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(Fremont Comp. Ins. v. Sierra Pine )
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Workers Compensation Policy And Statutory Scheme
(Fremont Comp. Ins. v. Sierra Pine )

DISCUSSION

     The critical statute is section 3852, but we first describe its context within the Legislature’s comprehensive compensation system.  (See Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735 [statutes must be construed in context of statutory scheme].)

     In 1911, a voluntary employer’s liability law was enacted, “whereby the risk of the employment shall be placed not upon the employee alone, but upon the employment itself.”  (Governor Hiram Johnson’s First Inaugural Address, 1911, see www.governor.ca.gov and links.)  The California Constitution was also amended that year to allow for a compulsory system and in 1913, such a system was enacted.  The current workers’ compensation system is structurally the same as an act passed in 1917 and codified into the new Labor Code in 1937. 

     The policy is that workers do not have to prove fault, adjudication is swift, but the benefits are smaller than might be obtained as tort damages.  (Mathews v. Workmen’s Comp. Appeals Bd. (1972) 6 Cal.3d 719, 728-734; Boehm & Associates v. Workers’ Comp. Appeals Bd. (2003) 108 Cal.App.4th 137, 142; 2 Witkin, Summary of Cal. Law (9th ed. 1987) Workers’ Compensation, §§ 1-5; Hichborn, Story of the Cal. Legislature of 1911, pp. 236-245; Hichborn, Story of the Cal. Legislature of 1913, pp. 346-347.)  The law: (1) spreads the cost of industrial injuries to goods and services; (2) provides prompt, limited compensation to injured workers, regardless of fault; (3) increases industrial safety; and (4) insulates employers from tort liability.  (Privette v. Superior Court (1993) 5 Cal.4th 689, 697.)

     Private employers may create a self-insurance plan, but most buy insurance.  (Witkin, supra, § 134, p. 706.)  Then the carrier assumes liability and is “subrogated to all rights of the employer arising out of assumption of liability or payment of compensation.”  (Id., § 137, p. 708; see Ins. Code 11662; Employers Mutual Liability Ins. Co. v. Tutor-Saliba Corp. (1998) 17 Cal.4th 632, 638-639 (Employers Mutual).)  The “employer is subrogated to the personal injury claim of the employee against the third party.  Therefore, the employer’s insurer is also so subrogated when it stands in the shoes of the employer.  The insurer is also, however, subrogated to the employer’s additional rights and liabilities against the third party.  For example, while the employee has no claim for reimbursement of workers’ compensation benefits against the third party, the employer, and therefore its insurer, does.”  (Employers Mutual, supra, 17 Cal.4th at p. 639, italics added.)

     As the italicized passage just quoted indicates, one way to reduce the insurance burden on employers is to allow employers and their insurers to pursue third parties who kill or injure workers and thereby cause the payment of benefits.  In contrast, a wrongful death suit is based on a new cause of action which recompenses heirs for their pecuniary losses, and is not a survival of whatever cause of action the decedent may have had for injuries.  (Horwich v. Superior Court (1999) 21 Cal.4th 272, 283; see Travelers Ins. Co. v. Sierra Pacific Airlines (1983) 149 Cal.App.3d 1144, 1159 [wrongful death claim “independent of an action for recovery of funds paid out under section 3852”] (Travelers); see Smith v. County of Los Angeles (1969) 276 Cal.App.2d 156, 164 (Smith).)

     The carrier may choose how to try to recoup payments it has made.  It may: (1) intervene in an injured worker’s action, (2) file an independent action, or (3) assert a lien in an injured worker’s action.  (§§ 3852, 3853, 3856; see Gapusan v. Jay (1998) 66 Cal.App.4th 734, 739, fn. 3 (Gapusan); O’Dell v. Freightliner Corp. (1992) 10 Cal.App.4th 645, 653 (O’Dell); 16 Couch on Insurance (3d ed. 2000) § 225:152.)  This ensures the employee does not get a double recovery, the third party does not have to defend two lawsuits, and compensation insurance rates are minimized.  (O’Dell, supra, 10 Cal.App.4th at p. 653; Abdala v. Aziz (1992) 3 Cal.App.4th 369, 376-377 (Abdala).)

     Section 3852 now provides in part:  “The claim of an employee . . . for compensation does not affect his or her claim or right of action for all damages proximately resulting from the injury or death against [third parties].  Any employer who pays, or becomes obligated to pay compensation, or who pays, or becomes obligated to pay [the State pursuant to section 4706.5, where the employee has no dependents], may likewise make a claim or bring an action against the third person.  In the latter event the employer may recover in the same suit, in addition to the total amount of compensation, damages for which he or she was liable including all salary, wage, pension, or other emolument paid to the employee or to his or her dependents.  The respective rights against the third person of the heirs of an employee [suing for wrongful death], and an employer claiming pursuant to this section, shall be determined by the court.”   “Employer” includes the insurance carrier.  (§ 3850, subd. (b).)  A death benefit is compensation.  (§ 3207; Travelers, supra, 149 Cal.App.3d at p. 1155.)

     The statute first states an employee does not lose the right to sue third parties by applying for benefits.  Had Manning survived he could have sued defendants for injuries and Fremont could have joined his suit.  Since Manning died, his heirs, if any, could have sued defendants for wrongful death.  (See Code Civ. Proc., § 377.60.)  The last sentence of section 3852 allows a court to apportion damages between the employer (or insurer) who has paid compensation benefits, and the heirs who sue for their wrongful death damages.  This establishes that an employer (or insurer) is not limited to recovery for payments due to injuries.  “[A]n employer claiming pursuant to this section” (§ 3852) is not pursuing a wrongful death recovery.  (Eli v. Travelers Indemnity Co. (1987) 190 Cal.App.3d 901,

904, fn. 2, 905 [“two wholly distinct and independent causes of action”].) 

     The heart of the statute provides that where the carrier “pays, or becomes obligated to pay compensation,” it “may likewise make a claim or bring an action against the third person.”  (§ 3852, italics added.)  In that action, “the employer [or carrier] may recover . . . in addition to the total amount of compensation, damages for which he or she was liable including all salary, wage, pension, or other emolument paid to the employee or to his or her dependents.”  (Ibid.  Italics added.)  A plain reading of this statute indicates that because Fremont paid death benefits to Manning’s dependent, it “may likewise . . . bring an action against the third person” to recover those benefits.  (§ 3852.) 

     To repeat, Manning could have sued defendants for his injuries had he lived.  If for some reason he chose not to sue them, Fremont “likewise” could have sued defendants to recoup its payments.  Section 3851 provides, “The death of the employee[,] or of any other person, does not abate any right of action established by this chapter.”  Equivalent language has been in the compensation statutes for a long time.  (See Stats. 1919, ch. 471, § 8, p. 920.)  This is a legislative abrogation of the common law rules regarding the deaths of parties, and provides for survivorship of Fremont’s right to sue, notwithstanding Manning’s death.  (See Garofalo v. Princess Cruises, Inc. (2000) 85 Cal.App.4th 1060, 1070 (Garofalo).)

     Therefore, we conclude Fremont’s standing comes from section 3852, and the wrongful death statute, with its limited standing provisions, is irrelevant.  This application of plain statutory meaning, given the comprehensive scheme of which section 3852 is a part, should have resolved the demurrer in Fremont’s favor. 

     Defendants, relying on snippets of California Supreme Court cases, convinced the trial court that section 3852 did no more than codify equitable subrogation principles.  Once the trial court accepted that theory, it had to conclude that Fremont in effect bought Nesmith’s rights to sue defendants by paying her death benefits, and further conclude that because she had no right to sue defendants, neither did Fremont.  We agree section 3852 partly codifies subrogation law and that Nesmith could not sue defendants.  Otherwise, we disagree.

     As the California Supreme Court passage quoted above makes clear, the employer is subrogated to the employee’s rights and the carrier is subrogated to the employer’s rights and also “to the employer’s additional rights and liabilities against the third party.  For example, while the employee has no claim for reimbursement of workers’ compensation benefits against the third party, the employer, and therefore its insurer, does.”  (Employers Mutual, supra, 17 Cal.4th at p. 639.) 

     We acknowledge defendants’ point that, although the statute no longer speaks in terms of subrogation as an earlier version did (Stats. 1913, ch. 176, § 31, p. 295; see Insurance Co. v. Terminal Rys. (1919) 39 Cal.App. 388, 391), the current statute and its predecessors have been characterized as codifying principles of equitable subrogation, rather than indemnity.  But these characterizations generally responded to claims that section 3852 created a source of substantive liability.  (E.g., County of San Diego v. Sanfax Corp. (1977) 19 Cal.3d 862, 873-874 (Sanfax).)  The treatises view it as “a statutory right to indemnity that is, to some extent, subject to principles of equitable subrogation.”  (Peyrat, Cal. Workers’ Damages Practice (Cont.Ed.Bar 2d ed. 2001) Employers’ Reimbursement Claims, § 7.3; see Witkin, supra, § 66; Herlick, Cal. Workers’ Comp. Law (6th ed. 2001) §§ 12.01[1], 12.05[1], 12.09[3].)

     As we have explained before, “Equitable subrogation is a legal device which permits a party who has been required to satisfy a loss created by a third party’s wrong to step into the shoes of the loser and recover from the wrongdoer.”  (Transit Casualty Co. v. Spink Corp. (1979) 94 Cal.App.3d 124, 132, disapproved on other grounds in Commercial Union Assurance Companies v. Safeway Stores, Inc. (1980) 26 Cal.3d 912, 921.)  Because the subrogee steps into the shoes of the subrogor, the third party has all defenses against the subrogee that it would have had against the subrogor.  (See Fireman’s Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1291; Travelers, supra, 149 Cal.App.3d at p. 1152, fn. 6.)  In contrast, indemnity “is a right which inures to a person, who without active fault on their part, has been compelled by reason of some legal obligation to pay money due to the initial negligence of another.”  (Associated Indemnity Corp. v. Pacific Southwest Airlines (1982) 128 Cal.App.3d 898, 906.)  An indemnitee does not step into the indemnitor’s shoes.

     It is true that some California Supreme Court cases recite that section 3852 “simply” (Sanfax, supra, 19 Cal.3d at p. 876, fn. 7, quoted in Employers Mutual, supra, 17 Cal.4th at p. 637) or “merely” (Western States etc. Co. v. Bayside L. Co. (1920) 182 Cal. 140, 148 (Western States), quoted in De Cruz v. Reid (1968) 69 Cal.2d 217, 222 (De Cruz)) reflects subrogation principles.  But the generality that the Labor Code models common law subrogation principles does not warrant disregarding the explicit terms of the statutory scheme.  Not one of the California Supreme Court cases in which such language appears dealt with the issue involved here, explicitly or by necessary implication.  “Cases are not authority for propositions not considered.”  (In re Tartar (1959) 52 Cal.2d 250, 258.) 

     Some Court of Appeal cases had misconstrued section 3852 to provide generally for indemnity rather than subrogation.  (See, e.g., State Comp. Ins. Fund v. Williams (1974) 38 Cal.App.3d 218, 222 (Williams).)  Breese v. Price (1981) 29 Cal.3d 923 (Breese), rejected the view that section 3852 provided a general indemnity right.  (See Hubbard v. Boelt (1983) 140 Cal.App.3d 882, 884-885 (Hubbard) [“Breese expressly disapproves the rationale of [Williams] and several recent cases recognize the Supreme Court requires employer suits under section 3582 to be treated as derivative rather than independent]”]; Mendenhall v. Curtis (1980) 102 Cal.App.3d 786, 793 [pre-Breese case rejecting Williams].)  However, Breese arose in a specific factual context and its rejection of the view that section 3852 was a general indemnity statute was not a holding that it only codified subrogation principles.  Breese involved a possibly collusive settlement of the compensation claim (see 29 Cal.3d at pp. 926, 931), after which the carrier tried to prevent the alleged third party — who had had no notice of the compensation proceeding — from litigating the amount of damages.  The court held that the carrier in such a case must still show the amount of damages proximately caused by the negligence of the third party, explaining that the statutes are essentially procedural and do not define the substantive law to govern the tort action.  (Id. at pp. 928-931.)  In this context the court stated that section 3852 “does not enlarge the tort remedy of a compensation carrier beyond that of the injured employee,” and later quoted the generality that section 3852 “‘simply’” codifies subrogation principles.  (Id. at pp. 928-929.)  However, the statutory scheme, and the more specific (and more recent) California Supreme Court passage we have quoted (Employers Mutual, supra, 17 Cal.4th at p. 639) indicates these statements did not set forth a complete definition of section 3852.

     In sum, the California Supreme Court has not held that section 3852 does no more than codify common law subrogation.  The referenced generalities in the other cases (and, indeed, the generality quoted in Employers Mutual itself, Employers Mutual, supra, 17 Cal.4th at p. 637) do not allow us to warp the language of the relevant Labor Code statutes to fit into common-law pigeonholes.  (Gapusan, supra, 66 Cal.App.4th at pp. 740-741 [rejecting claim that Labor Code subrogation statutes must be treated as coextensive with common law].)  Instead of viewing 3852 through a common-law lens, we should view it in harmony with the statutory scheme of which it is a part, as we stated at the outset.  (See Travelers, supra, 149 Cal.App.3d at p. 1150.)

     Our interpretation is consistent with Travelers, supra, 149 Cal.App.3d 1144.  There, death benefits were paid to the State fund for lack of heirs or dependents.  The court held (at page

1155):  “The scheme created by section 3857 is to hold the third party tortfeasor liable for all consequences of his acts.  Any amount which the employers or their insurer is obligated to pay, including those payments made to the state under section 4706.5, subdivision (a), is inclusive of the overall scheme.”  (Italics added.)  This passage is consistent with the goal allowing carriers to recoup benefits paid due to the negligence of third parties.  Travelers also pointed out that reimbursement to the carrier in escheat cases cannot be explained by subrogation, since the State, the recipient of the death benefit, has no cause of action for wrongful death.  (149 Cal.App.3d at p. 1154.)         Defendant’s interpretation of the statute would lead to an absurd result, which courts strive to avoid.  (People v. Catelli (1991) 227 Cal.App.3d 1434, 1448.)  For example, in section 3852 actions the employer stands in the shoes of the injured employee.  (Garofalo, supra, 85 Cal.App.4th at pp. 1070, 1077; see Demkowski v. Lee (1991) 233 Cal.App.3d 1251, 1258; Peyrat, supra, § 7.3, p. 228; Hubbard, supra, 140 Cal.App.3d at p. 884.)  The Board had to adjudicate disposition of death benefits arising out of Manning’s employment, and an application for such benefits is brought in the worker’s name.  (1 Cal. Workers’ Compensation Practice (Cont.Ed.Bar 4th ed. 2002) § 13.72.)  Fremont was going to have to pay someone those benefits, and paid Nesmith because that was what the Board ordered.  Fremont had no vested interest in who received the benefits, its sole concern was to try to recoup them from third party tortfeasors.  Defendants concede Fremont could have sued them had benefits been paid to an heir or to the State.   Considering the statutory scheme, we perceive no reason why the Legislature would want to deny Fremont recovery in this third scenario. 

     The California Supreme Court has explained that subrogation principles must be applied so as to further the legislative purpose immanent in the compensation statutes.  (Board of Administration v. Glover (1983) 34 Cal.3d 906, 916-917.)  The legislative purpose is to provide that “the third party is liable for all the wrong his tortfeasance brought about; this includes both the damage to the employee and payments made or required to be made by the employer.”  (Smith, supra, 276 Cal.App.2d at p. 162; see Sanfax, supra, 19 Cal.3d at p. 873.)  There is a corresponding public policy to reduce the cost of compensation insurance by allowing carriers to recoup payments.  (Abdala, supra, 3 Cal.App.4th at p. 377.)  Thus the courts “discern a clear legislative policy militating in favor of reimbursement whenever possible.”  (Ibid.  See C.J.L. Construction, Inc. v. Universal Plumbing (1993) 18 Cal.App.4th 376, 384.)  When a carrier has paid out money it should be able to recoup.  (See Abdala, supra, at p. 375; Harvey v. Boysen (1975) 50 Cal.App.3d 756, 760-761.)  As we have previously pointed out, “The compensation system was not designed to extend immunity to strangers.”  (Sanstad v. Industrial Acc. Com. (1959) 171 Cal.App.2d 32, 35.) 

     We decline to discuss in detail foreign authorities arising on similar facts.  (See, e.g., 16 Couch on Insurance, supra, § 225:200, p. 225-169; Allstate Insurance Co v. Bliss (Utah 1986) 725 P.2d 1330; Ore-Ida Foods, Inc. v. Indian Head Cattle Company (1981) 290 Or. 909 [627 P.2d 469]; United States Fidelity & Guaranty Company v. Higdon (1959) 235 Miss. 385 [109 So.2d 329].)  “Decisions from other states are not greatly helpful to us in the solution of our own problems, due to the vital differences to be found in the terms of either their compensation acts or else their wrongful death statutes.”  (Superior Mineral Co. v. Missouri Pac. R. Co. (1932) 227 Mo.App. 1044, 1051 [45 S.W.2d 912, 914].) 

     For the reasons we have set out above, we conclude Fremont has stated a cause of action against defendants and the trial court should have overruled the demurrer.
 

DISPOSITION

     The judgment is reversed with directions to the trial court to overrule the demurrer.  Fremont shall recover its costs on appeal.  (Cal. Rules of Court, rule 27(a).)    

Fremont_Comp_Ins_v_Sierra Pine

Aug 04 2004

C034569 [PDF] [DOC]

Fremont Comp. Ins. v. Sierra Pine 8/4/04 CA3

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