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04/30/2014

Applicability of Truckers’ Policy Exclusions Is a Triable Issue

In Global Hawk Ins. Co. v. Le, the California Court of Appeal reversed a trial court’s order granting the insurance company’s motion for summary judgment on the grounds that triable issues of fact existed as to whether the “employee” and “worker’s compensation” exclusions in the policy were applicable.

Plaintiff Jerry Le was a truck driver for V&H Transport. For each job assignment with V&H, Le was paid a lump sum and received no benefits, taxes, Social Security or other deductions. At the end of the year he received a 1099 for taxes. Le was not guaranteed work and could turn down any job offered by V&H.

In late 2010, Le took a job assignment from V&H to haul goods cross-country, for which Le was to be paid a lump sum of $1,100. During the trip, Le’s co-driver was involved in a single vehicle accident that resulted in Le being ejected from the vehicle and suffering serious injuries, including a broken neck. V&H refused to pay Le the $1,100 lump sum claiming he did not finish the trip, and told Le he was not an employee and would not be entitled to worker’s compensation.

On June 1, 2011, Le filed a complaint for damages naming the co-driver and V&H as defendants. V&H tendered its defense to Global Hawk Insurance Co., which insured V&H under a commercial auto truckers’ liability policy. The policy contained an “employee” exclusion that precluded coverage for bodily injury to an employee of the insured arising out of and in the course of employment by the insured, as well as a “workers’ compensation” exclusion that precluded coverage for any obligation for which the insured or the insured’s insurer may be held liable under any worker’s compensation, disability benefits of unemployment compensation law or similar law. Relying on the “employee” and “workers’ compensation” exclusions, Global denied the tender of the complaint. No answers were filed to Le’s complaint and defaults were entered against all the defendants.

On Oct. 3, 2011, Global filed a complaint seeking declaratory relief and naming Le, V&H, and others as defendants. On Aug. 31, 2012, Global filed a motion for summary judgment arguing that federal regulations pertaining to the trucking industry provided the applicable definition of “employee” and that for purposes of the “employee” and “workers’ compensation” exclusions Le was an employee.

In particular, Global relied on 49 C.F.R. § 390.5, which defines the term “employee” as including an independent contractor driving a commercial motor vehicle. Global also relied on the Ninth U.S. Circuit Court of Appeals’ decision in Perry v. Harco National, Inc. Co. (9th Cir. 1997) 129 F.3d 1072, which held that the “employee” exclusion in a federally mandated MCS-90 endorsement precluded coverage for the driver of a leased vehicle whether or not the driver was an employee or an independent contractor of the insured employer motor carrier. The MCS-90 endorsement is required to be in every liability insurance policy covering a motor carrier by the Federal Motor Carrier Safety Administration (FMCSA).

Le opposed the motion on the grounds that Global’s policy did not have an MCS-90 endorsement. Le also argued that the policy specifically defined the term “employee” to include a “leased worker” but not a “temporary worker,” and the policy did not include “independent contractors” in that definition. The trial court granted Global’s motion for summary judgment and Le appealed.

On April 14, the Court of Appeal held that under California law, the determination of employee or independent contractor status is one of fact if it depends upon the resolution of disputed evidence or inferences. In making such a determination, numerous factors are considered including the method of payment and whether the parties believed they were creating the relationship of employer-employee. The Court of Appeal held that the trial court erred by failing to apply California law and instead applying federal regulations pertaining to the trucking industry.

The Court of Appeal further held that under California law, several facts indicated that Le was an independent contractor, not an employee, including: 1) Le was paid a lump sum without any withholding for taxes; 2) Le received a 1099 tax form provided to independent contractors; and 3) Le was told by V&H that he was not an employee and was not eligible for workers’ compensation. As a result, the Court of Appeal held that there were triable issues of fact as to whether the “employee” exclusion applied to Le. Since an independent contractor is not eligible for workers’ compensation, the Court of Appeal also found triable issues of fact as to whether the “workers’ compensation” exclusion was applicable.

The Court of Appeal held that Perry was not applicable because the policy did not contain an MCS-90 endorsement and Perry was expressly limited to the construction of the MCS-90 endorsement in the policy at issue. The Court of Appeal further found that Perry did not stand for the proposition that the definition for “employee” used by the FMCSA supplanted the definition set forth in the underlying insurance policy, especially if doing so would displace an insurer’s obligation to pay a covered claim.

Finally, the Court of Appeal rejected Global’s argument that it should look to the federal regulations to interpret the policy because the policy could have been augmented by an MCS-90 endorsement, finding that an insured cannot be bound to a definition applicable to an endorsement not included in the policy. To be enforceable, any provision that takes away or limits coverage reasonably expected by an insured must be “conspicuous, plain and clear” and must be placed and printed so it will attract the reader’s attention and be stated precisely and understandably in words that are part of the working vocabulary of the average layperson. Accordingly, the Court of Appeal reversed the trial court’s summary judgment decision.

Click here for the opinion.

The opinion in Global Hawk Ins. Co. v. Jerry Le (April 14, 2014) ____ Cal.App.4th ____; 14 C.D.O.S. 4031, is not final. The Court of Appeal may modify it on rehearing or the California Supreme Court may order it depublished or grant review. The latter two events would render the opinion unavailable as legal authority in California courts.

This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees.com.

Insurance

Aaron P. Rudin



Insurance

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