March 20, 2001
Filed: July 9, 2001
Jeffrey L. Robinette, Esq. Arden
J. Curry, Esq.
Robinette Law Office Arden J. Curry, II, Esq.
Morgantown, West Virginia David K. Schwirian, Esq.
Attorney for Appellee Erie Insurance Pauley, Curry, Sturgeon & Vanderford
Property and Casualty Company Charleston, West Virginia
Attorneys for Appellant John Paul Harvey
Kimberly G. Mann, Esq.
Lynch, Mann, Smith & Bibb
Beckley, West Virginia
Attorney for Appellee Stage Show Pizza, JTS, Inc.
JUSTICE STARCHER delivered the Opinion of the Court.
JUSTICE ALBRIGHT concurs in part and dissents in part,
and reserves the right to file a separate opinion.
JUSTICE MAYNARD concurs in part and dissents in part, and reserves the right to file a separate opinion.
In this appeal from the Circuit Court of Raleigh County, we are asked to
examine a declaratory judgment finding that there was no liability coverage for an employee
injured at work under an employers' liability insurance policy purchased by an employer.
As set forth below, we reverse the circuit court's declaratory judgment.
On February 6, 1997, appellant
John Paul Harvey was employed by the defendant below, Stage Show Pizza, JTS,
Inc. (Stage Show Pizza),See
footnote 1 in Raleigh County, West Virginia. In the course of his employment,
appellant Harvey was involved in an accident where hot grease was spilled on
the appellant, causing him serious injuries.
The appellant subsequently sued Stage Show Pizza for common law negligence, alleging it had failed to pay workers' compensation premiums, and had therefore lost any immunity provided by West Virginia's workers' compensation laws. The appellant also alleged that in violation of West Virginia's deliberate intention statute, W.Va. Code, 23-4-2 , Stage Show Pizza had intentionally exposed the appellant to a specific unsafe working condition which violated both generally accepted industry safety standards and specific provisions of the United States Occupational Safety and Health Administration's regulations.
At the time of the appellant's injuries, Stage Show Pizza was insured under a policy issued by the appellee, Erie Insurance Property and Casualty Company (Erie). Erie had sold to Stage Show Pizza a commercial general liability insurance policy that, the parties agree, specifically excluded from coverage lawsuits filed by employees.See footnote 2 However, the policy also contained a separate employers' liability endorsement entitled Employers Liability -- Stop Gap Coverage with limits of $1,000,000 per person and per accident. Under the heading Our Promise, Erie's endorsement provides that:
We will pay for damages because of bodily injury to your employees for which the law holds you responsible and recovery is permitted by law.
On June 10, 1999, Erie filed the instant declaratory judgment action against Stage Show Pizza and appellant Harvey, seeking a declaration that Erie had no obligation to provide a defense or coverage to Stage Show Pizza for the action filed by the appellant. In support of its action, Erie argued that an exclusion in the employers' liability policy precluded coverage. That exclusion states:
We do not cover: . . . 4. any obligation for which you or any insurer may become liable under any workers' compensation, unemployment compensation, disability benefits law or similar law.
Erie subsequently filed a motion for summary judgment seeking to avoid its obligations under the policy based upon this exclusion.
In an order dated January 31, 2000, the circuit court granted Erie's motion for summary judgment. The circuit court concluded that the appellant's deliberate intention cause of action and his negligence action would be obligation[s] for which Stage Show Pizza may become liable under any workers' compensation law. Erie was therefore released from its obligations under the insurance contract with Stage Show Pizza.
The appellant now appeals the circuit court's order.
We review de novo the
circuit court's declaratory judgment order interpreting Erie's insurance policy.
We have previously stated that any circuit court's entry of a declaratory judgment
is reviewed de novo, since the principal purpose of a declaratory judgment
action is to resolve legal questions. Syllabus Point 3, Cox v. Amick,
195 W.Va. 608, 466 S.E.2d 459 (1995). Of course, when a declaratory judgment
proceeding involves the determination of an issue of fact, that issue may be
tried and determined by a judge or jury in the same manner as issues of fact
are tried and determined in other civil actions. W.Va. Code, 55-13-9
. Any determinations of fact made by the circuit court or jury in reaching
its ultimate resolution are reviewed pursuant to a clearly erroneous standard.
Cox, 195 W.Va. at 612, 466 S.E.2d at 463.
In this case we are asked to review the circuit court's interpretation of an insurance contract. In Syllabus Point 2 of Riffe v. Home Finders Associates, Inc., 205 W.Va. 216, 517 S.E.2d 313 (1999) we stated that [t]he interpretation of an insurance contract, including the question of whether the contract is ambiguous, is a legal determination that, like a lower court's grant of summary judgement, shall be reviewed de novo on appeal. Determination of the proper coverage of an insurance contract when the facts are not in dispute is a question of law. Murray v. State Farm Fire & Cas. Co., 203 W.Va. 477, ___, 509 S.E.2d 1, 7 (1998) (citations omitted).
In the instant case we are asked to interpret an insurance policy exclusion contained in an employers' liability policy. [W]e scrutinize more carefully any policy language that has the effect of excluding an insured from coverage. Riffe v. Home Finders Associates, Inc., 205 W.Va. at 222, 517 S.E.2d at 319. As we held in Syllabus Point 5 of National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987), [w]here the policy language involved is exclusionary, it will be strictly construed against the insurer in order that the purpose of providing indemnity not be defeated. Where a policy provision will largely nullify the purpose of indemnifying the insured, the application of that
provision will be severely restricted. Riffe v. Home Finders Associates, Inc., 205 W.Va. at
222, 517 S.E.2d at 319 (1999).
The appellant argues that the position asserted by Erie regarding its policy language, and subsequently adopted by the circuit court in its January 31, 2000 order, is a catch twenty-two position. On the one hand, the appellant contends that Erie promised to Stage Show Pizza that it would pay for damages because of bodily injury to your employees -- yet on the other hand, Erie excludes from coverage any bodily injuries to employees in the course of and resulting from their covered employment with Stage Show Pizza. See W.Va. Code, 23-4-1 .See footnote 3 The appellant argues that under Erie's policy, Erie is claiming to provide employers with coverage for employee injuries, but is, through an exclusion buried in its policy, always excluding employee injuries from coverage.
The appellant therefore contends that Erie's insurance policy should be construed to provide coverage for injuries to employees which are compensable through causes of action outside of the workers' compensation system -- namely, those injuries caused by employers who have lost their immunity because they failed to pay premiums into
the workers' compensation system, and those injuries caused by employers who lose their
immunity pursuant to the deliberate intention provisions of W.Va. Code, 23-4-2.
In many states, insurance companies offer businesses three types of insurance coverage: commercial general liability coverage; workers' compensation coverage; and stop gap employers' liability coverage. A commercial general liability policy protects a business against numerous kinds of liability claims, but it is generally accepted that the standard policy does not provide coverage for any claim brought by an employee against his or her employer arising out of the employment.
On the opposite end of the spectrum is coverage specifically for employee claims against an employer which are compensable under a state's workers' compensation laws. In many states, coverage for workers' compensation claims is provided by private insurance companies; in West Virginia, coverage is primarily provided through the West Virginia Workers' Compensation Fund, a government-controlled insurance system. See W.Va. Code, 23-1-1, et seq.See footnote 4 Workers' compensation coverage is designed to release both an employer and its employees from common-law rules of liability and damage, protect an employer from expensive and unpredictable litigation, and provide compensation for injuries to employees without the burdensome requirements of proving common-law negligence.
Jones v. Laird Foundation, Inc., 156 W.Va. 479, 489, 195 S.E.2d 821, 827 (1973) (Sprouse,
Between these two types of protection lies a gap in coverage. In this gap are claims made against a business by injured employees whose claims are not generally compensable under the workers' compensation system. An employers' liability policy therefore exists to fill the gaps between workers' compensation coverage and an employers' general liability policy. In the modern era, employers' liability insurance is designed to protect the insurer from tort liability for injuries to employees who do not come under the exclusive remedy provisions of workers' compensation. 16 Couch on Insurance § 225:157 (3d ed. 2000).
[E]mployers' liability insurance is traditionally written in conjunction with workers' compensation policies, and is intended to serve as a gap-filler, providing protection to the employer in those situations where the employee has a right to bring a tort action despite the provisions of the workers' compensation statute or the employee is not subject to the workers' compensation law. Generally, these two kinds of coverage are mutually exclusive. Most employers' liability policies limit coverage to liability for which the insured is held liable as an employer.
Producers Dairy Delivery Co. v. Sentry Ins. Co., 226 Cal.Rptr. 558, 565, 41 Cal.3d 903, 916, 718 P.2d 920, 927 (1986) (citations omitted). See also, La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co., 9 Cal.4th 27, 36 Cal.Rptr.2d 100, 884 P.2d 1048 (1994).
We can therefore conclude that employers' liability insurance applies to actions brought by an employee against an employer, when the employer and the employee are not
entitled to the benefits and protections under any workers' compensation law,
or when, even though covered by a workers' compensation law, the employee has
a right to bring an action for common law damages against the employer. See,
e.g., 1 Appleman on Insurance § 1.17 (2d Ed. 1996).
In the instant case, Erie argues that the appellant's causes of action against Stage Show Pizza arise under, not despite, the provisions of the West Virginia Workers' Compensation Act. Accordingly, Erie argues that the exclusion in its employers' liability policy -- excluding coverage for any obligation for which Stage Show Pizza may become liable under any worker's compensation law -- precludes Stage Show Pizza from relying on the policy for coverage.
The central question we must address is whether the appellant's causes of action arose outside of the West Virginia workers' compensation system, or whether they are obligations imposed by the Workers' Compensation Act such that Erie may properly deny coverage. We must therefore first determine what type of obligations are encompassed under a workers' compensation system.
To begin, the term workers' compensation is a broad label for those laws providing compensation for loss resulting from the injury, disablement, or death of a worker through industrial accident, casualty or disease, which possess the common characteristic of providing such compensation regardless of fault and in accordance with a definite schedule based upon loss or impairment of the worker's wage-earning power. 1 Couch on Insurance § 1:36 (3d Ed. 1997).
Federal courts are occasionally asked to determine if a lawsuit arises under the workers' compensation law of a state in order to ascertain if the court can exercise diversity jurisdiction. In Arthur v. E.I. DuPont de Nemours & Co., 58 F.3d 121 (4th Cir. 1995), a federal court of appeals considered whether a plaintiff's deliberate intention cause of action, filed in state court under W.Va. Code, 23-4-2, was a civil action . . . arising under the workmen's compensation laws such that it could not be removed to federal court. The court examined the history of workers' compensation laws, and concluded that
. . . the typical state act included the following features: (1) negligence and fault of the employer and employee were immaterial to recover, (2) common law suits against the employer were barred, (3) medical expenses were capped at a percentage of the employee's wage, (4) an administrative agency ran the system with relaxed rules of procedure to facilitate prompt compensation, and (5) state court review of agency decisions occurred on a deferential basis.
58 F.3d at 125. The court went on to state:
These authorities lead us to conclude that the ordinary (shorthand) meaning of workmen's compensation laws . . . was this: a statutorily created insurance system that allows employees to receive fixed benefits, without regard to fault, for work-related injuries.
Id. The court held, for purposes of federal diversity jurisdiction, that W.Va. Code, 23-4-2 was not a workers' compensation law -- and therefore, that the action could be prosecuted by a federal court. We believe that the court's analysis, while originally directed to the interpretation of a federal jurisdictional statute, is an acceptable definition of what is an obligation placed on an employer under a workers' compensation law for purposes of insurance coverage.
We therefore hold that an insurance policy provision excluding coverage for an obligation of an employer under any workers' compensation law means that coverage will not be available for an obligation that is imposed under a workers' compensation act that allows an employee to receive fixed benefits, without regard to the fault of any party, for a work-related injury.
Applying this standard, we must now determine whether the appellant's causes of action are obligations for which Stage Show Pizza may become liable under any workers' compensation law. The first cause of action brought by the appellant is a negligence cause of action, where the appellant alleges that Stage Show Pizza owed the appellant a particular duty and breached that duty, proximately causing his injuries. From the earliest days of law school, prospective attorneys are taught that the three elements of every tort action are the existence of a legal duty, the breach of that duty, and damage as a proximate result. Sewell v. Gregory, 179 W.Va. 585, 587, 371 S.E.2d 82, 84 (1988). Employers that subscribe and pay premiums into the workers' compensation fund are normally immune from negligence actions such as that asserted by the appellant. W.Va. Code, 23-2-6 See footnote 5 states, in pertinent part:
Any employer subject to this chapter who shall subscribe and pay into the workers' compensation fund the premiums provided by this chapter . . . shall not be liable to respond in damages at common law or by statute for the injury or death of any employee, however occurring, after so subscribing or electing, and during any period in which such employer shall not be in default in the payment of such premiums or direct payments and shall have complied fully with all other provisions of this chapter.
The key to maintaining this immunity is that the employer must comply with various regulations, and must continue to make regular premium payments into the fund.
If an employer fails to pay premiums or otherwise comply with certain workers' compensation regulations, under W.Va. Code, 23-2-6  the employer can lose its statutory immunity.See footnote 6 As an additional incentive to encourage compliance with the Workers' Compensation Act, W.Va. Code, 23-2-8  holds that an employer in default
of its obligations under the Act may not only be subjected to a suit for damages resulting
from the employer's negligence, but may also be prohibited from exercising certain
common-law defenses. This section states, in pertinent part:
All employers required by this chapter to subscribe to and pay premiums into the workers' compensation fund, . . . and who do not subscribe to and pay premiums into the workers' compensation fund as required by this chapter, . . . or having so subscribed and elected, shall be in default in the payment of same . . . shall be liable to their employees . . . for all damages suffered by reason of personal injuries sustained in the course of employment caused by the wrongful act, neglect or default of the employer . . . and in any action by any such employee or personal representative thereof, such defendant shall not avail himself of the following common-law defenses: The defense of the fellow-servant rule; the defense of the assumption of risk; or the defense of contributory negligence; and further shall not avail himself of any defense that the negligence in question was that of someone whose duties are prescribed by statute. . . .
W.Va. Code, 23-2-8 specifically reserves to the plaintiff a common-law negligence cause of action. However, we have repeatedly held that, while the defendant-employer may be stripped of its common-law defenses under W.Va. Code, 23-2-8, the plaintiff-employee still bears the burden of proving his or her injuries were the result of the employer's negligence. For example, in Zinn v. Cabot, 88 W.Va. 118, 121-22, 106 S.E. 427, 428 (1921) we said:
It appears that the defendant did not avail himself of the benefits of the Workmen's Compensation Act, and is, therefore, deprived of certain defenses of which he could have taken advantage prior to the passage of that act. However, even since the passage of that act, one who does not take advantage of it is not liable in damages for every injury sustained by his employés.
The basis of such an action is negligence, and unless some
negligence is traced to the employer there is no cause of action.
This negligence may be some defect in the working place, or
may be some improper method of doing the work by some of the
injured employé's fellow servants, but unless there is some
failure upon the part of the employer to do something which he
should do for the employé's safety, or the commission of some
act by him or his servants which results in the injury, there can
be no recovery.
The record indicates that Stage Show Pizza was in default of its obligations to the workers' compensation fund for failure to pay premiums on the date the appellant was injured.See footnote 7 Accordingly, it appears that Stage Show Pizza lost its immunity under the exclusive
remedy provision, W.Va. Code, 23-2-6; was subject to a suit for common-law damages; and
under W.Va. Code, 23-2-8, could not assert the common-law defenses of comparative
negligence, assumption of the risk, and the fellow-servant doctrine.
Simply put, the appellant is seeking to recover common-law damages through a common-law negligence action. We do not believe that such a negligence cause of action, merely because it is permitted as a result of Stage Show Pizza's defaulting on its obligations to the workers' compensation fund, is a cause of action arising under West Virginia's Workers' Compensation Act. A negligence cause of action against an employer by an
employee injured in the course of and as a result of his employment, that
is not barred by the immunity provisions of W.Va. Code, 23-2-6 because
of the employer's default on its workers' compensation obligations, and against
which the employer is prevented from asserting certain common-law defenses by
W.Va. Code, 23-2-8, is not an obligation of an employer under a workers'
compensation law for purposes of interpreting an insurance policy.See
footnote 8 We therefore believe that the circuit court erred in finding
there was no insurance coverage for this cause of action.
The second cause of action brought by the appellant alleges that Stage Show Pizza can be subjected to liability for violating provisions of our deliberate intention statute, W.Va. Code, 23-4-2. In a deliberate intention action, if an employee is able to
establish that the employer acted with conscious, subjective deliberation
and intentionally exposed the employee to a specific unsafe working condition,See
footnote 9 then the employer loses its workers' compensation immunity and
may be subjected to a suit for damages as if the Workers' Compensation Act had
not been enacted. W.Va. Code, 23-4-2(b) states (with emphasis added):
If injury or death results to any employee from the deliberate intention of his or her employer to produce such injury or death, the employee, the widow, widower, child or dependent of the employee has the privilege to take under this chapter, and has a cause of action against the employer, as if this chapter had not been enacted, for any excess of damages over the amount received or receivable under this chapter.
By enacting the deliberate intention statute, in W.Va. Code, 23-4-2(c) the Legislature specifically stated that it intended to create a legislative standard for loss of that immunity established in W.Va. Code, 23-2-6. To accomplish this goal, the Legislature set forth more specific mandatory elements than the common law tort system concept and standard of willful, wanton and reckless misconduct, standards of conduct used in the statute to determine if an employer has acted with deliberate intention. W.Va. Code, 23-4-2(c). By creating a specific standard under the statute, the Legislature sought to promote prompt judicial resolution of the question of whether a suit . . . is or is not prohibited by the immunity created in W.Va. Code, 23-2-6. Id.
Erie directs our attention to Bell v. Vecellio & Grogan, Inc., 197 W.Va. 138, 475 S.E.2d 138 (1996) as support for its argument that a deliberate intention action is an obligation imposed by a workers' compensation statute. In Bell, we were asked to examine a conflicts of law question where an employee of a West Virginia employer alleged that he had been deliberately and intentionally injured by his employer in Maryland. Our examination of the deliberate intention statute in Bell was integral to determining whether the employee's rights would be adjudicated under West Virginia or Maryland law. Our interpretation of the deliberate intention statute in the Bell case centered upon a conflicts of law question, and not its impact upon insurance coverage for deliberate intention claims against employers.
In Bell, we ruled that a deliberate intention cause of action is a right held by each employee subject to the West Virginia Workers' Compensation Act. We concluded that the Legislature's enactment of W.Va. Code, 23-4-2 represents the wholesale abandonment of the common law tort concept of a deliberate intention cause of action by an employee against an employer, to be replaced by a statutory direct cause of action by an employee against an employer expressed within the workers' compensation system. Syllabus Point 2, Bell. We subsequently held that the employee, who was subject to West Virginia's workers' compensation laws, could pursue his action under West Virginia law.
Erie argues that under Bell, this Court conclusively ruled that a deliberate intention cause of action is a purely direct statutory cause of action expressed within the workers' compensation system -- and therefore argues that any liability imposed against a policyholder as a result of a deliberate intention lawsuit is liability arising entirely under a workers' compensation law.
The appellant, however, argues that an employer subjected to a deliberate intent action under Bell does not become subject to a statutory sanction, but instead becomes liable for common law damages over and beyond any workers' compensation benefits received by an employee, as if [the Workers' Compensation Act] had not been enacted[.] In other words, while the deliberate intention statute specifies the evidence necessary to extinguish an employer's immunity under the Workers' Compensation Act, the statute only exposes an employer to an obligation under the common law, namely, damages for any injuries proximately caused by the employer's conduct. As a deliberate intent cause of action results in damages which are not workers' compensation benefits, the appellant argues that the Erie policy should be construed to find coverage for his deliberate intent cause of action. We agree. After carefully reading the Erie policy, we cannot conclude that it excludes coverage for a deliberate intent cause of action.See footnote 10 The purpose of Erie's Employers' Liability -- Stop Gap policy is plain on its face: to pay Stage Show Pizza for damages because of bodily injury to your employees for which the law holds you responsible and recovery is permitted by law. Coverage for employees was clearly excluded from Erie's the commercial general liability policy sold to Stage Show Pizza; we believe it was just as clearly included in the employers' liability endorsement attached to that general policy.
We therefore hold that a finding that an employer is liable pursuant to the deliberate intent provisions of W.Va. Code, 23-4-2 does not impose upon the employer a statutory obligation to pay fixed benefits, without regard to the fault of any party, for work- related injuries, and is therefore not an obligation of an employer under a workers'compensation law for purposes of insurance coverage. We therefore believe that the circuit court erred in finding there was no insurance coverage for this cause of action as well.
After a careful examination of the policy provisions involved in the instant
case, we conclude that the circuit court erred in granting a declaratory judgment to Erie. The
causes of action filed by the appellant would not create obligations under any workers'
compensation law such that the appellant would receive fixed benefits, without regard to the
fault of any party, for his allegedly work-related injuries. Our reading of the record suggests
that Stage Show Pizza had a reasonable expectation that lawsuits filed by employees would
be covered under Erie's Employers Liability -- Stop Gap Coverage endorsement.
We therefore reverse the circuit court's January 31, 2000 order, and remand this case for further proceedings.
Reversed and Remanded.
final ruling that an employer is in default, then the
Commissioner's ruling is binding upon a trial court. The
Commissioner's ruling may not be collaterally attacked in a
subsequent proceeding considering the same issue, and the
employer's proper remedy is to seek review of the ruling
through the appellate process established by W.Va. Code,
In the instant case, the circuit court indicated in a footnote to its order that:
All indications, from deposition transcripts supplied to this court, are that Stageshow Pizza remained in good standing with the Workers' Compensation Fund, at least during the time of the accident. Although premium payments were apparently not always timely paid, Stageshow Pizza worked out a payment schedule directly with the Fund to stay in good standing as a subscribing employer.
In light of the clear language of W.Va. Code, 23-2-5(d), from our reading of the record it would appear that Stage Show Pizza was, as a matter of law, not in good standing with the Fund at the time of the accident. See also, W.Va. Code, 23-2-5(h)(1)  (The provisions of this section shall not deprive any individual of any cause of action which has accrued as a result of an injury or death which occurred during any period of delinquency not resolved in accordance with the provisions of this article, or subsequent failure to comply with the terms of the repayment agreement.)
was a violation of a state or federal safety statute,
rule or regulation, whether cited or not, or of a
commonly accepted and well-known safety
standard within the industry or business of such
employer, which statute, rule, regulation or
standard was specifically applicable to the
particular work and working condition involved,
as contrasted with a statute, rule, regulation or
standard generally requiring safe workplaces,
equipment or working conditions;
(D) That notwithstanding the existence of the facts set forth in subparagraphs (A) through (C) hereof, such employer nevertheless thereafter exposed an employee to such specific unsafe working condition intentionally; and
(E) That such employee so exposed suffered serious injury or death as a direct and proximate result of such specific unsafe working condition.