Stephen Cornwell, one of Fresno’s most prominent personal injury attorneys, was recently featured in the Fresno County Bar Association’s “Trial Digest’s Case of the Month.” The following article is taken from the Fresno County Bar Association’s Bar Bulletin March 2021, volume 42, number 3:
1 Trials Digest 24th 3, 2019 WL 11608138
OWNER OF CLOSE CORPORATION SUFFERS
SEVERE INJURIES IN TRUCK ACCIDENT
VEHICLE NEGLIGENCE – Motor Vehicle v. Motor Vehicle; Truck; Vehicle
Insurance – Health; Bad Faith & Coverage
FRESNO COUNTY SUPERIOR COURT
Doe v. XYZ Corporation, Docket number: Not Available. Judge: Unknown. Trial
type: Settlement. Result date: September 30, 2019.
$1,985,197 to plaintiff from defendant XYZ Corporation (policy limits of primary and excess) for damages
Defendant ABC Insurance, the health insurance carrier, agreed to waive its $987,000 lien in settlement of plaintiff’s bad faith action.
Plaintiff: Stephen R. Cornwell, Cornwell & Sample LLP, Fresno, CA
Defendant: None mentioned
According to the plaintiff’s lawyer: Plaintiff John Doe, 62, was riding as a passenger in his company’s truck. The company, confidential defendant XYZ Corporation, is a close corporation of which plaintiff is the sole owner. The defendant driver was his employee. And plaintiff, even though an owner, is also an employee of the company as law defines who is an employee. He has withdrawals from his pay as an employee. He receives a W-2 for tax purposes.
Plaintiff’s corporation did have workers’ compensation insurance for injuries to employees. However, as typical for close corporation ownership, plaintiff did not have any workers’ compensation insurance to cover him.
While on the way to a company job, defendant driver, a co-employee in the company, drifted off to sleep and crashed the truck into a large transport. As a result of the crash, plaintiff was thrown from the vehicle and was severely injured. Plaintiff was treated in three hospitals and was eventually transferred to a rehabilitation center in Bakersfield, California, for retraining for the skills of normal living. His health insurance was through confidential defendant ABC Insurance. His health insurance carrier paid nearly $1,000,000 for his care in the three hospitals. It refused to pay for the care at the rehabilitation center because it claimed it was residential which is not covered by the health policy. Thus, plaintiff paid for that care himself. The charges for four months were over $180,000.
Plaintiff brought an action against his own company and the employee driving the truck when he was injured. Cal. Lab. Code Sec. 3600 sets forth the preclusion of lawsuits against an employer if the conditions of compensation occur.
Section 3600 provides that the preclusion occurs if the employer and employee are subject to the compensation provisions of this division and if the employee is performing services growing out of and incidental to the employment. Plaintiff was indisputably participating in work for the company. Further, Cal. Lab. Code Sec. 3601 provides that the exclusive remedy for claims against another employee acting in the course and scope of his employment is workers’ compensation except if the injury is caused by intoxication of the employee or the unprovoked act of aggression by the employee. Neither of those conditions existed in this case. And Cal. Lab. Code Sec. 3602 provides that where the conditions of employment exist, the sole remedy against the employer is workers’ compensation unless the injury is caused by a physical attack by the employer, fraudulent concealment of the existence of injury, or an injury caused by a defective product sold to another third party and then resold to the employer. None of those facts existed.
Defendant XYZ Corporation had two liability insurance policies, one primary and the other excess, for the operation of a vehicle. Each was $1,000,000. The primary policy had a UM provision. The excess, as allowed by law, did not. Both policies had exclusions for injuries caused by a co-employee. The carrier
claimed that there was no coverage for the liability of the driver because of the co-employee exclusion. If so, the UM provision would provide $1,000,000 of coverage. However, the health carrier had a contractual lien for $989,000. Considering costs, fees, and liens there would be virtually nothing left for plaintiff.
Two lawsuits were filed. One was against defendant XYZ Corporation and its employee, defendant driver. The second was for bad faith against health carrier defendant ABC Insurance for a denial of coverage while in recovery in Bakersfield. The care in Bakersfield was to put plaintiff in an environment in
which he would learn the activities of daily living and be able to live autonomously. The care was hardly a ‘residence’ as the carrier contended. The liability carrier denied the coverage but offered to pay the UM limits and to arbitrate the coverage of the second layer of liability. This was declined inas-
much as such arbitration was certain to find no coverage. The liability carrier cited Cal. Ins. Code Sec. 11580(c)(4) which reads:
‘(c) In addition to any exclusion provided in paragraph (3) of subdivision (b), the insurance afforded by any policy of automobile liability insurance to which subdivision (a) applies, including the insurer’s obligation to defend, may, by appropriate policy provision, be made inapplicable to any or all of the following:
(4) Liability for bodily injury to any employee of the insured arising out of and in
the course of his or her employment.’ Further, the Labor Code defines who is an employee. Cal. Lab. Code Sec. 3351 provides that:
‘Employee means every person in the service of any employer under any appointment or contract of hire or apprenticeship, expressed or implied, oral or written, whether lawfully employed…’ However, the Labor Code also addresses who is not an employee as a matter of law. Cal. Lab. Code Sec. 3352(a)(16)(B) provides:
‘an officer or director of a private corporation who is the sole shareholder of the private corporation is not an employee unless he or she ‘has elected to be subject to liability for workers compensation.”
Plaintiff, as is normal for owners of a close corporation, chose to not cover himself for workers’ compensation benefits. By law pursuant to Cal. Lab. Code Sec. 3352, he was not an employee. The liability carrier for defendant XYZ Corporation capitulated on its claim of no coverage on both the primary and the excess. Defendant ABC Insurance waived its lien in exchange for a dismissal of the bad faith claim. Plaintiff made a personal recovery of a major share of the $2,000,000 in liability coverage, well into seven figures. Remarkably, the agency that sold both the liability and workers’ compensation policies to plaintiff had no idea how coverage under the auto liability policies was affected by it not having procured workers’ compensation insurance for its customer.
According to the plaintiff’s lawyer: Severe injuries requiring hospitalization and
Plaintiff: Not reported.
Defendant: Not reported.
According to the plaintiff’s lawyer: Past medical expenses in excess of $1 million.