Fireman's Fund Insurance Co. v. Sherman & Fletcher

705 S.W.2d 459, 1986 Ky. LEXIS 239

• Court: Kentucky Supreme Court
• Decided: February 27, 1986
• Status: Published

Opinions

VANCE, Justice.

This case presents questions concerning (1) the right of an injured employee of a subcontractor to recover in tort from an owner who has acted as his own contractor, (2) the right of a subcontractor in a suit against him in tort to implead the contractor on a claim for subrogation or indemnity, and (3) the right of an insurer which has paid compensation to the employee of a subcontractor to indemnify itself against the contractor when the negligence of the contractor caused the injury.

The complex factual situation giving rise to this case is as follows:

Sherman and Fletcher: John Sherman and Raymond Fletcher, individually and as partners, were the owners and developers of a residential construction complex consisting of 21 townhouses known as the Wessex Project. They contracted with others for most of the construction work.

David S. Elder, Inc. was a framing subcontractor engaged to do the rough framing carpentry on the Wessex construction project.

David H. George was an employee of Elder, Inc. who was killed when a concrete block wall at the construction site collapsed.

Active Constructors is a partnership which subcontracted to construct the concrete block wall which collapsed and killed David George.

Fireman’s Fund Insurance Company carried the worker’s compensation insurance for Elder, Inc. and paid benefits to the estate of David George.

The trial court dismissed all claims against Sherman & Fletcher. We affirm.

THE CLAIM OF KAREN A. GEORGE ADMINISTRATRIX OF THE ESTATE OF DAVID H. GEORGE

Elder, Inc., the employer of David George, paid worker’s compensation benefits to the estate of George. The estate elected to seek recovery for wrongful death against Sherman & Fletcher, claiming that Sherman and Fletcher was responsible as a third party whose negligence had caused the death. The negligence attributed to Sherman and Fletcher was that it failed to properly supervise the construction project and failed to require that the concrete block wall under construction be adequately braced.

Sherman & Fletcher was granted a summary judgment on the claim of the George Estate on the ground that the worker’s compensation statutes precluded such recovery.

K.R.S. 342.610 provides that (1) every employer subject to the chapter shall be liable for compensation for injury without regard to fault, (2) a contractor who subcontracts any part of his contract shall be liable for the payment of compensation to the employees of the subcontractor unless the subcontractor primarily liable for the payment of such compensation has secured its payment as provided by Chapter 3⅛2, and (3) a person who contracts with another to have work performed of a kind which is a regular or recurrent part of the work of the trade, business, occupation or profession of such person, shall be deemed a contractor and such other person a subcontractor.

K.R.S. 342.690(1) provides:

“If an employer secures payment of compensation as required by this chapter, the liability of such employer under this chapter shall be exclusive and in place of all other liability of such employer to the employe, his legal representative, husband or wife, parents, dependents, next of kin, and anyone otherwise entitled to recover damages from such employer at law or in admiralty on account of such injury or death. For purposes of this section, the term ‘employer’ shall include a ‘contractor’ covered by KRS 342.610, whether or not the subcontractor has in fact, secured the payment of compensation. The liability of an employer to another person who may be liable for or who has paid damages on account of injury or death of an employe of such employer arising out of and in the course of employment and caused by a breach of any duty or obligation owed by such employer to such other shall be limited to the amount of compensation and other benefits for which such employer is liable under this chapter on account of such injury or death, unless such other and the employer by written contract have agreed to share liability in a different manner. The exemption from liability given an employer by this section shall also extend to such employer’s carrier and to all employes, officers or directors of such employer or carrier, provided the exemption from liability given an employe, officer or director or an employer or carrier shall not apply in any case where the injury or death is proximately caused by the wilful and unprovoked physical aggression of such employe, officer or director.”

The statutes make it plain that if Sherman & Fletcher is a contractor, it has no liability in tort to an injured employee of a subcontractor. It is also clear that Sherman & Fletcher is a contractor if the work subcontracted to George’s employer is work of a kind which is a regular or recurrent part of the work of the trade, business, occupation or profession of Sherman & Fletcher.

Elder, Inc., George’s employer, contracted to perform the rough framing carpentry on the project. It cannot be disputed that rough framing carpentry is work of a kind which is a regular or recurrent part of the work of the occupation or trade of building construction in which Sherman & Fletcher was engaged.

Mrs. George claims, however, that the subcategory of carpentry which is designated as “rough' framing” was a type of carpentry which Sherman & Fletcher did not do for itself but usually subcontracted to others. We agree with the Court of Appeals that such a distinction is of no significance.

The purpose of the provision of K.R.S. 342.610 that a contractor is liable for compensation benefits to an employee if a subcontractor who does not secure compensation benefits is to prevent subcontracting to irresponsible people. Elkhorn-Hazard Coal Land Corp. v. Taylor, Ky., 539 S.W.2d 101, 103 (1976).

In Bright v. Reynolds Metals Co., Ky., 490 S.W.2d 474 (1973), we held that a principal contractor was one who performed work for another. Reynolds Metals Company acted as its own contractor, but it was not performing work for another and therefore was held not to be a principal contractor under the statute in force at that time. Because of that fact, Reynolds Metals was held to have no liability for compensation to the employee of a subcontractor and a tort claim was therefore allowed.

The decision in Bright v. Reynolds Metal Co., supra, pointed out that the statutes of many states provided that a person who contracted for work to be done by another which was of the kind he usually performed for himself was construed to be a principal contractor. Our statute had no such provision at that time.

Following the decision in Bright v. Reynolds Metals Co., supra, the General Assembly enacted K.R.S. 342.610 in its present form which provides that a person who contracts with another to do work of a kind which is a recurrent part of the work of the trade or occupation of such person shall be deemed a contractor. We construe this to mean that a person who engages another to perform a part of the work which is a recurrent part of his business, trade, or occupation is a contractor. Even though he may never perform that particular job with his own employees, he is still a contractor if the job is one that is usually a regular or recurrent part of his trade or occupation. The business or occupation of Sherman & Fletcher was building construction, and rough carpentry is work of a kind which is a regular or recurrent part of the work of the business of building construction. Sherman & Fletcher would have been liable for the worker’s compensation benefits to David George if Elder, Inc., his employer, had not secured those benefits. K.R.S. 342.610(2). That potential liability for worker’s compensation benefits relieves Sherman & Fletcher from tort liability. K.R.S. 342.690.

THE CLAIM OF ACTIVE CONSTRUCTORS AGAINST SHERMAN & FLETCHER

Active Constructors sought to indemnify itself against Sherman & Fletcher for any damages it might be required to pay to the administratrix of the Estate of David George because of his wrongful death. Active contended that the negligence of Sherman & Fletcher was the primary cause of the death. The trial court dismissed the claim, and the Court of Appeals affirmed.

The only contention asserted by Active Constructors in this court is that Active has a jural right to indemnity and that the time has come to determine the constitutionality of K.R.S. 342.690(1) which purports to limit that jural right. Active relies upon Sections 54 and 241 of the Kentucky Constitution for the proposition that the General Assembly has no authority to limit the right to indemnification.

The Court of Appeals did not make any determination of the constitutionality of the statute as it applies to Active Constructors. Perhaps a reason for this is that Active Constructors did not raise the constitutional issue in the Court of Appeals.

Sherman & Fletcher contended in the Court of Appeals that the constitutionality of the statute should not be considered because notice was not served upon the Attorney General as required by K.R.S. 418.075 and by C.R. 24.03.

In its reply brief filed in the Court of Appeals, Active Constructors stated:

“The constitutionality of KRS 342.690 is not the question. Rather, it is whether the Appellants’ indemnity claim is barred by KRS 342.690.”

And again:

“... The constitutionality of KRS 342.-690 is not an issue before this court.

“The appellants and the appellee do agree on one thing:

“This court should not even consider the constitutional issue....”

We decline to consider the constitutionality of K.R.S. 342.690 as it applies to Active Constructors because Active did not raise this issue in the Court of Appeals.

THE CLAIM OF FIREMAN’S FUND INSURANCE COMPANY AGAINST SHERMAN & FLETCHER

Fireman’s Fund Insurance Company was the worker’s compensation carrier for Elder, Inc. As such it paid benefits on account of the injury and death of David George. It seeks indemnity from Sherman & Fletcher on the ground that the negligence of Sherman & Fletcher caused it to become liable for the compensation benefits.

It claims that (1) the exclusive remedy provisions of K.R.S. 342.690(1) were never intended to abolish the common law rights of indemnity and contribution, (2) the 1972 amendments to the Act do not abolish those rights, and (3) the attempt of the General Assembly to limit liability in K.R.S. 342.690(1) violates Kentucky Constitution Sections 14, 54, and 241.

Whether or not K.R.S. 342.690(1) attempted to abolish actions for indemnity and contribution, there can be no doubt but that it sought to limit liability of an employer in claims for indemnity and contribution. K.R.S. 342.690(1) specifically provides that the liability of an employer to another person who may be liable for or who has paid damages on account of an injury or death of an employee of such employer arising out of the scope and course of employment and caused by a breach of duty or obligation owed by such employer to such other shall be limited to the amount of compensation and other benefits for which the employer is liable under this chapter on account of such injury or death....

As we have noted earlier in this opinion, Sherman & Fletcher was a contractor pursuant to the provisions of K.R.S. 342.610 and the term “employer” includes such a contractor. K.R.S. 342.690(1).

Sherman & Fletcher would have been liable for worker’s compensation benefits to David George if his employer, Elder, Inc., had not secured those benefits. The cost of the benefits provided for David George by his immediate employer, Elder, Inc., were no doubt reflected in the cost of the services provided by Elder, Inc. to Sherman & Fletcher.

Because Elder, Inc. secured the worker’s compensation benefits, the actual dollar amount which Sherman & Fletcher became obligated to pay as compensation benefits to David George was zero. The statute thus limits the liability of Sherman & Fletcher to zero dollars.

On the question of whether the purported limitation on the right to indemnity contained in K.R.S. 342.690(1) is unconstitutional when applied to a compensation carrier such as Fireman’s Fund in this case, we consider our decision in Fireman Fund Insurance v. Government Employees Insurance Company, Ky., 635 S.W.2d 475 (1982) controlling. With respect to an insurance carrier required by its contract to pay losses caused by the neglect of a third party, we held that the Kentucky Constitution does not prohibit legislative limitation upon the right of indemnity.

We said:

“It was not until Kentucky Util. Co. v. Jackson County R.E. Corp., Ky., 438 S.W.2d 788 (1969), that the court gave any consideration to the notion that this type of indemnity claim might fall under the protection of Const. Sec. 54. The question there was whether KRS 342.-015(1), which provides that an employer liable for workmen’s compensation ‘shall ... be released from all other liability,’ protected an employer whose primary negligence was alleged to have caused its employe’s death from liability to a secondarily-negligent party which had settled the wrongful-death claim. Without deciding the constitutional question unequivocally, the court construed KRS 432.015(1) as being inapplicable, but in reaching that conclusion stated that ‘the common-law right of indemnity is a jural right which existed prior to the adoption of our Constitution and may not be abolished by the General Assembly.’ Assuming, however, but without so deciding, that the general theory of indemnity as grounds for a cause of action cannot be legislated away, still the specific issue in any case is whether the facts of the case would have established a cause of action under that theory at that time. Today, for example, we behold the theory of negligence having burgeoned into liability without fault in products liability cases, but it would be absurd to contend that such liability would have been countenanced in 1891.

“The right of indemnity asserted in the Kentucky Utilities Company case was founded on facts that were strictly analogous to the situation in the Brown Hotel ease. Absent the element of workmen’s compensation, two parties were liable for the wrongful death, but it was the primary or active negligence of the one which had exposed the other to that liability. Whether the right of indemnity under those circumstances had developed by case-law to the point of recognition in 1891 is extremely doubtful, but we need not pursue the point here, because it is quite beyond cavil that in 1891 neither workmen’s compensation nor no-fault automobile or vehicular insurance law existed. It is not possible that the kind of indemnification sought in this case could have been established as common law at the time the Constitution of this state was adopted.

“There is still another ground upon which Const. Secs. 14 and 54 cannot be applicable. Aside from the mention of defamation in Sec. 14, these constitutional provisions expressly apply only to actions for death, personal injuries, and property damage. Cf. Kentucky Hotel v. Cinotti, 298 Ky. 88, 182 S.W.2d 27, 29 (1944), and Zurich Fire Ins. Co. of New York v. Weil, Ky., 259 S.W.2d 54, 57 (1953), in both of which it is recognized that Sec. 54 refers to actions in tort. In a subrogation suit, of course, the plaintiff asserts the rights of his subrogor, but in an action for indemnity he sues in his own right, and upon a basis even more tenuous than an implied contract.”

Id. at 477, 478.

We hold that K.R.S. 342.690(1) limits the liability of Sherman & Fletcher to another who has paid benefits on account of injury or death of an employee to the amount of compensation for which Sherman & Fletcher is liable (in this case zero), and we further hold that the statute is not unconstitutional.

CLAIMS AGAINST OTTO THILLMAN

Otto Thillman was an employee of Sherman & Fletcher alleged to have been negligent in the supervision of the project. All claims against him were dismissed by the trial court.

These claims were not raised in or considered by the Court of Appeals, and, accordingly, we decline to pass upon their merits. We note in passing, however, that the exemption from liability granted to an employer by K.R.S. 342.690(1) is also extended to all employees of the employer.

The judgment is affirmed.

GANT, STEPHENSON, VANCE, AKER and WINTERSHEIMER, JJ„ concur. VANCE, J., files a separate concurring opinion in which AKER, J., joins. LEIBSON, J., dissents by separate opinion in which STEPHENS, C.J., joins.