Warren E. Burger: We will hear arguments next in Washington Metropolitan Area Transit Authority against Johnson. Mr. Prettyman, I think you may proceed whenever you are ready.
E. Barrett Prettyman, Jr.: Mr. Chief Justice, and may it please the Court. This case involves an interpretation of three sentences in the longshoremen's Act which at the time of the injuries in this case was the governing law in the District of Columbia for workers compensation. These three sentences appear in Sections 904(a) and 905(a) of the Act. WMATA is and has been for many years in overall charge of building the Metro system in the Washington metropolitan area. It has been doing so pursuant to an interstate compact between the jurisdictions of the District of Columbia, Maryland, and Virginia. The compact directs WMATA, the Washington Metropolitan Area Transit Authority, to construct the system, and WMATA as the general contractor subcontracts the construction out to hundreds of subcontractors and thousands of sub-subcontractors at various tiers. Prior to 1979, each sub at whatever tier purchased its own workers compensation, and this simply proved to be unworkable. The small and minority contracts have trouble getting insurance and competing for the bids. WMATA was never really certain whether they had secured or not, or whether they were maintaining their insurance, and since the purpose of the Act is to make certain that all employees are covered at all times, WMATA in 1971 introduced the CIP, the coordinated insurance program, or what we call wrap-up. And this is a single policy for comp, for general liability, for workers' liability, covering every employee at every tier in the entire system. WMATA did this by being named itself in the policy, and then in order to make sure that all employees are covered, because you obviously couldn't name every employee, by naming every sub as the sub came on board on the policy, and WMATA thereby secured under the Act, and respondents, incidentally, do not deny that we secured. These suits were brought by seven injured employees. Compensation was promptly paid to them under the wrap-up, and then the employees brought these tort suits.
Sandra Day O'Connor: Mr. Prettyman, does the same situation exist outside the Metropolitan Transit Authority in other construction contracts in areas covered by the Longshoremen and Harbor Workers' Act?
E. Barrett Prettyman, Jr.: Let me answer that in two ways. The wrap-up itself is being used extensively throughout the United States in every large project. As it affects the longshoremen, Your Honor, it is rather limited, in the sense that there are other statutes that incorporate the Longshoremen's Act, the Defense Base Act, and other statutes, but it does not apply, and also, of course--
Sandra Day O'Connor: But this question would have application beyond the boundaries of the Washington Metropolitan Transit Authority, I assume, in other construction contracts under the Longshoremen and Harbor Workers' Act?
E. Barrett Prettyman, Jr.: --Correct, Your Honor, and it also, of course, would apply in a limited sense in the maritime situation. It would not apply in your traditional vessel owner, stevedoring, longshoremen situation, but it would where different things such as crane operations and so forth were subcontracted out.
Thurgood Marshall: You don't have too many subcontracts in the maritime business.
E. Barrett Prettyman, Jr.: No. That is absolutely true, Your Honor. All five district--
Sandra Day O'Connor: Does the use of the wrap-up insurance result in lower premiums overall and lower administrative costs?
E. Barrett Prettyman, Jr.: --It results in lower administrative costs, but the premiums, of course, are quite high. We paid out $177 million in this project in workers comp premiums.
Sandra Day O'Connor: Is that substantially less than it would have been if the individual subcontractors were all buying it separately?
E. Barrett Prettyman, Jr.: I think it is substantially less. Certainly cost is a factor here, but I have got to emphasize that the real force behind wrap-up is several things. First of all, to impose your safety program on the entire project from the top, and secondly, to make absolutely certain that you are carrying out your duty to have this comp secured at all times, because when you have got subcontractors coming aboard, leaving, some of them may or may not have insurance. They have it. Maybe it lapses, and so forth. Monitoring that situation becomes impossible as a practical matter. Wrap-up, we have found since '71 is simply the only practical way of doing this. All five District Court judges in these seven cases held that WMATA was a general contractor, that since the subs had not secured, that WMATA fulfilled its statutory duty in securing with this policy, that all of the employees had received compensation under the policy, and therefore WMATA was entitled to immunity from tort suit under Section 905(a).
Byron R. White: As an employer, Mr. Prettyman?
E. Barrett Prettyman, Jr.: I am sorry, Your Honor?
Byron R. White: As an employer, or what?
E. Barrett Prettyman, Jr.: No, as a contractor.
Byron R. White: Yes, as a contractor.
E. Barrett Prettyman, Jr.: And I will get to that specific language, but of course, as you know, the statute--
Byron R. White: But only because somebody else has not... did not have their own insurance?
E. Barrett Prettyman, Jr.: --Well, let me make it clear. It gets the immunity as a statutory employer, and it gets it because it had a duty as a contractor to go out and secure, in view of the fact under Section 905(a) that the employer was a... the direct employer was a subcontractor. Then--
Byron R. White: Well, suppose the subs never changed. There was a group of subs, and they all sat down with the general contractor, and they all said, well, how should we go about getting our insurance, and the general said, well, why don't I just buy it for all of you, it will be cheaper in the long run, and the sub says, well, if that's the way you want it, but we will get our own if you want. And so you buy the insurance because there has been a mutual decision that the subs won't. Wouldn't you be making the same argument here?
E. Barrett Prettyman, Jr.: --Well, Your Honor, first of all, the subs can do that--
Byron R. White: Can you answer that yes or no?
E. Barrett Prettyman, Jr.: --Oh, well, I would be making the same argument here unless the Court were to hold... it would be rather unusual under the circumstances here... if the Court were to hold that we were merely acting as an agent for the subs and that they really secured and we didn't.
Byron R. White: No, the general buys it, and everybody agrees they are going to buy it, and you will be... you are the one who will pay the... you will pay the employees.
E. Barrett Prettyman, Jr.: Then I think we are fulfilling our duty under the statute to secure. There is no question about it. Look at how this statute is arranged, Your Honor. This is--
Byron R. White: But then what if the subs... what if the employee of the sub is hurt, and turns to you for compensation and you pay him.
E. Barrett Prettyman, Jr.: --Yes.
Byron R. White: Can the sub then... can the employee then... and suppose the sub was negligent.
E. Barrett Prettyman, Jr.: Right.
Byron R. White: And was responsible for the accident. Normally couldn't the employee sue the sub as a third party?
E. Barrett Prettyman, Jr.: Well, it depends on who you mean by the sub. If you are talking about his immediate... his immediate employer?
Byron R. White: I am talking about the sub who was negligent. No, I... Yes, the immediate employer.
E. Barrett Prettyman, Jr.: Yes, the immediate employer. We say that perhaps he can sue the sub for tort, Your Honor. Now, you get into there Professor Larson pointing out that the modern trend is to allow immunity all up the line, so you may say that everybody is immune.
Byron R. White: Do you object to the dismissal of Bechtel here?
E. Barrett Prettyman, Jr.: No, of course not.
Byron R. White: Why?
E. Barrett Prettyman, Jr.: Because Bechtel was our agent under Section 80 of the compact.
Byron R. White: I know, but they were the... they were sued as a third party, weren't they?
E. Barrett Prettyman, Jr.: Yes, but they are not the employer, Your Honor. They are not the immediate employer. The immediate employer were various subs down the line, and instead of suing--
Byron R. White: So could they sue... you suggest that perhaps the subs who were possibly negligent could be sued.
E. Barrett Prettyman, Jr.: --Unless you adopt the modern theory that everybody gets immunity. That is the modern trend, as pointed out by Professor Larson in his treatise. But if you don't do that, then what we say is this. You look to who has the duty. As soon as you get into the second sentence of Section 904, and you have a... let me just read that to you, because I think it is quite important. "In the case of an employer who is a subcontractor. " and that is what we have here, "the contractor shall be liable for. " not the sub any longer, but "the contractor shall be liable for and shall secure the payment of such compensation. " And that is what we did. That is our situation. Now, when we do that, then it may be that you will eventually hold in the next case, not this one, that the sub may nevertheless have immunity because it was contingently liable in the event that we failed to secure, but the important point is that we get immunity under Section 905(a) because we fulfilled the duty that we had at that point. "The contractor shall be liable for and shall secure. " That is us. That is WMATA. And that is what we got when we got this--
John Paul Stevens: But, Mr. Prettyman, you didn't read the rest of the sentence.
E. Barrett Prettyman, Jr.: --Yes.
John Paul Stevens: It says, "unless the subcontractor has secured such payment. " Now, is it part of your argument that the subcontractor has not secured the payment?
E. Barrett Prettyman, Jr.: Absolutely, Your Honor.
John Paul Stevens: And therefore it is your position that the subcontractor is liable?
E. Barrett Prettyman, Jr.: Well, as I say, it may be in the next case that they are liable, but I would point out to you that the modern trend in this is to say that as soon as somebody secures at any tier, at any point, as soon as somebody secures, everyone up the line should be immune from tort suit thereafter because they are potentially liable in the even of the circumstance--
Byron R. White: Well, that may be the modern trend in legislation or something, but it doesn't hardly square with the Longshoremen's Act, does it?
E. Barrett Prettyman, Jr.: --Well, I respectfully submit that that issue has not been decided--
Byron R. White: Well, it may not.
E. Barrett Prettyman, Jr.: --and it doesn't have to he decided in this case. All you have to decide in this case is, did we have a duty, and did we fulfill it and thereby do we get the immunity--
Byron R. White: Well, if you have a duty and you have fulfilled it, the sub, the actual employer, didn't have a duty, and didn't fulfill it, and why should he have immunity under the Longshoremen's Act?
E. Barrett Prettyman, Jr.: --Well, because he was potentially liable in the case that something happens to our insurance. There is a concomitant duty here, Your Honor. The employer--
Byron R. White: Nothing happened to your insurance.
E. Barrett Prettyman, Jr.: --Pardon me?
Byron R. White: Nothing happened to your insurance.
E. Barrett Prettyman, Jr.: No, absolutely not. And in this case it is just clear as can be that we did what we were supposed to do, and that we should therefore get the immunity for doing it. That is the quid pro--
Sandra Day O'Connor: Well, Mr. Prettyman, what if the subcontractor got the insurance, and the general contractor didn't? Do you think the general contractor should have immunity in that circumstance?
E. Barrett Prettyman, Jr.: --Again, that is the next case where you may eventually hold--
Sandra Day O'Connor: Well, but what do you think?
E. Barrett Prettyman, Jr.: --I think myself unless you adopt the modern view that we should be liable, absolutely, they should be able to sue us in tort if you do not adopt the modern view in the next case.
Byron R. White: Are we free to, as you say, adopt the modern view?
E. Barrett Prettyman, Jr.: Yes, it is wide open, Your Honor,--
Byron R. White: Why? Why is it?
E. Barrett Prettyman, Jr.: --because this hasn't been interpreted before.
Byron R. White: Well, it isn't if the statute doesn't permit it.
E. Barrett Prettyman, Jr.: But I think the statute does permit it. The statute says that under Section 905(a), and let me turn to that, because I think quite clearly here the real issue comes down to whether we are a statutory employer protected by Section 905(a), and as you know, Section 905(a) says the liability of an employer prescribed in Section 904(a) of this Act shall be exclusive. Now, does that apply to us? That is the issue. And I would submit to you that it doesn't make any sense under this statute and this statute that you are interpreting, it doesn't make any sense for us not to be a statutory employer, and let me tell you why. If we are not a statutory employer, it means that we do not even have to pay out what we have secured, because under Sections 907 to 9 and 914, paying out, that only relates to an employer. It means that we wouldn't have to notify the Labor Department when we made our first payment under this comp policy because it says only the employer does that. It would mean that the contractor couldn't be sued for comp by the employee. So we have got this policy out there and they couldn't even sue us, because the statute says that only an employer can be sued by the employee.
Byron R. White: Well, you are just a gratuitous interloper.
E. Barrett Prettyman, Jr.: Pardon me?
Byron R. White: You are just a gratuitous interloper.
E. Barrett Prettyman, Jr.: That's right, a volunteer, as the Court of Appeals said, Your Honor. And of course we are not. We had a duty and we fulfilled it here.
Sandra Day O'Connor: Well, I suppose regardless of whose name is on the policy, the cost of the premium in one way or another is being shared by both the general contractor and the sub, either in the form of a lower bid by the sub if the general contractor gets it or vice versa.
E. Barrett Prettyman, Jr.: Your Honor, the lower price that is submitted in the bids by the subs is applicable to everybody, everybody who comes along. They don't get a better position vis-a-vis each other. They have to outbid each other without counting the cost of the insurance in the bid, but they can, and as a matter of fact this happened about a month ago.
Sandra Day O'Connor: The point is just that I think you might find that the cost of the premium is economically being shared by both the subcontractor and the general contractor.
E. Barrett Prettyman, Jr.: Well, to be very honest, Your Honor, I think the cost of this premium is being paid by the public, because what happens is, while the bids are lower, the general contractor, WMATA, is paying these tremendous $177 million out in premiums, and that in turn is being paid by the taxpayers. I don't really see that the subs get any quid pro quo benefit out of that, because they are all competing on an equal basis. Proceeding now, as I say, the statute would make absolutely no sense at all, because the contractor couldn't be sued in tort and have all its defenses, and no one, if no one secured at all... Let's take the situation that was just posed to me, where no one secured. We couldn't even be sued by either the government under the criminal sections or civilly because we hadn't secured, because that relates only to the employer. So it seems to me that the only thing that makes any sense under this statute at all is for us to be deemed the statutory employer under Section 905(a). Now, let me turn to the fact that they claim here that we are really an owner and not a general contractor. I think I can pass very quickly over that, because all of the courts below, including the Court of Appeals, said that we were a general contractor. If we were not, I don't know who would be, because we are the only one in overall charge of this project. We are the ones who have let all of the bids out and approve everybody. We supervise. We control. We monitor. And I might say that if we were the owner, we would be very happy about it, because then we wouldn't have any responsibility under this Act at all--
Byron R. White: Can't you be both?
E. Barrett Prettyman, Jr.: --Pardon me?
Byron R. White: Can't you be both?
E. Barrett Prettyman, Jr.: You can be both an owner and a contractor, but I would point out to you that respondents were specifically asked that question by the Court of Appeals, are you suing them as an owner, and they said no. Most importantly, if we are not an owner, we don't have to secure, we don't have to pay, we don't have to do anything. We are totally out of the compensation picture.
Byron R. White: You mean if you are not a what, a contractor?
E. Barrett Prettyman, Jr.: If we are not a contractor and we are an owner. Did I misspeak myself? Excuse me. So, I think it is quite clear that we are a contractor and covered here. I would submit to you that it simply makes no sense, the Court of Appeals formulation in this case, because it not only contradicts the Act, but it is really totally unworkable what they suggest. And as for respondent's suggestion, well, why don't you go out and get a letter from everybody saying they have secured, we have 355 subs and 2,765 sub-subcontractors in this case. It would be totally unworkable. And we wouldn't know from one day to the next whether anybody still maintained their insurance.
John Paul Stevens: May I ask, about this army of subs and sub-subs and all, supposing some of them in ignorance or whatever it might be had gone out and bought their own insurance. They had a very conservative lawyer who said, I don't care what the Metropolitan Area Transit Authority did, you get your own insurance, and they got it. And they did it before they signed their contract with you to have some kind of overall coverage. Would they then have secured the payment within the meaning of 904(a)?
E. Barrett Prettyman, Jr.: Yes sir.
John Paul Stevens: And then as to them you would be secondarily liable in tort as to those... I mean, if they could identify such a situation, you would be a third party tort feasor?
E. Barrett Prettyman, Jr.: Unless you adopt the modern view. I hate to keep throwing that in, but the next case, you may say everybody gets immunity, but if you do not do that, then we would be the third party, correct.
John Paul Stevens: But under your reading of the statute, one or the other is... you are going to say unless we adopt the modern view, but you think the statute means one or the other is liable, and you, by buying the insurance first, prevented... I mean, you don't have to wait until they have had an opportunity to secure payment under--
E. Barrett Prettyman, Jr.: No, because they can come in at any time. I was about to say a few minutes ago--
Byron R. White: --Well, Mr. Prettyman, why don't you... it seems to me you have already said that you as a general contractor and your sub could sit down and as part of your deal say that you don't carry the insurance, I do, which is what you have essentially done. And even if a sub has bought insurance before, the deal is that you are carrying the insurance. He should cancel his.
E. Barrett Prettyman, Jr.: --But it is important that the sub is free to come in at any time and get its own insurance, and what I was going to say was that this happened about a month ago. A sub said, never mind your wrap-up. We are going to go out and get our own.
Byron R. White: Why should it be free?
E. Barrett Prettyman, Jr.: Because the statute says unless the subcontractor has secured.
Byron R. White: I thought a while ago you said that if by agreement he doesn't get it, he hasn't gotten it, and hence you can get it. I thought that was your argument.
E. Barrett Prettyman, Jr.: My argument is--
Byron R. White: It almost has to be.
E. Barrett Prettyman, Jr.: --Let's take it from the beginning. Let's start on Day One. On Day One of the project, we both have a duty to secure. If WMATA goes and gets it pursuant to the second sentence, because this is an employer who is a subcontractor, the contractor has the duty. We go and secure. But then it says, unless the subcontractor has secured, because obviously there is no point in having two insurance programs in place at the same time for one injury. Now, that means that at any point that the subcontractor wants for any reason to go out and get his own insurance, he can do it. As to his employee, he then in turn relieves us of our duty under the statute.
William H. Rehnquist: Why does that pose some sort of a continuing authority on the part of the sub to secure if you in fact have secured at the beginning?
E. Barrett Prettyman, Jr.: Maybe I misspoke myself. It doesn't have a continuing duty to secure. We have relieved it of its duty to secure, but we have not preempted it. We have not cut it off from securing. It can secure if it wishes to, but it has no duty whatever to secure.
William H. Rehnquist: You mean although it is already covered by your policy--
E. Barrett Prettyman, Jr.: Absolutely.
William H. Rehnquist: --it could in a kind of fit of absentmindedness get a policy of its own?
E. Barrett Prettyman, Jr.: Well, as I say, it happened recently.
Sandra Day O'Connor: Well, it is more than absentmindedness. I can see a subcontractor thinking he would rather have his own insurance so that he isn't going to be subjected to third party suits if his employees are injured, so it would make some sense for subcontractors to want to get their own. You are just saying they can do it if they want to.
E. Barrett Prettyman, Jr.: Of course they can. Exactly. And if you look at Page 104 of the joint appendix, you will see where we tell them that, that they can go out and get it.
William H. Rehnquist: If on March 1st the project starts with this sub, and on that date the sub has not secured, WMATA goes out and secures. Now, on March 8th the sub, following the advice of Justice O'Connor's hypothetical lawyer, says, even though you are already covered by another policy, and the sub goes ahead and buys another policy, I take it WMATA has still secured because the subcontractor did not secure.
E. Barrett Prettyman, Jr.: Up until March 8th they had secured, and at that point the sub comes in, and the caveat that Justice Stevens pointed out comes into effect and says, unless the sub has secured. At that point the sub comes in and secures, and in turn relieves WMATA of its duty.
William H. Rehnquist: Well, but is that something that can just change from day to day? I thought this was kind of... the sentence was kind of to give the parties a basis on which to structure their relationship.
E. Barrett Prettyman, Jr.: But that is the beauty of the wrap-up, because the wrap-up says you don't have to secure, we are covering you--
Byron R. White: Yes, but if they did. Supposing under the wrap-up a sub... it is all wrapped up, but Justice O'Connor's hypothetical lawyer says to a particular sub, you go buy a policy anyway. Now, does that cut that sub out so far as WMATA is concerned?
E. Barrett Prettyman, Jr.: --Of course not. It can go get it. We have that right now and--
William H. Rehnquist: But then have you not secured so far as that sub is concerned?
E. Barrett Prettyman, Jr.: --Well, so far as that sub's employee is concerned, in effect, we have both secured, but it has relieved us of our duty to secure.
Byron R. White: And subjected you maybe to a third party liability.
E. Barrett Prettyman, Jr.: It is possible.
Sandra Day O'Connor: I suppose the terms of your wrap-up policy recognize this, and recognize that on any given day somebody might opt in and then relieve the wrap-up policy of its liability. Isn't that the way it is written?
E. Barrett Prettyman, Jr.: We told them in the insurance specifications--
Sandra Day O'Connor: You tell them that when you get your wrap-up policy.
E. Barrett Prettyman, Jr.: --Absolutely. We told them in the insurance specifications that they can go out at any time and get it.
Sandra Day O'Connor: But the question that we don't have to answer here is whether immunity is granted all down the line for the general and the subs. We are not answering it here, although I guess we could.
E. Barrett Prettyman, Jr.: Well, I see no reason to do it here. The only question you have to answer here is, did we have a duty, and if we did, did we fulfill it, and if we did, do we get immunity under 905.
Byron R. White: Well, really, we should say with respect to the subs who didn't get their own do you have a duty.
E. Barrett Prettyman, Jr.: But none of them got them involved in this case, Your Honor. This case involves--
Byron R. White: We don't know that, do we?
E. Barrett Prettyman, Jr.: --Yes, you do. The lower courts all held that the subs did not secure.
Byron R. White: None of them?
E. Barrett Prettyman, Jr.: None of them.
Byron R. White: None of them did.
E. Barrett Prettyman, Jr.: Involved in this case. Absolutely. This case is no one secured except us. We secured. Now, as I point out, they say that they secured, they were secured by just being named on the policy, but of course that doesn't make any sense at all, because by just... the only reason we named them on the policy was so we would know who their employees were, and if they suddenly... they have no control over the policy whatever, including whether they themselves are taken on and off. It hardly makes sense to say that they secured under the policy just by being named.
Thurgood Marshall: They don't even have the right to pay for it.
E. Barrett Prettyman, Jr.: I am sorry, Your Honor.
Thurgood Marshall: They don't even have the right to pay the premium, do they?
E. Barrett Prettyman, Jr.: Yes, they do. They can go out and get it on their own.
Thurgood Marshall: No, I said on this particular policy.
E. Barrett Prettyman, Jr.: Oh, on this, they do not have to pay... the way I would put it is, they are not forced to pay the premium on this policy. Let me just--
John Paul Stevens: May I ask just one rather stupid question, I am afraid?
E. Barrett Prettyman, Jr.: --Sure.
John Paul Stevens: But the words "secure the payment to his employee. " we are emphasizing the word "secure". Under this statute, could a big employer be a self-insurer?
E. Barrett Prettyman, Jr.: Yes, 932, Your Honor, defines securing, and it defines it either as being a self-insurer or as getting and maintaining insurance. Let me just touch briefly on one last point here, and that is the New York statute, because everybody agrees the legislative history is silent on what 904 and 905(a) as it affects us here, and so they come back to the legislative history of... not the legislative history, but they come back to the New York statute. Let me just say very briefly the New York... this Court has never had an opportunity to address this before, incidentally. You have always said the Longshoremen's Act is patterned after the New York Act. This is the one case where it isn't. There is an extraordinarily important material difference between the New York Act and Longshoremen's. In the New York statute you had only a duty to secure and pay, and two New York cases have pointed out the difference. If I have a duty to secure, I have to go out on Day One before anybody is injured and under criminal penalty I have to get that insurance in place, and I have to pay the premiums even if nobody is ever injured. Under the New York Act, you don't have to. You can wait until the first injury comes along. You can pay it. You can wait until the next injury comes along. And you never have to secure. So that... I will just leave you with that thought.
John Paul Stevens: Let me ask one more question if I may.
E. Barrett Prettyman, Jr.: Sure.
John Paul Stevens: You mentioned the criminal responsibility. Is there any possibility that a subcontractor here who did not secure because you secured is subject to criminal liability?
E. Barrett Prettyman, Jr.: None whatever, because we have relieved him of his responsibility to secure. We did our duty under 904(a) and 905(a) by securing ourselves, and as is shown by the caveat--
John Paul Stevens: You say he has no independent duty to secure?
E. Barrett Prettyman, Jr.: --Oh, absolutely not, as shown by the unless clause, which clearly shows that they both don't have to get insurance for the same injury. Thank you.
Warren E. Burger: Mr. Mulroney.
William F. Mulroney: Mr. Chief Justice, and may it please the Court. The issue in this case is whether Metro should be given immunity from third party suits by these respondents despite the plain language of Section 905(a) granting immunity only to employers, and despite the plain language of Section 933(a), preserving the injured employee's right to proceed against any person other than the employer. The issue is not, as Metro states, whether Metro must be responsible for both damages in tort and for workers compensation benefits to the respondents. The compensation paid to the respondents in these cases were paid by Lumbermens Mutual Casualty Company on behalf of and in the name of the employers who are insured entities under the policy. Metro merely voluntarily paid the premium for these coverages in order to save millions of dollars.
Byron R. White: That is what employers usually do. They just pay the premiums.
William F. Mulroney: That is what employers normally do. The statute normally, under the traditional scheme, an employer pays his own premium. That hasn't happened here. Metro has provided the coverages for the employers, and has informed them under the coordinated insurance program not to submit bids that do not take into account the coordinated insurance program's coverages. Now, as a practical matter, this means that any contractor who has been awarded a contract under Phase 2 has not submitted the cost of workers compensation in his bid. He can't, because Metro decides who is going to get the contract, and it usually awards the contract to the low bidder, so that when the contract is awarded, Metro assures itself that the contractor who is given the contract has not secured his own workers compensation insurance. Now, before I go forward, I would want to make one thing perfectly clear, and that is that it is very much in issue, and the respondents deny that Metro has secured compensation pursuant to its 904(a) duty, and that is for two reasons. Number One, it is that the employer has the primary obligation to secure benefits. If the employers herein, the respondents employers, have not secured compensation, and if the coordinated insurance program in fact prevents them from securing compensation, there is something basically flawed about the program itself.
Sandra Day O'Connor: Well, Mr. Mulroney, if the contractor gets the insurance, why doesn't the contractor become the employer for the purpose of this and the other sections? That seems to be a reasonable reading of the statutory scheme.
William F. Mulroney: Your Honor, because the statute does not make them an employer. A contractor's duty, if you understand the second sentence of Section 904(a), imposes the duties of a guarantor. It is the practical equivalent of Section 56 of the New York Act. It imposes on the contractor a secondary obligation to secure the compensation in the event that the employer he hires is uninsured.
William H. Rehnquist: But that answer doesn't make any sense to me in view of the dependent clause at the end, "unless the subcontractor has secured such payment. " That isn't the language of a guarantor.
William F. Mulroney: Your Honor, that is because it is the primary obligation of every employer to secure compensation under this Act. That includes subcontractors. The second sentence of 904(a) is what they call a contractor under provision, and the purpose of it, if you go back to the original New York '22... 1922 New York law, is to prevent an unscrupulous contractor who has obtained a contract for a given price, including the cost of his compensation, to contract out work he would ordinarily due to uninsured subcontractors, thereby saving himself money, and the protection afforded by that provision is to guarantee that he hires insured subcontractors.
William H. Rehnquist: Well, now, that may be one of the purposes, but the language is, it seems to me, quite clear when it says the contractor shall be liable for and shall secure the payment of such compensation unless the subcontractor has secured such payment. If the subcontractor has not secured such payment, then surely that means that the contractor shall secure the payment.
William F. Mulroney: Your Honor, the way the statute is written, it comes directly from the New York law.
William H. Rehnquist: Well, what have you got to say about the precise language that I just quoted you?
William F. Mulroney: The precise language means that the contractor is to secure his secondary coverage. It all comes--
William H. Rehnquist: No, it doesn't say anything--
William F. Mulroney: --It is all done by means of insurance.
William H. Rehnquist: --Just a minute. It doesn't say anything about secondary coverage. It says the exact language that I read to you.
William F. Mulroney: That's right. Your Honor, I think that you have to look at the first sentence of Section 904, which requires every employer to secure the payment of compensation for his employees. This does not exclude subcontractors from this. The second sentence of Section 904(a) can only be read if you understand that every employer, including subcontractors, have a statutory obligation to secure the payment of compensation. What the second sentence is referring to is that a contractor is in a position by virtue of his contractual and financial position to hire someone who is uninsured, and that puts on him the onus to hire a contractor who is insured. Otherwise, he is going to be liable for--
William H. Rehnquist: That may be a reason, but I think you are just making mincemeat of the statutory language. You are trying to kind of push it in one direction that to me the words just don't let it go. Suppose there is a contractor who has... there are two subs, a general has two subs. One of them has his own insurance, and the other one doesn't, and the contractor knows it. The statute would then put a burden on the employer or the general to get some insurance for the one who didn't. Is that right?
William F. Mulroney: --That's right, Your Honor. Now--
Byron R. White: And suppose he did. Suppose he did, and an employee of that sub who didn't have insurance is hurt. And the employer then pays the benefits. Is that his exclusive liability then? Is he subject to any kind of a tort suit?
William F. Mulroney: --Yes, he is, Your Honor, because--
Byron R. White: Even though he has secured the insurance and paid out the benefits?
William F. Mulroney: --That's right. Absolutely. Because the second--
Byron R. White: And I take it you say that the sub is immune. Somebody is immune.
William F. Mulroney: --If the employer has not secured compensation coverage, he is not immune by virtue of the provisions of 905(b).
Byron R. White: So both are subject to tort suit then.
William F. Mulroney: That's right.
Byron R. White: Both the sub and the general.
William F. Mulroney: One is subject to an elective remedy under 905(b), and one would remain a third person because of the plain language of 905(a) and 933(a).
Byron R. White: So the employer, because he wasn't... the general... you go ahead if you think you are wasting your time.
William F. Mulroney: No, I am--
Sandra Day O'Connor: I mean, you think nobody gets immunity?
William F. Mulroney: --Understand, Your Honor, if you understand the statute--
Sandra Day O'Connor: That is an incredible proposition. I mean, I cannot believe that you are asserting that.
William F. Mulroney: --Your Honor, the general contractor, when he purchases his insurance policy to cover his employees, every contractor insurance policy automatically covers employees of subcontractors. That is the way every insurance policy in the country is written. Unless he provides proof to his carrier that the subcontractor he hired is insured, he will have to pay an additional premium for the employees of the subcontractor. If he does provide the proof, and if he hires a subcontractor who is insured, then there is no additional premium for the contractor. If he does not, then he is going to be assessed a premium based upon the payroll of the subcontractor. That is the way the statute has worked to protect employees of subcontractors. The contractor must secure his contingent liability. He must secure it, because the statute uses the word "secure". The contingent liability that a contractor has has to be secured pursuant to Section 932, and it is automatic.
Sandra Day O'Connor: Well, if the employee ultimately recovers under the general contractor's policy, why shouldn't the general contractor have immunity?
William F. Mulroney: Because the statute doesn't give it to him. The statute says quite simply that the employer is entitled to statutory immunity under 905(b) and--
Sandra Day O'Connor: Well, we are back to that same fruitless inquiry, I guess, but it seems to me that you are taking the position that the general contractor, if the subcontractor doesn't provide insurance, has the legal responsibility to provide the compensation to the injured worker, and becomes liable by virtue of the provisions of Sections 907, 908, and 909. They all speak in terms of an employer, and yet we are invoking those sections against the general contractor, so you are in effect saying the general is an employer under some sections but not under 905.
William F. Mulroney: --Your Honor, we are saying that employer means employer throughout the Act. The contractor's duty to secure payment for compensation to the injured worker comes under Section 904, and that statute is self-effective. It makes the contractor liable for the payment in Section 907, 908, 909, by its own terms. The statute presumes compliance with its terms. Every employer must secure, must secure compensation. That includes subcontractors. The statute doesn't presume that subcontractors are going to be in default of their statutory obligations, and in fact every subcontractor on the Metro project and every prime contractor has presumed that by participating in the coordinated insurance plan, and by becoming a named insured, they have secured coverage within the meaning of the Act. They must. And the coordinated insurance plan must succeed in doing that. The contractor cannot extinguish a subcontractor's duty to obtain insurance by providing an overall policy and saying don't submit insurance coverage. It doesn't work that way. The subcontractor must necessarily provide insurance coverage for his own employees, and a look at the legislative history supports this completely. As late as the 1972 amendments, Congress indicated specifically it intended the employer to shoulder the burden of insurance premiums in order to give him an incentive to provide a safe work place.
Thurgood Marshall: Is there any way out of this other than for both of them to take out insurance?
William F. Mulroney: No, Your Honor--
Thurgood Marshall: Under your plan?
William F. Mulroney: --but that... this is the way it works. Basically what happens is--
Thurgood Marshall: My question is, is there any way out other than that?
William F. Mulroney: --No. The contractor's policy--
Thurgood Marshall: They've got to take out--
William F. Mulroney: --A contractor's policy--
Thurgood Marshall: --Well, is the injured employee going to collect from both?
William F. Mulroney: --No, the injured worker makes his claim against the employer. And he has made his claim against the employer in all of these cases, and the carrier has responded on behalf of the employer. That is the named insured. Not on behalf of Metro.
Thurgood Marshall: Well, isn't the employer insured?
William F. Mulroney: The employer in these cases is insured. That's correct.
Thurgood Marshall: And normally that would be it, wouldn't it?
William F. Mulroney: Against the employer, but the employee retains his third party rights of action against any person other than the employer.
Thurgood Marshall: But the other one has the same insurance, doesn't he? Doesn't the policy include the contractor, too?
William F. Mulroney: This policy--
Thurgood Marshall: Well, that is the only one I am talking about.
William F. Mulroney: --For workers compensation, Metro is not covered under the principles of the coordinated insurance plan. With regard to its own employees, WMATA is a self-insured. They have no need of coverage under the coordinated insurance plan for its own employees.
Thurgood Marshall: I am talking about the coordinated insurance plan. Isn't the contractor a party to that?
William F. Mulroney: All the contractors are a party to the coordinated insurance plan, yes.
Thurgood Marshall: But doesn't the employer pay the bill?
William F. Mulroney: No.
Thurgood Marshall: Who pays the bill?
William F. Mulroney: Metro pays the premium for the benefit of the contractor.
Thurgood Marshall: That's what I thought.
William F. Mulroney: The coordinated insurance plan expressly states that the policies are for the benefit of the worker.
Thurgood Marshall: The contractor pays, right? Who puts the money out? The contractor.
William F. Mulroney: I'm sorry, Your Honor?
Thurgood Marshall: Who puts the money out for the policy? The contractor.
William F. Mulroney: No, Metro... normally, outside of the context of wrap-up insurance, the subcontractor purchases his own policy and the contractor purchases his own policy.
Thurgood Marshall: I am sorry. The more I get from you, the more confused I get.
William F. Mulroney: Under wrap-up, Metro pays the premium, but the policy names the employer as the insured. This is a plan that was instituted to save a great deal of money. This way they don't have a great deal... many insurance companies. There is no subrogation.
Thurgood Marshall: There is also another reason, to make sure everybody is covered at all times.
William F. Mulroney: Your Honor, there is no evidence in the record at all that any default has occurred under Phase 1 of the Metro project. There is no evidence that there was ever a default.
Thurgood Marshall: Well, is my statement incorrect that it assures that everybody is covered?
William F. Mulroney: The policy--
Thurgood Marshall: Is there anything wrong with that statement?
William F. Mulroney: --No, Your Honor.
John Paul Stevens: May I ask you... I have to get back to kind of elementary stuff... is there a definition of the word "employer" in the statute?
William F. Mulroney: Under the District of Columbia extension, the employer-employee relationship is explicitly limited to the traditional notion of master and servant.
John Paul Stevens: So your answer is no, I guess.
William F. Mulroney: The answer is yes.
John Paul Stevens: Oh, I am sorry.
William F. Mulroney: The answer is yes, that an employer is defined as the person who employs and controls the activities of the employee.
John Paul Stevens: What statutory section defines employer?
William F. Mulroney: Under the District of Columbia Compensation Act, it is the actual extension itself that limits the definition of employer to the person who employs the person that works for him.
John Paul Stevens: Because nobody seemed to quote the definition, but it is beginning to sink through to me that perhaps the issue in the case is whether the word 905(a) includes someone who pays the insurance or just someone who hires the people. I mean, is there really something... Your opponent talks about a statutory employer, and is there such an animal? I guess that's... Can we say that is the issue?
William F. Mulroney: Under our statute, there is no indication in the plain language of the legislative history that the Congress intended anybody other than the employer to obtain the immunity in Section 905.
John Paul Stevens: So that you are saying that the general contractor, simply because he buys the insurance, he doesn't become an employer--
William F. Mulroney: That's right.
John Paul Stevens: --a statutory employer--
William F. Mulroney: That's right.
John Paul Stevens: --or any other kind of employer.
William F. Mulroney: That is exactly what we are saying.
Sandra Day O'Connor: Mr. Mulroney, there is a federal regulation that defines employer, isn't there, 70.1301(a)(13).
William F. Mulroney: Right.
Sandra Day O'Connor: Isn't that so?
William F. Mulroney: If you--
Sandra Day O'Connor: And it basically defines employer as the person obligated to pay and secure compensation as provided in the Act, and under that definition, it certainly is reasonable to say that the contractor is an employer.
William F. Mulroney: --Your Honor, the employer is obligated as an employer to secure compensation. A contractor is never obligated as an employer. He is obligated as a contractor, and the duties imposed by the second sentence of 904(a) are specifically there only because of the relationship that the contractor has with a subcontractor. The contractor is in a position to hire for purposes not consistent with the Act an uninsured subcontractor, so the second sentence a puts duty on him to hire an insured subcontractor or he is going to be held liable himself. It does not entitle the contractor to any immunity that he would otherwise have. All he has to do is hire an insured subcontractor in order to protect the injured employee, and the statute does not accord him any immunity for that. There is no evidence in the plain language of Section 33, or Section 905, 933(i), which was amended in 1959, to indicate that the Congress intended the immunities of an employer to extend any further than what the Congress called in 1959 the employer-employee family, and that is very important, because this Act is based on the New York Act; 904(a) is based on Section 56 of the New York statute, and in 1946, the New York Court of Appeals in the Sweezy case held that under no circumstances, whether the contractor has to pay or not pay, is he an employer entitled to immunity within the meaning of the New York statute. The Fiori case here under the Longshore Act follows precisely the same rationale as that. The contractor is not entitled to immunity by virtue of a secondary obligation he has pursuant to the second sentence in 904(a). He is not entitled to it because all the statute does is what the statute does in 937 to a vessel owner. He has to hire an insured contractor, and if he doesn't, the statute is going to hold him responsible. If he doesn't hire an insured contractor, it would reward him. It would reward him for subverting the purposes of the Act by hiring an uninsured subcontractor.
Sandra Day O'Connor: Well, if the purpose of the Act is to secure workmen's compensation for employees, it seems to me the Act's purpose is served by the wrap-up policy.
William F. Mulroney: There is much more to it than that, Your Honor. The Act also serves to preserve the employee's common law rights of action which are not specifically eliminated by Section 905(a), and the only remedies that the injured worker has that are eliminated by the statute by its clear terms are those that he had at common law against the employer. Now, wrap-up insurance should not change the legal liabilities or the obligations or the rights between any of the parties. If wrap-up insurance satisfies the statute, it must allow the employers who participate in it, what Metro calls their subcontractors, to secure compensation coverage. By instituting an insurance plan that saves them money, they should not be able to cloak themselves with the immunity of an employer. It goes beyond the plain purpose of the Act in permitting the injured worker his common law remedies against anybody but the employer. In 1972, the Congress amended the Act and indicated a number of things that are relevant to the inquiry here. First, the Congress specifically declined the opportunity to extend the immunity of an employer any further than the plain language indicates. There were bills passed or pending in front of Congress at that time to extend the immunity of an employer to a vessel, making the vessel and the stevedore joint employers. The rejected that, and indicated specifically the beneficial purpose of allowing the injured employee to proceed against a third party at common law, because it encouraged safety. Another consideration is, Congress indicated it wanted the vessel owner to be in precisely the same situation as a third party would be in a land-based setting, indicating that Congress was aware of the case law under the District of Columbia Act allowing the injured worker the right to proceed against the general contractor. There is no question that the case law has been unanimous in allowing suits by subcontractor employees against the general contractor, despite the fact that 904(a) imposes a secondary obligation on the contractor to secure compensation in the event that his own employer fails to do so. In these cases, Metro has preempted the obligation of the employers to secure compensation if in fact the Metro wrap-up plan does not satisfy the obligations of the employer to secure compensation. The respondents submit that the employers have secured compensation by participating in this plan. Metro hasn't secured it merely by purchasing it for the benefit of the employers who are under a statutory obligation to secure it in the first place. In fact, there is an important reason why Metro should be denied immunity and that is because by purchasing the premium they have tended to undermine safety in the work place. Congress indicated in 1972, as I stated earlier, that the employer should shoulder the burden of the premium payment in order for him to have an interest in safe conduct. When Metro instituted this program in 1971, precisely the opposite thing happened. The contractors who were insured entities had no interest in getting the work done, and we are talking about very dangerous work. We are talking about tunneling. We are talking about underground mining. And the contractors, by not having the right to have their premium reduced, by having no rebate system, they lost the incentive, resulting in higher losses than what ordinarily have occurred. Metro has indicated that this is true by virtue of the fact that in June of 1978, to replace that incentive, they had to institute a safety awareness program which was a system of bonuses for contractors who had better safety records, to--
Thurgood Marshall: Are you opposed to workmens compensation?
William F. Mulroney: --No, not at all, Your Honor. I think workmens compensation is a wonderful thing. It is the employer's burden to secure it for his employees, in return for which he obtains a benefit, immunity from suit. But a third party should not be allowed to come into this relationship and say I am going to pay the premium for you, but I am taking your immunity from you, because that upsets the entire applecart. It interferes with the statutory scheme, and basically preempts the employer's duties which contribute to safety in the work place. The Congress was interested in more than just workers compensation benefits when it instituted this statute. The incentive to prevent the accidents is built into this scheme. The employer has an incentive to prevent accidents by virtue of the premium payment. Metro should not be accorded immunity by tending to undermine Congress's intent in preventing these accidents.
William H. Rehnquist: Mr. Mulroney, is this your position, that Section 905 is the exclusivity provision that confers immunity. It talks about the liability of an employer proscribed in Section 904 of this title shall be exclusive. You say in effect your opponents are claiming that because Section 904 requires the contractor in some circumstances to secure the payment, that the contractor thereby becomes an employer under Section 904, but you say that is not the way to read Section 904. Is that a fair summary of your--
William F. Mulroney: I am saying, Your Honor, that 904 is the duty provision of the statute, and 905 is the immunity provision. 905 simply doesn't award immunity to anybody but the employer.
William H. Rehnquist: --Mr. Mulroney, I would find it extremely helpful... I am trying to understand your... if you could answer questions instead of simply going into your own line of thought, but apparently you are either unable or unwilling to do that.
William F. Mulroney: I am sorry, Your Honor.
John Paul Stevens: Well, I am sorry, too. Well, let me see if I can get into this a little bit. You are contending, are you not, that the general contractor is not an employer.
William F. Mulroney: That's correct.
John Paul Stevens: And therefore he is not an employer within the meaning of 905(a).
William F. Mulroney: That's correct.
John Paul Stevens: And 904 deals with paying of premiums and getting insurance, doesn't deal with the immunity.
William F. Mulroney: That's correct.
John Paul Stevens: That's your whole case, as I understand it.
William F. Mulroney: That's basically the entire case, and the statutory scheme is consistent.
John Paul Stevens: And that is why I asked you if there was a definition of employer, and you gave me an answer, but I don't know exactly where I am going to find it, still, because that would be helpful to me, because as I understand the case, the case turns on what the word 905(a).
William F. Mulroney: That is essentially right, Your Honor, and the statute by its clear terms defines the employer as an employer. An employer is based in the same way as to the New York statute's definition of employer, and the New York courts have held consistently that the employer-employee relationship is that contractual relationship that exists between a person who hires another person to perform services. Therefore, Congress is essentially only prescribing the rights and obligations between an employer and employee, and it expressly preserves the common law rights of the injured employee against any other person. The language of 933(a) says that the injured worker can sue any person other than the employer and persons in his employ. It doesn't say, but not when the contractor secures the compensation coverage for him.
Lewis F. Powell, Jr.: Does the insurance contract identify the employer?
William F. Mulroney: The policies are issued to the employers of the respondents. As soon as you come onto the... if WMATA awards a contract, a policy is issued to the employer.
Lewis F. Powell, Jr.: Is employer defined or identified? Are the employers identified in the contract?
William F. Mulroney: Yes, Your Honor.
Lewis F. Powell, Jr.: Is there--
William F. Mulroney: In the joint appendix there is an example, on joint appendix Page 225 is a copy of the insurance certificate issued to the employer of a number of the respondents in these cases, to Ball, Healey, and Granite. The insurance certificate is issued to them, and they are the insured entity, and they are the ones on whose behalf the benefits have been paid by this insurance carrier. This insurance carrier has listed the employer as the insured party with the Department of Labor in all compensation proceedings. They have--
Lewis F. Powell, Jr.: --Is Metro named in the policy?
William F. Mulroney: --Metro is listed everywhere as a policyholder. It is listed everywhere. But the insured entity--
Lewis F. Powell, Jr.: Is it ever listed as an employer?
William F. Mulroney: --No, it is not.
Lewis F. Powell, Jr.: Is it ever listed as a contractor? As a contractor?
William F. Mulroney: It is not listed anywhere as a contractor.
Lewis F. Powell, Jr.: Who pays the premiums?
William F. Mulroney: Metro pays the premiums for the policies for everyone insured under the coordinated insurance program.
Lewis F. Powell, Jr.: And it is named, but not characterized as to what its status is?
William F. Mulroney: Your Honor, not in the insurance policies, but Metro's status is listed in the contracts as the authority. It is never listed as a contractor. I don't have the time to go into it, but basically the respondents maintain that Metro here is not a contractor within the meaning of contract law or within the meaning of the policy considerations of the second sentence of 904(a), for the simple reason that they are not under a duty to perform a contract for a given price. They are not in the construction business.
Warren E. Burger: Mr. Prettyman, do you have something further?
E. Barrett Prettyman, Jr.: Unless the Court has questions, I just want to read one sentence to you from respondent's brief, particularly in response to you, Justice O'Connor, and to you, Justice Rehnquist. After discussing Sections 907, 8, and 9, respondents say, WMATA, "would also be responsible for obeying other sections which relate to the payment of those benefits. " but all those other sections just refer to employer, so you are right. They want us to be an employer for some sections but not for Section 905. Thank you.
William H. Rehnquist: Well, Mr. Prettyman, I do have a question.
E. Barrett Prettyman, Jr.: Yes, sir.
William H. Rehnquist: Why does the second sentence of Section 904 make a contractor who pays insurance premiums or who secures compensation an employer for purposes of the Act?
E. Barrett Prettyman, Jr.: The concept of statutory employer, Your Honor, goes way back in compensation law and comes all the way forward. It has been recognized--
William H. Rehnquist: Well, that doesn't answer the question.
E. Barrett Prettyman, Jr.: --Oh, I am sorry. Maybe I misunderstood your question.
William H. Rehnquist: Well, why does the second sentence make the contractor who secures payment an employer for purposes of 905?
E. Barrett Prettyman, Jr.: Oh, I understand. Because what they wanted to do was, they wanted to make sure that each person on the tier above a subcontractor would be responsible and couldn't get rid of its responsibility by just getting an irresponsible sub and say, well, I don't have any--
William H. Rehnquist: Okay, but your opponent says, sure, they wanted the contractor to make sure that the subs had insurance, but the fact that the contractor was obligated to guarantee the presence of insurance doesn't mean that the contractor became an employer for Section 905.
E. Barrett Prettyman, Jr.: --Well, the important thing is not whether you call him an employer or a statutory employer. The point is, does he get the quid pro quo that comes from... that immunity is built on.
William H. Rehnquist: Yes, but that depends on language of Section 905, and all it says there is an employer.
E. Barrett Prettyman, Jr.: I understand that, Your Honor, but what I am saying is that it has to include WMATA in this case, the statutory employer, or none of the rest of the statute makes sense, because the whole rest of the statute says if you don't secure the employer you can sue. The employer is criminally liable. If you don't say that that's not WMATA, WMATA has no obligations here. It says it has to secure, but there is no way to enforce it. Thank you.
Warren E. Burger: Thank you, gentlemen. The case is submitted. The Honorable Court is now adjourned until tomorrow at 10:00.