Utah Home Fire Insurance Co. v. Manning

1999 UT 77, 985 P.2d 243, 376 Utah Adv. Rep. 8, 1999 Utah LEXIS 112, 1999 WL 638654

• Court: Utah Supreme Court
• Decided: August 24, 1999
• Docket: 970516
• Status: Published

Opinions

RUSSON, Justice:

¶ 1 Defendant Patrick J. Manning appeals from the district court’s grant of summary judgment in favor of Utah Home Fire Insurance Company declaring that (1) Utah Home Fire’s insureds, William R. Green dba Green Services and Carol L. Green dba C.B. Construction, are immune from Manning’s suit against them pursuant to the exclusive remedy provision of the Workers’ Compensation Act, and (2) the insurance policy issued by Utah Home Fire excludes coverage of Manning’s work-related injury.

BACKGROUND

¶2 In 1990, Holmes & Narver Services, Inc., entered into a government contract to perform construction work at the Tooele Army Depot. Holmes & Narver thereafter entered into an agreement with William Green, dba Green Services, wherein Green would install siding at the project. The agreement purported to designate Green as an independent contractor.

¶ 3 Before completion of the siding, Holmes & Narver fired Green and excluded him from the job site. In accordance with their agreement, Holmes & Narver retained the scaffolding Green had erected for use in installing the siding. Holmes & Narver hired temporary employees to complete the siding, and on or about February 1,1993, one of those employees, Manning, suffered serious injuries when the scaffolding collapsed.

¶4 Manning received workers’ compensation benefits from Holmes & Narver. In addition, in May of 1996, he filed an action in federal court against Green and Green’s insurer, Utah Home Fire Insurance Company. Manning alleged that Green negligently constructed the scaffolding, thereby causing his injuries. Manning also asserted that he was an intended third-party beneficiary of the liability insurance policy Utah Home Fire had issued to Green and was entitled to breach of contract damages for Utah Home Fire’s denial of coverage with respect to his personal injury claims. In response, Utah Home Fire filed an action in state court requesting a declaratory judgment that, under its insurance policy, it was not obligated to defend or indemnify Green¹ in Manning’s federal lawsuit. The federal court stayed Manning’s action pending resolution of the state proceedings.

¶ 5 In state court, Utah Home Fire and Manning filed cross-motions for summary judgment. Utah Home Fire contended that, as a matter of law, Green functioned as an employee of Holmes & Narver because of the level of control Holmes & Narver retained and exercised over his work; as a result, Manning, also an employee of Holmes & Narver, could not maintain his federal court action against Green because of the exclusive remedy provision of the Workers’ Compensation Act, which states:

The right to recover compensation pursuant to the provisions of this title for injuries sustained by an employee ... shall be the exclusive remedy against the employer and shall be the exclusive remedy against any officer, agent or employee of the employer ... and no action at law may be maintained against an employer or against any officer, agent or employee of the employer based upon any accident, injury or death of an employee.

Utah Code Ann. § 35-1-60 (1988).² Utah Home Fire argued that because this provision protected Green against Manning’s suit, Green could not become “legally obligated” for Manning’s injuries and, thus, there was no potential liability triggering coverage under the insurance policy. Utah Home Fire argued alternatively that even if the exclusive remedy provision did not bar Manning’s action against Green, the insurance policy nonetheless excluded coverage of Manning’s personal injury claims.

¶ 6 Manning countered that he could maintain his federal action against Green because Green was an independent contractor of Holmes & Narver, not an employee. Manning relied on Utah Code Ann. § 35-1-62, which provides in relevant part:

When any injury or death for which compensation is payable under this title shall have been caused by the wrongful act or neglect of a person other than an employer, officer, agent, or employee of said employer, the injured employee ... may claim compensation and ... may also maintain an action for damages against subcontractors, general contractors, independent contractors, property owners or their lessees or assigns, not occupying an employer-employee relationship with the injured or deceased employee at the time of his injury or death.

Utah Code Ann. § 35-1-62 (1988)³ (emphasis added). Manning also argued that, as a matter of law, Utah Home Fire’s policy did not exclude coverage of his personal injury claims.

¶ 7 In an order of declaratory judgment dated September 23, 1997, the district court granted Utah Home Fire’s motion for summary judgment and denied Manning’s motion. The court ruled that for purposes of the Workers’ Compensation Act, Green was an employee of Holmes & Narver and was therefore immune from Manning’s suit under the exclusive remedy provision. The court also ruled that Utah Home Fire properly denied coverage of Manning’s claims pursuant to certain provisions in the insurance policy that excluded coverage. This appeal followed.

STANDARD OF REVIEW

¶ 8 In reviewing the district court’s grant of summary judgment, we are presented with questions of law, namely, whether Manning is precluded under the Workers’ Compensation Act from suing Green for his work-related injuries and, if not, whether Utah Home Fire’s insurance policy nevertheless excludes coverage of Manning’s claims in his federal court action. We do not defer to the district court’s rulings on these issues, but review them for correctness. See Averett v. Grange, 909 P.2d 246, 248 (Utah 1995). Specifically, we review the correctness of the district court’s holding that there were no disputed issues of material fact and its application of the governing law. See id.

DISCUSSION

¶ 9 Our threshold inquiry is whether Green functioned as an independent contractor or an employee of Holmes & Narver for purposes of the Workers’ Compensation Act (the “Act”). The Act defines “independent contractor” as

any person engaged in the performance of any work for another who, while so engaged, is independent of the employer in all that pertains to the execution of the work, is not subject to the rule or control of the employer, is engaged only in the performance of a definite job or piece of work; and is subordinate to the employer only in effecting a result in accordance with the employer’s design.

Utah Code Ann. § 35 — 1—42(2)(b) (Supp. 1992).⁴ The Act defines “employee” as

each person in the service of any employer [which employer] employs one or more workers or operatives regularly in the same business, or in or about the same establishment, under any contract of hire, express or implied, oral or written, ... but not including any person whose employment is casual and not in the usual course of the trade, business, or occupation of his employer.

Utah Code Ann. § 35-1-43(1) (1988).⁵

¶ 10 In determining whether a worker acted as an employee as opposed to an independent contractor for purposes of the Workers’ Compensation Act, our inquiry has long focused on whether the employer had the right to control the worker. See, e.g., Averett, 909 P.2d at 249-50; Stricker v. Industrial Comm’n, 55 Utah 603, 188 P. 849, 851 (1920). Regardless of how the parties intended to structure their relationship, a worker is considered to have been an employee if the employer had the right to control the worker’s manner or method of executing or carrying out the work. See, e.g., Bambrough v. Bethers, 552 P.2d 1286, 1291-92 (Utah 1976); Sommerville v. Industrial Comm’n, 113 Utah 504, 196 P.2d 718, 720 (1948); Parkinson v. Industrial Comm’n, 110 Utah 309, 172 P.2d 136, 139 (1946); see also Averett, 909 P.2d at 250 (explaining that inquiry focuses not on intended relationship, but on relationship in fact created). We have consistently held that “it is the right to control which is determinative; the degree of control [actually asserted] is not essential.” Bambrough, 552 P.2d at 1291 (emphasis in original); see also Hinds v. Herm Hughes & Sons, Inc., 577 P.2d 561, 562 (Utah 1978).

¶ 11 In Harry L. Young & Sons v. Ashton, 538 P.2d 316 (Utah 1975), this court explained that, in general,

an employee is one who is hired and paid a salary, a wage, or at a fixed rate, to perform the employer’s work as directed by the employer and who is subject to a comparatively high degree of control in performing those duties. In contrast, an independent contractor is one who is engaged to do some particular project or piece of work, usually for a set total sum, who may do the job in his [or her] own way, subject to only minimal restriction or controls and is responsible only for its satisfactory completion.

The main facts to be considered as bearing on the relationship here are: (1) whatever covenants or agreements exist concerning the right of direction and control over the employee, whether express or implied; (2) the right to hire and fire; (3) the method of payment ...; and (4) the furnishing of equipment.

Id. at 318; see also Stricker; 188 P. at 851 (explaining that independent contractors utilize their own methods of bringing about contracted result). In assessing a given relationship, not only do we consider whatever agreements exist concerning the right of control, but we also take into account the actual dealings between the parties and the control that was in fact asserted. See, e.g., Averett, 909 P.2d at 249-50 (considering parties’ contractual arrangements and on-site activities to conclude defendant was an employee).

¶ 12 In the case at hand, there are no disputed issues of material fact concerning Holmes & Narver’s right to control Green’s work: the parties’ agreement specifies such right, and the actual control exercised is not in controversy. In view of the uneontested evidence, it is clear that Holmes & Narver retained and exercised the right to control Green’s work conduct. For instance, the parties’ agreement stated that “[Green] agrees to perform [the] work as directed by [Holmes & Narver] in accordance with the contract documents” and that “all rights, privileges, options and exercise of discretion with respect to said work reserved by or given to [Holmes & Narver] may be maintained and exercised with or against [Green].” (Emphasis added.) The agreement also provided that (1) “[Green] shall not employ any workmen whose employment and performance of the work is objected to by [Holmes & Narver] for any reason”; (2) “[Green] must submit a written daily report to [Holmes & Narver’s] Quality Control Representative”; and (3) “[w]orking hours are Monday through Thursday, 6:30 a.m. to 5:00 p.m.” Thus, under the express terms of their agreement, Holmes & Narver retained the right to direct the performance or execution of Green’s work, to exercise its full discretion with respect to Green’s work, to control which workmen Green employed, to fire Green’s employees for any reason, to monitor Green’s work on a daily basis, and to dictate the days and hours Green worked.

¶ 13 Not only did Holmes & Narver retain the right to control Green’s work, it systematically exercised that right. Representatives of Holmes & Narver inspected Green’s work two or three times each day. If the representatives considered something to be wrong with the work, they required Green to make corrections. The required corrections did not relate simply to the contracted result of Green’s work but also to the details and method of the work. Green’s uncontroverted testimony is that the representatives of Holmes & Narver repeatedly gave him directions and instructions concerning the details of his work rather than simply the contemplated result. Holmes & Narver even mandated that Green install the siding from right to left rather than from left to right.

¶ 14 Holmes & Narver also required that Green obtain its approval with respect to each worker Green employed. In fact, on one occasion, Holmes & Narver prevented Green from hiring a particular individual. As stated in Rustler Lodge v. Industrial Commission, “ ‘An independent contractor can employ others to do the work and accomplish the contemplated result without the consent of the contractee, while an employee cannot....’” 562 P.2d 227, 228 (Utah 1977) (quoting Ludlow v. Industrial Comm’n, 65 Utah 168, 235 P. 884, 888 (1925)).

¶ 15 Finally, in the daily reports that Holmes & Narver required, Green had to report extensive information concerning his work, including the hours each of his men worked on the job, the duties they performed, what, if anything, went wrong on the job, the results of Holmes & Narver’s daily inspections, the corrections made in connection with those inspections, the equipment left on the job site, the equipment not left on the job site, the equipment and materials received on the job site, and whether Holmes & Narver had inspected and approved such equipment and materials. From the information Green submitted, Holmes & Narver in turn issued various instructions and directions for Green to follow in performing the job. Hence, despite the fact that the parties’ agreement specified payment of a lump sum for completing the job and that Green would furnish his own equipment, the evidence as a whole supports the district court’s determination that, as a matter of law, Green acted as Holmes & Narver’s employee.

¶ 16 Manning contends that irrespective of the traditional “right-to-control” test, Green does not qualify as an employee of Holmes & Narver under section 35-1-42(6)(a) of the Code, which provides:

If any person who is an employer procures any work to be done wholly or in part for him by a contractor over whose work he retains supervision or control, and this work is a part or process in the trade or business of the employer, the contractor, all persons employed by him, all subcontractors under him, and all persons employed by any of these subcontractors[ ] are considered employees of the original employer.

Utah Code Ann. § 35-l-42(6)(a) (Supp.1992) (emphasis added).⁶ Manning maintains that under this provision, even if Holmes & Nar-ver retained control or supervision over Green’s work, that work was not a part or process of Holmes & Narver’s trade or business; ⁷ thus, Green was not an employee but must instead be considered a subcontractor or an independent contractor subject to suit pursuant to section 35-1-62, which provides that an injured employee “may claim compensation [under the Act] and ... may also maintain an action for damages against subcontractors, general contractors, independent contractors ... not occupying an employer-employee relationship with [him] at the time of his injury or death.” Utah Code Ann. § 35-1-62 (1988).

¶ 17 Manning’s argument is premised on the faulty assumption that one who does not qualify as an employee under section 35-1 — 42(6)(a) must be considered by default a subcontractor or an independent contractor subject to suit under section 35-1-62. Section 35-l-42(6)(a) is limited in application to its specific purpose, which, as this court has explained, is “‘to protect employees of irresponsible and uninsured subcontractors by imposing ultimate liability on the presumably responsible principal contractor, who has it within his power, in choosing subcontractors, to pass upon their responsibility and insist upon appropriate compensation protection for their workers.’ ” Bennett v. Industrial Comm’n, 726 P.2d 427, 431 (Utah 1986) (quoting 1C A. Larson, Workmen’s Compensation Law § 49.14 (1986)). The provision safeguards against “unscrupulous principal contractors” who may attempt to avoid responsibility for insuring workers on their projects by “ ‘subdividing] their regular operations among subcontractors, thus escaping direct employment relations with the workers and relegating them for compensation protection to small contractors who fail to carry ... compensation insurance.’ ” Pinter Constr. Co. v. Frisby, 678 P.2d 305, 307-08 (Utah 1984) (quoting Larson, Workmen’s Compensation Law § 49.11). Thus, section 35-l-42(6)(a) applies to the limited circumstance of assigning responsibility for workers’ compensation coverage: those who qualify as “employees” under it are so considered only insofar as the principal contractor of the project is ultimately responsible for procuring workers’ compensation coverage for them. See, e.g., Bennett, 726 P.2d at 431-33 (explaining that this provision makes principal contractor liable for securing workers’ compensation coverage for person hired by subcontractor). For all other purposes of the Workers’ Compensation Act, the right-to-control test determines whether a worker is considered an employee.⁸

¶ 18 We conclude, therefore, that the district court did not err in ruling as a matter of law that Green was an employee of Holmes & Narver for purposes of the Workers’ Compensation Act. This conclusion accords with this court’s long-standing policy that the Workers’ Compensation Act should be liberally construed to effectuate its purposes. See, e.g., Smith v. Alfred Brown Co., 27 Utah 2d 155, 493 P.2d 994, 995 (1972). In line with that policy, we have stated that it is “proper to resolve doubt as to whether a worker was an employee in favor of [the worker being an] employee.” Bennett, 726 P.2d at 430. It would indeed be inconsistent to resolve doubts in favor of a worker being considered an employee when the worker is seeking coverage but not in other situations, such as here, where the worker is being sued by another employee.

¶ 19 As an employee under the Workers’ Compensation Act, Green is entitled to the protections the Act affords, including the protection against suit for injuries sustained by other employees of Holmes & Narver. The exclusive remedy provision states that an injured employee may not maintain an action at law for his or her injuries “against any officer, agent or employee of the employer.” Utah Code Aun. § 35-1-60 (1988). Although Manning was a temporary employee, he is considered an employee of Holmes & Narver. See Ghersi v. Salazar, 883 P.2d 1352, 1357 (Utah 1994). Consequently, the exclusive remedy provision precludes Manning from suing any other employee of Holmes & Narver for his injuries, including Green. Thus, there was no potential liability in Manning’s federal court action triggering coverage under Utah Home Fire’s insurance policy.

¶ 20 The dissent argues that since Manning’s accident occurred after Green’s employment with Holmes & Narver terminated, Manning can sue Green for his injuries. The dissent raises this argument, and would use it to reverse the district court’s rulings, despite the fact that it was not addressed before the district court nor by the parties on appeal. That aside, the dissent is not in accord with the exclusive remedy provision (section 35-1-60), section 35-1-62, Professor Larson’s treatise on the subject, the holding of Riddle v. Mays, 780 P.2d 1252 (Utah 1989), or the underlying purposes of the workers’ compensation laws of the state of Utah.

¶ 21 The Workers’ Compensation Act is intended not only to compensate employees for job-related injuries, but also to protect them against liability for job-related conduct. The exclusive remedy provision of the Act makes this latter purpose clear:

The right to recover compensation pursuant to the provisions of this title for injuries sustained by an employee ... shall be the exclusive remedy against any officer, agent or employee of the employer ... and no action at law may be maintained against an employer or against any officer, agent or employee of the employer based upon any accident, injury or death of an employee.

Utah Code Ann. § 35-1-60 (1988) (emphasis added). The protection against suit provided by this section extends to any employee; there is no distinction between current and former employees of the same employer on the same project. Under the dissent, however, if an employee is negligent but his employment happens to end before that negligence injures another employee, the injured employee would be free to sue the negligent employee for tort damages. There is no rational justification for allowing an injured employee in such a circumstance to collect benefits under the Act and pursue common law damages while limiting the remedy of other injured employees to workers’ compensation. Moreover, the dissent’s proposed restriction on the scope of the exclusive remedy provision is not contained in the provision’s plain language.

¶22 Under the dissent’s interpretation, to protect themselves against liability, employees would need to purchase liability insurance for their work on prior jobs despite the fact that they were covered by workers’ compensation insurance when they performed that work. In addition, whenever workplace injuries occur, investigations would be required to determine whether the injuries were caused by former employees who could be sued and from whom the employer or its workers’ compensation carrier could seek indemnification. The legislature could not have intended such results.

¶ 23 The dissent relies on section 35-1-62 for support. That provision, however, speaks nothing about immunity against suit between co-employees. Rather, it states that an injured employee may sue certain “third-party” entities, including “subcontractors, general contractors, independent contractors, [and] property owners ... not occupying an employee-employer relationship with the injured or deceased employee at the time of his injury or death.” Utah Code Ann. § 35-1-62 (1988) (emphasis added). Green acted in none of these enumerated capacities; as already discussed, he functioned as an employee of Holmes & Narver.

¶ 24 The dissent also mistakenly relies on section 65.13 of Professor Larson’s treatise on workers’ compensation law. That section states that in determining whether an employee is barred from suing his or her employer, “[t]he controlling fact ... is the relationship of the’parties at the time of occurrence of the injury.” 6 Arthur Larson & Lex A. Larson, Larson’s Workers’ Compensation Law § 65.13, at 12-17 (1998). This section of the treatise and the cases cited therein have nothing to do with immunity from suit between co-employees; nevertheless, the dissent adds bracketed language to its quotation of this section indicating otherwise. See infra ¶ 37. The error in this is that co-employee immunity is addressed in a completely different part of the treatise in a manner that contradicts the dissent’s posh tion. See Larson §§ 72.00 to 72.34. In reference to a typically worded exclusive remedy provision, equal in scope to section 35-1-60 of the Utah Act, the treatise provides, “It is now well established that the effect of this general type of clause is to bar all suits against coemployees by injured employees.” Id. § 72.21, at 14-146 (emphasis added). The treatise further states that “immunity attaches to the coemployee only when the eoemployee is acting in the course of his employment.” Id. § 72.23, at 14-154. Thus, if the co-employee’s injury-causing conduct occurred in the course of employment, the co-employee is protected against suit. The cases cited in section 72.23 of the treatise uphold this principle. No distinction is made with regard to whether the co-employee is still employed at the time of injury.

¶25 In any event, our determination is governed by the statutes at issue, which also indicate that as long as an employee’s injury-causing conduct occurred in the course and scope of employment, he or she is immune from suit by other employees. For instance, in defining “third persons” subject to suit, section 35-1-62 states, “When any injury or death ... shall have been caused by the wrongful act or neglect of a person other than an employer, officer, agent, or employee of said employer, the injured employee ... may [sue] such third person.” Utah Code Ann. § 35-1-62 (1988). This language focuses the inquiry on whether the person who caused the injury was an officer, agent, or employee at the time of his or her wrongful act or neglect. The clear implication is that if a person engages in wrongful or neglectful conduct while as an employee, then that person is not a “third person” whom the injured employee may sue, regardless of when the injury occurs. Cf. Fields v. Jantec, Inc., 317 Or. 432, 857 P.2d 95, 99-100 (1993) (holding that employee may not sue former employer based on alleged negligence that occurred during employment relationship even though employee’s injury did not occur until after new employer took over business). Here, Green’s alleged negligence occurred while he was an employee of Holmes & Narver. Accordingly, Manning cannot sue Green for his injuries.⁹

¶ 26 Because coverage is not triggered under Utah Home Fire’s liability insurance policy, we need not consider the applicability of the policy’s exclusions. The district court correctly entered summary judgment in favor of Utah Home Fire.

¶ 27 Affirmed.

¶ 28 Chief Justice HOWE, Associate Chief Justice DURHAM, and Justice ZIMMERMAN concur in Justice RUSSON’s opinion.

1 .Utah Home Fire also contended that it did not have to defend or indemnify Green’s wife, Carol L. Green dba C.B. Construction, to whom it had issued an identical insurance policy. Carol Green apparently assisted in installing the siding. Given their unity of interests, and for purposes of clarity, we will refer only to William Green and the insurance policy issued to him.

2 . This section is now found at Utah Code Ann. § 34A-2-105 (1997).

3 . This provision is now found at Utah Code Ann. § 34A-2-106(l) to -106(4) (1997).

4 . This provision is now found at Utah Code Ann. § 34A-2-103(2)(a) (Supp.1998). '

5 . This provision is now found at Utah Code Ann. § 34A-2-104(l)(b) (Supp.1998).

6 . This provision is now found at Utah Code Ann. § 34A-2-103 (1997).

7 . In arguing that Green’s work was not a part or process of Holmes & Narver's trade or business, Manning relies on the following provision in effect at the time of his injury:

A portion of a construction project subcontracted to others may be considered a part or process in the trade or business of the general building contractor, only if the general building contractor, without regard to whether ... it would need additional employees, would perform the work in the normal course of its trade or business.

Utah Code Ann. § 35-l-42(6)(c) (Supp.1992). Manning contends that Holmes & Narver did not install siding in the normal course of its business, but subcontracted such work to others as a matter of course. Manning's argument, however, is misguided. As explained herein, the right-to-control test determines whether a worker is an employee protected by the exclusive remedy provision.

8 . The statutory standard of section 35-l-42(6)(a) is not the equivalent of the right-to-control test. Section 35-l-42(6)(a) expressly allows for employees of a subcontractor to he deemed employees of the person who hired the general contractor despite the fact that that person may not have retained or exercised any control over the subcontractor or its employees. Moreover, this court has explained that the "statutory employee” standard of section 35-1-42 cannot be equated with the common law right-to-control standard for distinguishing between employees and independent contractors. See Bennett, 726 P.2d at 431-32. An individual may be an "independent contractor” under the common law standard while at the same time qualifying as an employee for purposes of section 35-l~42(6)(a). See Pinter Constr. Co., 678 P.2d at 308. The "statutory employer provision is a legislatively created scheme by which conceded nonemploy-ees are deliberately brought within the coverage of the [Act].” English v. Kienke, 848 P.2d 153, 158 (Utah 1993). To the extent the two standards can be compared, the level of control or supervision contemplated under section 35 — 1— 42(6)(a) is less than the requisite degree of control to which one must be subject to qualify as an employee under the right-to-control test. See Bennett, 726 P.2d at 432 (noting that "the term 'supervision or control’ [under the statutory standard] requires only that the general contractor retain ultimate control over the project”).

9 . This case is clearly distinguishable from Riddle v. Mays, 780 P.2d 1252 (Utah 1989) (per curiam). Riddle held that pursuant to section 35-1-62, a direct employee of Owens-Coming was not precluded from bringing an action against an employee of a subcontractor of Owens-Corning. See id. at 1253. The situation here is significantly different: both Manning and Green were direct employees of Holmes & Narver. In relying on Riddle, the dissent draws no distinction between workers who are employees under the right-to-control test and workers who are "statutory employees." As explained fully herein, the two are not the same.