Case Title: SMALYGO v. GREEN

Citation: 

Docket Number: 102950

State: oklahoma

Court: Oklahoma Supreme Court

Date: 2008-04-15T00:00:00Z

Document:
SMALYGO v. GREEN  SMALYGO v. GREEN 2008 OK 34 184 P.3d 554 Case Number: 102950 Decided: 04/15/2008 THE SUPREME COURT OF THE STATE OF OKLAHOMA Millard Smalygo, Jr., d/b/a Smalygo Homes, Petitioner, v. David T. Green and The Workers' Compensation Court, Respondents. CERTIORARI TO THE COURT OF CIVIL APPEALS Division IV ¶0 A three-judge panel of the Workers' Compensation Court determined that the claimant's principal employer had failed to meet the statutory requirement of "good faith" in his reliance on proof of workers' compensation coverage. Thus, the principal employer was determined to be secondarily liable for the injury sustained by the claimant as an employee of principal employer's uninsured subcontractor. The Court of Civil Appeals sustained that determination. CERTIORARI PREVIOUSLY GRANTED; OPINION OF COURT OF CIVIL APPEALS VACATED; ORDER OF THREE-JUDGE PANEL OF WORKERS' COMPENSATION COURT SUSTAINED. Aaron C. Peterson of Tulsa, Oklahoma, for Petitioner. Bret A. Unterschuetz of Tulsa, Oklahoma, for Respondents. COLBERT, J. ¶1 This matter presents this Court's first application of the "good faith reliance" exception to the long-standing rule of principal employer liability stated in section 11(B)(2) of the Workers' Compensation Act. Okla. Stat. tit. 85, §§ 1 through 211 (2001 & Supp. 2007). The issue is whether competent evidence was presented to support the determination by a three-judge panel of the Workers' Compensation Court that a principal employer's reliance on proof of workers' compensation insurance did not meet the statutorily imposed standard of "good faith" necessary to exempt the principal employer from secondary liability in workers' compensation. This Court finds that there is competent evidence in the record to support that determination. FACTS AND PROCEDURAL HISTORY ¶2 David Green (Claimant) suffered a work-related injury on October 10, 2002, while working as a construction laborer for Mark Murphy d/b/a Mark Murphy Construction, an independent contractor and subcontractor of the principal employer Millard Smalygo d/b/a Smalygo Homes. When Claimant learned that his immediate employer had no workers' compensation coverage, he amended his claim to add Smalygo as principal employer. ¶3 Smalygo contracted Murphy to perform construction work and requested proof of workers' compensation coverage. Although it is undisputed that Murphy provided written proof of valid current coverage, the content of that proof is unclear because apparently neither party retained the original or a copy. However Claimant's Exhibit #3 is a document from Compsource Oklahoma, which reflects that insurance coverage was in effect from August 13, 2001, until April 1, 2002. This document was generated on May 20, 2004, apparently at the request of Claimant's lawyer in anticipation of trial. While the exhibit is evidence of the date coverage began, it does not identify the original expiration date of coverage listed on the proof of insurance Murphy provided to Smalygo. ¶4 The trial court initially determined that Claimant was himself an independent contractor for Murphy and dismissed the claim with prejudice for lack of jurisdiction in August of 2004. A three-judge panel vacated that dismissal, found that Claimant was an employee of Murphy, and remanded the matter for a determination of the remaining issues. ¶5 On remand, Smalygo argued that he was insulated from secondary liability based upon his compliance with section 11(B)(2) which provides that "if a principal employer relies in good faith on proof of a valid workers' compensation insurance policy issued to an independent contractor of the employer or to a subcontractor of the independent contractor . . . then the principal employer shall not be liable for injuries of any employees of the independent contractor or subcontractor." Okla. Stat. tit. 85 (Supp. 2007). Smalygo testified that he had known Murphy for "quite a few years," he relied upon the fact that Murphy had given proof of coverage to him, and he trusted Murphy to maintain that coverage. ¶6 In its July 2005 order on remand, the trial court determined that Claimant was an employee of Murphy at the time of his injury. It also determined that Smalygo was not secondarily liable because he had required proof of workers' compensation coverage before he allowed Murphy to perform work as a subcontractor and he did not know that Murphy had allowed that coverage to lapse. Smalygo was again dismissed from the matter with prejudice. ¶7 A three-judge panel sustained in part and modified in part. It sustained the determination that Claimant was an employee of Murphy. However, the divided panel expressly vacated the trial court's determination that Smalygo was not secondarily liable. ¶8 The issue of Claimant's status as Murphy's employee was not raised in this appeal and the Court of Civil Appeals sustained the three-judge panel's determination that Smalygo was secondarily liable. Thus, this matter presents the sole issue of Smalygo's secondary liability as principal employer. ANALYSIS ¶9 The Workers' Compensation Act is designed to encourage employers to secure compensation so that injured workers will be compensated for "loss of earning power and disability to work." Strong v. Laubach, ¶10 Oklahoma is one of forty-three states that have enacted such a provision. Id. § 70.01. Since 1923, section 11 of Oklahoma's Workers' Compensation Act has allowed an injured employee of an uninsured independent contractor to pursue a workers' compensation claim against the general contractor, or an intermediate contractor, without regard to the liability of the independent contractor. The injured worker may proceed up the chain of independent contractors to reach an intermediate or a general contractor which maintains compensation coverage through insurance or through one of the other means enumerated in section 61 of the Act for securing compensation. Section 11 refers to that entity as a "principal employer." ¶11 In 1993, Oklahoma became apparently the first state, and to date the only state, to enact an exception to the general rule of principal employer secondary liability. Section 11(B)(2) permits a principal employer to avoid liability if it "relies in good faith" on proof of workers' compensation insurance by an independent contractor or its subcontractor. ¶12 By requiring good faith, the Legislature did not create an ambiguity nor did it render the provision vague. Rather, it employed a well-known legal concept that applies to a variety of situations and transactions. For example, the Uniform Commercial Code defines "good faith" as "honesty in fact and the observance of reasonable commercial standards of fair dealing." It applies the definition to each article of that code. Okla. Stat. tit. 12A, § 1-201(20) (Supp. 2007). Similarly, the concept of subjective honesty combined with objective reasonableness is found in an insurer's "implied-in-law duty to act in good faith and deal fairly with the insured to ensure that the policy benefits are received." Christian v. Am. Home Assurance Co., ¶13 "Good faith is generally regarded as requiring the exercise of reasonable diligence to learn the truth, and . . . [h]e who claims . . . that he has been misled through the conduct of another must not have been misled through his own want of reasonable care." Hillers v. Local Fed. Sav. & Loan Ass'n, ¶14 "The question of good faith depends upon the mental attitude of the person whose motives are in question and in common with other questions of that character usually presents a question of fact." Orr v. Mallon, ¶15 Stare decisis obligates this Court to review factual determinations in workers' compensation by the "any competent evidence" standard enunciated in Parks v. Norman Municipal Hospital, ¶16 The record demonstrates that there was a question concerning whether the proof of insurance shown to Smalygo indicated an expiration date of six months from when the policy issued (February 13, 2002) or one year (August 13, 2002). There was no dispute, however, that Murphy allowed the coverage to lapse on April 1, 2002, without informing Smalygo. ¶17 Faced with these facts, the three-judge panel determined that "the duty of good faith statutorily imposed on the contractor extends beyond a mere one time determination that the subcontractor is covered when the proof of coverage is first examined by the contractor." The panel concluded that "at a minimum" Smalygo was obligated "to again require proof of coverage on the anniversary date of the policy." It noted that if Smalygo had done so he would have learned on August 13, 2002, nearly two months before Claimant's injury, that Murphy was uninsured. ¶18 The three-judge panel was presented with competent evidence from which it could conclude that Smalygo, as principal employer, had not exercised reasonable diligence and therefore had not met the statutory standard of good faith. Under the facts and circumstances of this matter, the exercise of reasonable diligence would have, at a minimum, required Smalygo to obtain a current certificate of insurance from Murphy's insurer to demonstrate proof of current coverage. Good faith is not demonstrated when a principal employer accepts proof of his subcontractor's workers' compensation coverage but remains indifferent to the stated expiration date of that coverage. CERTIORARI PREVIOUSLY GRANTED; OPINION OF COURT OF CIVIL APPEALS VACATED; ORDER OF THREE-JUDGE PANEL OF WORKERS' COMPENSATION COURT SUSTAINED. CONCUR: Edmondson, V.C.J.; Hargrave, Opala, Kauger, Watt, Taylor, Colbert, JJ. DISSENTS: Winchester, C.J. DISQUALIFIED: Reif, J. FOOT