellee Custard Insurance Adjustor, Inc., was the third-party administrator for CNI. These two appellees with be referred to as "CNI."
The second issue raised by AGC concerning whether the payments made by CNI were "reasonable and necessary" is moot.
The workers' compensation benefits that are the subject of the ordered reimbursement relate to a claim filed by Aldridge. On June 20, 1995, Aldridge, who was a resident of Indiana, injured his back when he fell from a bulldozer while working in the course of his employment with Sam Oxley and Company, Inc., on a bridge construction project in Daviess County, Kentucky. Oxley was an Indiana corporation that did business in numerous states, including Kentucky. CNI provided workers' compensation coverage for Oxley's Indiana operations and AGC provided similar coverage in Kentucky. It is agreed that CNI paid benefits related to Aldridge's work injury consisting of $41,333.60 in temporary disability benefits and $113,587.46 in medical expenses. CNI filed a motion with the Kentucky Department of Workers' Claims on May 22, 1998, asking that AGC be required to reimburse it for the benefits and expenses that it had paid to Aldridge and on his behalf. CNI claimed that it did not know that Oxley had "separate [w]orkers' [c]ompensation insurance coverage for contracts and work performed within the Commonwealth of Kentucky" until Aldridge filed an application for adjustment of claim with the Department on June 13, 1997. In its response to CNI's motion, AGC alleged that the Arbitrator was without "jurisdiction under the Act to decide the issue of whether CNI is entitled to any reimbursement from" AGC. CNI prevailed before the Arbitrator and AGC was ordered to reimburse CNI $154,927.06. After a hearing before an ALJ, AGC was ordered to reimburse CNI $154,921.06. This matter was then appealed to the Board which affirmed as to this issue. This petition for review followed.
The parties have been inconsistent in identifying the total amount of the claim at issue, but it is almost $155,000.00.
Since workers' compensation is a creature of statute, we must look to the Legislature's enactments to determine the extent of the Department's jurisdiction. KRS 342.325 provides:
All questions arising under this chapter, if not settled by agreement of the parties interested therein, with the approval of the arbitrator or administrative law judge, shall be determined by the arbitrator or administrative law judge except as otherwise provided in this chapter.
Thus, the question before us is whether a dispute between the employer's two insurance companies over the reimbursement of workers' compensation benefits already paid to the claimant constitutes a "question arising under" Chapter 342.
The parties disagree as to whether this Court's decision in Wolfe v. Fidelity Casualty Insurance Co. of New York, is applicable to this issue. Wolfe involved a claim before the Board by the employer that his workers' compensation insurance carrier, Fidelity and Casualty, had a duty to defend him against an employee's worker's compensation claim and that the insurance carrier owed him the costs and attorney's fees incurred in that defense. This Court in affirming the Board stated:
Ky.App., 979 S.W.2d 118 [ 979 S.W.2d 119] (1998).
Among the cases relied upon by the parties are the cases of Fruchtenicht v. United States Fidelity Guaranty Co., Ky., 451 S.W.2d 835 (1969) and Bryan v. Henderson Electric Co. , Ky.App., 566 S.W.2d 823 (1978). AGC and CNI both claim that these cases support their position. However, we note that both Fruchtenicht and Bryan concern the application of KRS 342.305 in obtaining a circuit court judgment based on a workers' compensation award. We believe these cases are distinguishable and not applicable to the case sub judice since they deal with the obtaining of a judgment in circuit court in order to enforce an award that had already been made, while the issue at hand concerns the initial jurisdiction of the Department under KRS 342.325 to make a determination concerning this dispute between two insurance companies.
[W]e are convinced that the Board was correct in its determination that the issue of whether Fidelity Casualty owed Wolfe a defense in this matter is not appropriate for resolution in the administrative process. Clearly, any coverage issue which impacts an insurer's obligation to pay compensation benefits is appropriate for the ALJ's resolution. Lawrence Coal Co. v. Boggs, 309 Ky. 646, 650-652, 218 S.W.2d 670 (1949). However, the separate contractual duties owed to the employer/insured are governed by the policy of insurance and not by any provisions of KRS Chapter 342. Interpretation of insurance contracts and the enforcement of the rights of the insured concern matters which are beyond the purview of the authority vested in the ALJ.
. . .
Wolfe further relies on the principle stated in A. Larson, The Law of Workmen's Compensation, § 92.41 (1996) (footnotes omitted):
The general rule appears to be that, when it is ancillary to the determination of the employee's rights, the compensation commission has authority to pass upon a question relating to the insurance policy, including fraud in procurement, mistake of the parties, reformation of the policy, cancellation, existence or validity of an insurance contract, coverage of the policy at the time of injury, and construction of extent of coverage. This is, of course, in harmony with the conception of compensation insurance as being something more than an independent contractual matter between insurer and insured.
However, the same treatise also states that "when the rights of the employee in a pending claim are not at stake, many commissions disavow jurisdiction and send the parties to the courts for relief." Id. § 92.42. Cases included in this subsection of Professor Larson's treatise include those where the question is "purely one between two insurers" or "when the insured and insurer have some dispute entirely between themselves about the validity or coverage of the policy or the sharing of the admitted liability." Id. See also, United States Fidelity and Guaranty Co. v. Town of West Warwick, 119 R.I. 458, 379 A.2d 924 (1977) (no board jurisdiction for resolution of contractual dispute between insurer and insured regarding reimbursement provisions of insurance contract); Shada v. Whitney, 172 Neb. 220, 109 N.W.2d 167 (1961) (question of contract interpretation outside jurisdiction of board); Delke v. Scheuren, 185 Mich. App. 326, 460 N.W.2d 324 (1990) (board without authority to decide whether insurance carrier owed employer a duty to defend in retaliatory discharge action brought before the board).
Id. at 120-21.
This Court concluded in Wolfe by referring to KRS 342.325:
Simply stated, the questions concerning Fidelity Casualty's duty to defend Wolfe, whether it breached that duty and the damages to which Wolfe is entitled, if any, are not questions "arising under" Chapter 342. The Board does not have the authority to resolve contractual matters between the insurer and employer that are totally independent of the compensability of the employee.
CNI argues that Wolfe does not support AGC's position that the Department lacks jurisdiction to require reimbursement from one insurance carrier to another. CNI contends that its reimbursement claim comes under the general rule quoted in Wolfe: "The general rule appears to be that, when it is ancillary to the determination of the employee's rights, the compensation commission has authority to pass upon a question relating to the insurance policy, including . . . mistake of the parties . . . and construction of extent of coverage." CNI argues:
To deny that the Board has the authority to order reimbursement from one carrier to another, would certainly impede and hamper an employee's rights and the express purpose of Kentucky's Workers' Compensation Act in expediting the payment of both income benefits and medical benefits to which an employee is entitled. KRS 342.735. To require a carrier in every instance, particularly when they have been named as a party, to await the outcome of the workers' compensation proceeding and then file and litigate a separate action in Circuit Court would very well have a chilling effect on employers and carriers prompt payment of benefits.
We believe United States Fidelity Guaranty Co. v. Collins, supports our application of Wolfe to the case sub judice. In Collins, the Supreme Court of Mississippi held that the state's Workmen's Compensation Commission did not have the "power to order reimbursement in a controversy between two insurers." Quoting from Section 92.40 of Larson, The Law of Workmen's Compensation, the Court stated:
231 Miss. 319, 95 So.2d 456 (1957).
"[W]hen the rights of the employee in a pending claim are not at stake, many commissions disavow jurisdiction and send the parties to the courts for relief. This may occur when the question is purely one between two insurers, one of whom alleges that he has been made to pay an undue share of an award to a claimant, the award itself not being under attack." Ocean Accident Guaranty Corp. v. United States Fidelity Guaranty Co., 63 Ariz. 352, 162 P.2d 609 (1945); Colonial Insurance Company v. Industrial Accident Commission, 29 Cal.2d 79, 172 P[.]2d 884 (1946); Employers Mutual Liability Insurance Company v. Ind. Commission, 230 Wis. 374, 284 N.W. 40 (1939); aliter, if commission's own order apportions liability, Glens Falls Indemnity Company v. Liberty Mutual Insurance Company, 202 Ga. 752, 44 S.E.2d 543 (1947).
Some of the cases denying the power of administrative reimbursement are Employers Mutual Liability Insurance Company v. Industrial Commission, supra; New Amsterdam Casualty Company v. Commercial Casualty Insurance Company, 129 Miss. 466, 222 N. Y. S. 701 (1927); State Compensation Insurance Fund v. Industrial Accident Commission, 20 Calif. 2d 264, 125 P.2d 42 (1942); State Compensation Insurance Fund v. Industrial Accident Commission, 73 Calif. 2d 248, 166 P.2d 310 (1946). See also Allen v. Raftery, 237 Mo.App. 542, 174 S.W.2d 345 (1943); Annot., 127 A.L.R. 473, 482 (1940). The reasoning adopted by these decisions is that a compensation commission is an administrative agency exercising only powers which are specifically granted to it by statute. That does not authorize a commission to try equitable and legal issues involved when a payment of money is made by one through a mistake of fact and law when such payment operates to discharge an obligation imposed upon another by statute. We think that these principles apply also to the Mississippi Workmen's Compensation Commission.
Appellee, American Casualty Company, cites in support of its position only one case which holds to the contrary: Toenberg v. Harvey, 235 Minn. 61, 49 N.W.2d 578 (1951). Although some considerations of equity, the efficient disposition of controversies, and the avoidance of multiplicity of suits are in favor of the Minnesota rule, we do not think that the Mississippi Compensation Act impliedly authorizes the Commission to effect reimbursement between insurance carriers or that it was the legislative intent. It should also be noted that the Minnesota statute referred to in the Toenberg case authorized that commission to order reimbursement to an insurer which, doubtful about its liability, makes payments under a prior commission order, and it is later determined that insurer is not liable. Perhaps a provision of that sort is desirable, but the Mississippi Act contains none. At any rate, the Minnesota Court apparently felt warranted in implying from that provision the closely related power of directing reimbursement in the absence of an express order of its commission. Hence the Mississippi Commission was correct in holding that it had no power to direct appellant, U.S.F. G., to reimburse appellee, American Casualty Company, for compensation payments erroneously made by American Casualty Company.
Id. at 463.
We believe the reasoning of the Court in Collins is sound and is applicable to Kentucky's statutory scheme. Our Legislature created an administrative agency, known as the Department of Workers' Claims, to exercise only those powers which the Legislature specifically granted to it by statute; those powers being limited to "[a]ll questions arising under" Chapter 342. We hold that a dispute between the employer's two insurance companies concerning reimbursement of a workers' compensation benefit already paid by one insurer to the claimant does not arise under Chapter 342. Thus, the Department lacked jurisdiction to order the reimbursement and the opinion of the Board is reversed.
ALL CONCUR.