Opinion ID: 166513
Heading Depth: 1
Heading Rank: 3

Heading: duties to defend and indemnify

Text: 34 RMJOB's Pinnacol policy contains two parts: (1) workers' compensation insurance; and (2) employers' liability insurance. Because Plaintiffs did not rely on the employers' liability part of the Pinnacol policy in district court, they may not do so on appeal. See Laurino v. Tate, 220 F.3d 1213, 1218 n. 4 (10th Cir.2000). We therefore address only the workers' compensation part of the policy, which states: 35 . . . We Will Pay 36 We will pay promptly when due the benefits required of you by the workers' compensation law. 37 . . . We Will Defend 38 We have the right and duty to defend at our expense any claim, proceeding or suit against you for benefits payable by this insurance. We have the right to investigate and settle these claims, proceedings or suits. We have no duty to defend a claim, proceeding or suit that is not covered by this insurance. 39 Aplt.App. at 296. 40 The duties to defend and indemnify are integrally related. Under Colorado law when an insurer provides coverage both to defend and to indemnify against certain types of claims, the insurer ordinarily has no duty to defend a claim against the insured absent a possibility that the claim will result in a judgment for which the insurer has a duty to indemnify. See Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 301 (Colo.2003) (en banc) (to avoid duty to defend, insurer must prove that claim cannot fall within policy). Here, Plaintiffs contend that the suit by Mr. Dymowski against RMJOB raises a claim for which Pinnacol had a duty to indemnify because the historical facts alleged in Mr. Dymowski's complaint, particularly as those facts were fleshed out in litigation, would establish that he would be entitled to relief under the workers' compensation act. The facts alleged in a complaint, not the complaint's legal characterization of those facts, ordinarily control coverage. See Cyprus, 74 P.3d at 301 (resolving duty to defend on  any facts or claims alleged in the complaint); Mutual Ben. Ins. Co. v. Haver, 555 Pa. 534, 725 A.2d 743, 745-46 (1999); St. Paul Ins. Co. v. Tex. Dep't of Trans., 999 S.W.2d 881, 887 (Tex.App.1999). Consequently, Plaintiffs argue, Pinnacol should have provided a defense to the state-court suit and should have contributed to the settlement. 41 Plaintiffs' argument has a ring of plausibility. But it ignores the special features of workers' compensation. Colorado, as is typical among the states, provides a specialized administrative system for the resolution of workers' compensation claims. See Colo.Rev.Stat. § 8-43-201, 2 et seq; Colo. Compensation Ins. Co. v. Jorgensen, 992 P.2d 1156, 1159 (Colo.2000) (en banc) (describing § 8-43-201 administrative jurisdiction as exclusive). Judicial review of final orders of the administrative-hearing division is available only in the Colorado Court of Appeals. See Colo.Rev.Stat. § 8-43-307. 42 Accordingly, Mr. Dymowski could not seek workers' compensation benefits through a suit in Colorado trial court, and RMJOB could not have been held liable by a trial court for such benefits. For a trial court to award workers' compensation benefits would be to violate the administrative system's exclusive jurisdiction to decide workers' compensation claims. See § 8-43-201. (This is not to say, however, that a matter decided in court cannot have preclusive consequences in a workers' compensation proceeding. See Eldridge v. Circle K Corp., 123 N.M. 145, 934 P.2d 1074, 1080 (1997).) 43 Simply put, there was no possibility that the state court could impose on RMJOB a judgment for workers' compensation benefits, which is what Pinnacol provided indemnity coverage for. Evidence at the state-court trial establishing all the elements necessary for a proper workers' compensation claim could not have entitled Mr. Dymowski to workers' compensation benefits. Those benefits can be awarded only by the administrative tribunal with exclusive jurisdiction over such claims. Even settlements must be approved by the agency. See Colo.Rev.Stat. § 8-43-204(3). 44 A compelling majority of the courts to consider the issue agree that a workers' compensation insurer does not owe a duty to defend in a state-court tort suit despite an allegation that the suit should have been brought as a workers' compensation claim. The California Supreme Court has explained: 45 [W]e have held that a duty to defend arises when the suit potentially seeks damages within the coverage of the policy. We recognized, however, that the insurer need not defend if the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage. 46 No such potential existed in this case. Regardless of the merit of the claims alleged in [the] complaint, the superior court never had jurisdiction to award workers' compensation benefits. Rather, the award of such benefits is within the exclusive jurisdiction of the [Workers' Compensation Appeals Board]. 47 La Jolla Beach & Tennis Club, Inc. v. Indus. Indem. Co., 9 Cal.4th 27, 36 Cal.Rptr.2d 100, 884 P.2d 1048, 1057 (1994) (en banc) (internal citations and quotation marks omitted). Accord Springdale Donuts, Inc. v. Aetna Cas. & Surety Co. of Ill., 247 Conn. 801, 724 A.2d 1117, 1121 (1999) (Because the underlying claims were filed in federal court, not with the workers' compensation commission, and did not state any claims for workers' compensation benefits, the underlying claims are not within the purview of the plaintiff's workers' compensation policy.); Hames Contracting, Inc. v. Ga. Ins. Co., 211 Ga.App. 852, 440 S.E.2d 738, 740 (1994) (the [workers' compensation] coverage . . . is limited to claims for benefits required of an insured employer under the applicable workers' compensation law as defined in the general section of the policy. The civil suits for damages against Hames did not aver such claims. Thus, these suits did not aver any claims covered by the workers' compensation insurance.); Bond Builders, Inc. v. Comm. Union Ins. Co., 670 A.2d 1388, 1390 (Maine 1996) (On its face Commercial Union owes no duty, by virtue of . . . its [workers' compensation] policy, to defend Santos's tort action.); HDH Corp. v. Atlantic Charter Ins. Co., 425 Mass. 433, 681 N.E.2d 847, 850-851 (1997) (Atlantic is correct that it had no duty to defend the civil action because the complaint did not state a claim that could result in liability which Atlantic would be obligated to pay under any reasonable interpretation of . . . the [workers' compensation] policy. . . . [T]here are fundamental differences between a claim for workers' compensation benefits and a lawsuit seeking civil damages.). Quick v. Ronald Adams Contractor, Inc., 861 So.2d 278, 282 (La.Ct.App.2003) (workers' compensation policy required insurer to defend suit alleging the facts of an injury and damages . . . that are covered by workers compensation insurance). 48 These cases interpret standard workers' compensation policies as providing coverage only with respect to proceedings within the workers' compensation administrative regime. Although the evidence produced in a tort case may indicate that the claim could have been brought as a workers' compensation claim, that evidence becomes relevant to coverage only if the claim is brought in the proper administrative tribunal. 49 We agree. As the above cases illustrate, the common understanding of workers' compensation insurance coverage, and the natural reading of the Pinnacol policy (providing that it will pay. . . the benefits required . . . by the workers' compensation law) is that coverage is limited to claims within the worker's compensation administrative regime. It is important to recognize that RMJOB's workers' compensation coverage could not benefit RMJOB with respect to a judgment against it in the state-court tort suit. Assume, say, that Mr. Dymowski had somehow obtained workers' compensation benefits based on his injury from the February 5, 1998, incident. A tort judgment against RMJOB would not be reduced by the amount of workers' compensation benefits, nor could RMJOB (or its general-liability insurer) seek contribution or indemnification from RMJOB's workers' compensation carrier. On the contrary, the workers' compensation carrier would be subrogated to Mr. Dymowski's claim in the tort case. Part, or perhaps even all, of his recovery in the tort case would be directed to reimbursement of the carrier. See, Colo.Rev.Stat. § 8-41-203(b), (c); Jorgensen v. Colo. Comp. Ins. Auth., 967 P.2d 172, 173 (Colo.App.1998). 50 Thus, the workers' compensation carrier and the general-liability insurer are not on the same footing. They are not to share in the costs arising from a worker's injury. Rather, money is to come first from tort recovery, and from workers' compensation coverage only as a second resort. To impose upon Pinnacol a duty to defend or indemnify in this case would undercut this policy, providing an exception to the general proposition that the tort system, rather than workers' compensation, should be the bearer of costs when both are implicated. 51 Workers' compensation is the original social insurance. See Price V. Fishback & Shawn Everett Kantor, The Adoption of Workers' Compensation in the United States, 1900-1930, 41 J.L. & Econ. 305 (1998); John M. Kleeberg, From Strict Liability to Workers' Compensation: The Prussian Railroad Law, The German Liability Act, and the Introduction of Bismarck's Accident Insurance in Germany, 1838-1884, 36 N.Y.U. J. Int'l L. & Pol. 53 (2003). Most employers are required by law to obtain a workers' compensation insurance policy or to prove the capacity to self-insure. See Colo.Rev.Stat. § 8-44-101. Although benefits are limited, they provide a safety net for injured employees that is available relatively promptly and regardless of who, if anyone, was at fault. In part because of concern that high insurance premiums will lead to diminished employment opportunities, workers' compensation disputes are resolved through administrative agencies to reduce costs and focus limited funds on compensating workers. In this context, courts should be reluctant to interpret workers' compensation coverage to impose on the insurer duties arising out of tort litigation. 52 Accordingly, we hold that Pinnacol did not owe RMJOB a duty to defend or indemnify in Mr. Dymowski's state-court tort suit. 53 Plaintiffs argue that the Colorado Supreme Court's recent decision in Cyprus compels a contrary result. But we see nothing in that opinion that conflicts with the above analysis. Cyprus arose from a landslide that rendered unusable a mine that Cyprus Amax Mineral Co. had sold to Coeur d'Alene Mines Corp. Cyprus, 74 P.3d at 297. After the landslide, Coeur d'Alene sued Cyprus, alleging that Cyprus negligently, recklessly, or deliberately failed to disclose material facts regarding conditions at the [m]ine. Id. at 298. The case was settled for $31 million. Id. After the settlement Cyprus sought indemnification under policies providing that the insurers would indemnify it for a loss. . . imposed . . . by law or assumed by contract . . . on account of . . . property damage. Id. The policies defined property damage as physical injury to or destruction of tangible property, including the loss of use thereof. Id. 54 The insurers contended that Coeur d'Alene's complaint had asserted claims based entirely on fraud and other intentional acts by Cyprus and involved only economic damages, not property damage. Id. But the court held that the Coeur d'Alene complaint alleged facts that could lead to a recovery for `property damage,' id. at 302, and so held that summary judgment for the insurers was inappropriate, id. at 308. Along the way, the court wrote: The determination of whether a duty to indemnify exists requires factual development, as it is largely a question of fact. Extrinsic evidence may assist the trial court in determining whether and to what extent actual liability, as represented by a verdict or settlement, is covered by an existing policy. Id. at 301-02. Plaintiffs contend that summary judgment was inappropriate here because they offered such extrinsic evidence—namely, substantial evidence . . . that Mr. Dymowski suffered a personal injury as an RMJOB employee and [that] the injury [thus] fell within Pinnacol's . . . coverage. Aplt. Br. at 36. 55 Cyprus is distinguishable, however, because the insurance coverage in Cyprus was not forum specific. The policy was written so that the duty to indemnify turned on whether certain facts—a loss imposed by property damage—could be established. A loss could be the subject of indemnity regardless of what tribunal, if any, determined the essential facts. Here, in contrast, as we have stated above, the Pinnacol workers' compensation coverage encompasses only claims proceeding through the workers' compensation system. In Cyprus no public policy established a hierarchy among types of insurance coverage, as in the workers' compensation arena, in which the workers' compensation carrier can obtain reimbursement from a tort recovery but a general-liability carrier has no like rights with respect to an award of workers' compensation benefits. If the injury in Cyprus was within the property-damage coverage, there would be no reason to preclude Cyprus from seeking indemnification for what it had paid as tort liability. Accordingly, we hold that Cyprus is inapposite.