Employer not limited to one workers’ comp policy

Interpreting language in G.L. §28-36-5 requiring that workers’ compensation insurance policies cover the “entire liability of the employer,” the Rhode Island Supreme Court has ordered a Massachusetts insurer to pay benefits to an injured employee of a Rhode Island construction company.

The case of first impression examined which of two insurers was liable for a workers’ compensation claim filed when an employee of Ajax Construction, a Rhode Island company, was injured at a job site in Massachusetts. Ajax carried workers’ comp insurance in the states where it did business, including policies with Liberty Mutual Insurance Co. in Massachusetts and Beacon Mutual Insurance Co. in Rhode Island.

Even though the injured employee worked for a Rhode Island company and filed his claim there, the Supreme Court determined that the worker was a “Massachusetts employee” as defined in Liberty’s endorsement on paying benefits awarded in another state. Liberty was therefore required to pay benefits.

Further, Beacon did not share responsibility under the Rhode Island policy, notwithstanding the “entire liability” provision of §28-36-5, the court found.

“We hold that the phrase ‘entire liability of the employer’ was meant to ensure that an employer obtained coverage for all of its employees, not that it had to do so with a single policy,” Justice Gilbert V. Indeglia wrote for the unanimous court.

“While insurance policies cannot exclude benefits provided under the [workers’ compensation] act, §28-36-5 does not prevent an employer from having more than one insurer for all of its workers, especially if doing so will result in savings to the employer,” Indeglia continued.

The 18-page opinion is Ajax Construction Company, Inc. v. Liberty Mutual Insurance Company.

Premium according to risk

Providence attorney Susan P. Fay represented Ajax Construction. With most of its construction personnel working in Massachusetts, the company could have faced premium increases if the injured ironworker’s claim was paid in Rhode Island, she said.

“The decision gives both insurance companies and businesses that operate across state lines some guidance on the coverage that they need to purchase,” Fay said.

It is particularly significant in New England, where many businesses operate across state lines, she added.

Speaking to the opinion’s statutory analysis, Fay said once the court found the term “entire liability of the employer” ambiguous, “they looked into what the Legislature was trying to protect and the best way to accomplish that. The justices found that the legislative intent was to protect employees, and that nothing in the statute said that business can’t get better value by purchasing different policies in different states to accomplish that goal.”

Jeffrey M. Liptrot, a lawyer in Providence who represented Beacon Mutual Insurance, noted the premium differentials of the two policies. Testimony at trial established that the Liberty policy’s annual premium for workers’ compensation coverage was over $282,000, with a larger base of construction workers, while the annual premium to Beacon was approximately $69,000.

“One of Beacon’s primary arguments based in equity was that the insurer who got the premium should be responsible for the risk,” Liptrot said. “Beacon didn’t take any money associated with this risk, as the claimant’s wages were not calculated into the premium. If Beacon were to pay, it would go back and charge Ajax for all the premiums that they did not collect.”

For employers, Liptrot said, the significance of the case is that they can have more than one policy. For insurers, since much of the case turned on the term “Massachusetts employee” in Liberty’s policy, it reinforces the notion that insurance policies are contracts and that their terms will be binding.

“It tells carriers to look closely at the policies they’re issuing, even the boilerplate language,” he said.

Attorneys for Liberty Mutual declined to comment.

Workers’ compensation practitioner Michael S. Schwartz of Providence concurred on the significance of the ruling.

“As far as practitioners are concerned, the importance is that the insurance company that owns the risk will not be determined by the place where the claim is filed,” he said. “In instances where there is dual coverage and choice of forum, the questions will be where the employee did the bulk of his work and where he was injured.”

The end result is the decision allows employers such as Ajax to purchase from one insurer to protect employees in Massachusetts, and from another carrier to protect Rhode Island employees, Schwartz said.

“The decision gives both insurance companies and businesses that operate across state lines some guidance on the coverage that they need to purchase.”

— Susan P. Fay, Providence, Rhode Island

Disparate results below

Mark Furia, an Ajax employee, was injured while working as an ironworker on a job site in Massachusetts.

When Furia filed a petition against Ajax in the Workers’ Compensation Court, Ajax asked the court to determine which of its insurers, Liberty in Massachusetts or Beacon in Rhode Island, was obligated to pay the claim.

An interlocutory order required Beacon initially to provide benefits.

The trial judge held that Beacon was primarily liable because Furia was hired in Rhode Island and brought his claim there. But the judge additionally found that the claimant had a right to compensation in Massachusetts and ordered Liberty to reimburse Beacon for 50 percent of the benefits paid.

The Appellate Division vacated that decree and held Beacon fully responsible for payments, partly because Furia filed his claim in Rhode Island. The statutory language of §28-36-5 rendered Rhode Island’s workers’ compensation statute a “full coverage” statute, the court said, under which an insurance policy is “deemed to cover all employees of the insured in all occupations and all businesses.”

The Appellate Division placed no weight on Liberty’s collecting significantly more of its premium based on the payroll of construction workers. It further held that Liberty did not have to pay benefits awarded in Rhode Island, because Furia was not hired in Massachusetts by a Massachusetts employer and was therefore not a “Massachusetts employee” under Liberty’s policy.

Legislative intent of statute

By examining Liberty’s contract and the relevant language of Rhode Island’s workers’ compensation act, the Supreme Court quashed the Appellate Division decree and found Liberty exclusively liable.

The Liberty policy’s endorsement obliged the company to cover payment of benefits awarded to “Massachusetts employees” in other states. The court found that phrase to be clear and unambiguous.

“An ordinary reader and purchaser would have believed the term to mean an employee who primarily works in Massachusetts,” Indeglia wrote.

With testimony showing that Furia worked in Massachusetts approximately 70 percent of the time, Liberty was liable for workers’ compensation benefits under its contract with Ajax, the court found.

But the question remained whether Beacon also was liable under the “entire liability of the employer” language of §28-36-5.

The court declined to adopt the Appellate Division’s reasoning, holding that the “legislative intent of [the statute] was to ensure that employers obtain complete coverage for all of their employees. It did not, however, bar them from doing so with more than one policy or insurer.”

Additionally, the court took issue with the Appellate Division’s conclusion that responsibility is based on where a claim is filed. The justices were not comfortable with “leaving liability to something as arbitrary as the location of the employee’s filing,” the opinion said.

Finding that the place of filing is a “happenstance” that is immaterial to an insurer’s liability, the court found that Beacon was not responsible under §28-36-5 to pay the benefits solely because Furia filed his claim in Rhode Island.

“[T]he Appellate Division erred in its interpretation of ‘Massachusetts employee’ and ‘entire liability of the employer,’” Indeglia wrote. “As such, Liberty is liable … for the payment of benefits awarded to Furia in Rhode Island, and Beacon is not liable under §28-36-5 to pay any benefits on the claim.”

‘Contractual, statutory humps’

Fay said that both the contract and statutory aspects of the case were critical for Ajax’s contention that Liberty was liable.

“We needed to get over both the contractual and statutory humps. We had to show not only that Liberty covered the injury, but that Beacon did not have to cover it,” she said.

Under the Appellate Division’s holding, the insurers would have had to “double-cover themselves, which would presumably cost twice as much,” she said.

Schwartz said in terms of premiums, the ruling makes much sense.

“Ajax was paying a huge premium in Massachusetts, where the bulk of its payroll works, so it is logical,” Schwartz said. “Beacon was only receiving dollars for work being done in Rhode Island.”

Liptrot, meanwhile, noted the hurdles that the facts presented to the Appellate Division.

“There is not a lot of decisional law on this topic, so it’s difficult to fault their analysis,” he said. “These are fairly heady issues that the courts are confronting. Policy interpretation issues are not commonplace.”

Another significant aspect of the Supreme Court decision, Liptrot said, lies in several other cases with similar facts pending at the trial and appellate divisions of the Workers’ Compensation Court. The holding will have a large impact on those, he said.