DOUGLAS OIL COMPANY OF CALIFORNIA v. West–Mark, Inc., Cross-defendant and Respondent.

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Court of Appeal, Second District, Division 3, California.

DOUGLAS OIL COMPANY OF CALIFORNIA, Cross-complainant and Appellant, v. WESTERN ASPHALT SERVICE, Cross-defendants, Cross-complainant and Appellant; West–Mark, Inc., Cross-defendant and Respondent.

No. B038895.

Decided: December 29, 1993

Kinkle, Rodiger & Spriggs, Guillermo W. Schnaider, Los Angeles, and Michael R. Haya, Sherman Oaks, for defendant and appellant. Lynberg & Watkins, Michael J. Larin and Joyce L. Mavredakis, Los Angeles, for defendant, respondent and appellant. Hagenbaugh & Murphy, and John J. Tary, Glendale, for defendant and respondent.

This is an appeal from a judgment in favor of plaintiff William Darrell Gregory (Gregory) in a personal injury action against defendant, cross-complainant and appellant Douglas Oil Company of California (Douglas) and defendant, cross-complainant and respondent Western Asphalt Service (Western).

SUMMARY STATEMENT

Gregory's injuries arose out of a work-related fall from an oil tanker.   The case initially was a relatively simple third-party tortfeasor lawsuit related to a workers' compensation action.   Gregory did not sue Transit Resources, Inc. (TRI), the company which paid his salary and provided his workers' compensation benefits.   Gregory did sue Douglas and others as third party tortfeasors including Western, the company which owned the equipment he operated and directed his work activity.   Western defended the lawsuit on the basis it was Gregory's special employer and thus entitled to immunity from civil damages under the exclusive remedy rule.  (Lab.Code, §§ 3600, subd. (a);  3602, subd. (a).) 1

The jury found Douglas and Western had been 35 and 65 percent responsible, respectively, for Gregory's damages.   The jury also found Western had been Gregory's special employer at the time of the accident.   There was sufficient evidence to support the jury's special verdict on that issue, given the instructions and the manner in which the matter was tried.   Based on the jury's verdict, the trial court held Douglas responsible for the entire $1.5 million verdict and denied Douglas's post verdict motions.   This appeal followed.

In the course of addressing Douglas's contentions respecting its claims for contribution from Western, it came to our attention that Western itself was not insured for workers' compensation liability.   We requested additional briefing on the legal significance of that fact.

 We reluctantly conclude Western's failure to secure the payment of compensation by being insured for such liability (§§ 3700, 3706), precludes its assertion of workers' compensation as the exclusive remedy against it.   Absent the exclusive remedy defense, Western must answer in tort for its percentage share of Gregory's damages.

Accordingly, the trial court's denial of Douglas's motion for contribution is reversed.   Our findings on the other issues presented are set forth in the relevant discussion sections.

FACTUAL AND PROCEDURAL BACKGROUND

Gregory testified at trial that he worked as a truck driver.   He drove trucks for a firm known as Payne Allied in 1982.   In that capacity he hauled oil products in Western's trailers until Payne Allied stopped doing business with Western and laid Gregory off.   In approximately September of 1982, Mark Lynch, a Western dispatcher, telephoned Gregory and advised him Western needed drivers.   Lynch told Gregory to contact either himself or Transport Resources, Inc. (TRI).

Gregory went to see Lynch.   Lynch told Gregory that TRI “was the leasing firm.”   Gregory applied for the opening through Lynch and, in September 1982, began driving Western's trucks and hauling oil products in Western's trailers.   Gregory received his work instructions from the Western dispatcher and reported for work at the Western truck yard.   He was paid by TRI.

Lynch testified Western used drivers who operated Western's trucks such as Gregory, as well as owner-operators.   Drivers in both categories received their paychecks from TRI.   TRI was “responsible for generating the drivers' paychecks and handling work[er]'s compensation claims and giving the drivers W [–2] forms at the end of the year.”   Western paid TRI a premium of approximately $3 per hour over the $8.25 hourly wage received by Gregory.

Robert Boyich, the former vice president of operations of TRI, testified TRI exercised no supervisory control over the drivers supplied to Western.   The amount Western paid TRI had been negotiated so as to cover the cost of such expenses as disability and workers' compensation insurance.   The contract between TRI and Western provided the drivers supplied to Western by TRI would remain the employees of TRI.

Specifically, the contract stated:  “Notwithstanding the fact that the vehicles are [Western's], the drivers are and will continue to be TRI employees.   TRI will pay the wages of the drivers and provide the benefits required by any applicable collective bargaining agreement which may be in effect from time to time․   TRI will maintain adequate payroll records and reports and carry workers' compensation insurance on all such employees and will comply with all applicable laws and regulations of all governmental agencies with respect to such employment.”

On November 7, 1982, Gregory fell from the top of a Western oil tanker he was loading on the premises of Douglas's oil refinery in Paramount, California, and sustained personal injuries.   Between the time Lynch called Gregory and the time of the accident, Gregory neither had spoken to anyone at TRI nor had he been to TRI's offices.

Gregory's medical expenses were covered under a policy of workers' compensation TRI obtained from Homeland Insurance Company (Homeland).   Upon Gregory's release from the hospital he telephoned Western to obtain a hospital bed for his home.   Gregory testified he was told he “didn't work for [Western].  [He] worked for [TRI], so [he] was to call them.”

Gregory sued Douglas, Western, and the manufacturer of the tanker, West–Mark Inc. (West–Mark), among others, for personal injuries.   Gregory did not sue TRI.

Homeland filed a complaint in intervention to recoup the $200,000 in workers' compensation benefits it paid Gregory.

By special verdict the jury awarded Gregory $1.5 million and found Western and Douglas 65 and 35 percent responsible, respectively, for the damages.   TRI and West–Mark were found to be free of fault.   The jury further concluded Gregory had been Western's special employee at the time of the accident.   This finding precluded Gregory's recovery from Western because workers' compensation benefits constituted his exclusive remedy.   As a result, the trial court ruled Douglas responsible for the entire judgment.

The trial court denied Douglas's motion for judgment notwithstanding the verdict, for contribution from Western and for a new trial.

Douglas timely appealed and Western conditionally cross appealed.

CONTENTIONS

Douglas contends (1) Western waived the defense of special employment by failing to raise the issue in its pleadings, (2) the evidence does not support the jury's finding Gregory was Western's special employee, (3) equitable considerations require Western to contribute to the verdict rendered in Gregory's favor, and (4) alternatively, Western should be ordered to contribute to Douglas the amount of the workers' compensation benefits Gregory received.

In a conditional cross-appeal, Western contends the evidence did not support the jury's finding West–Mark had no liability for Gregory's damages.   West–Mark requests sanctions for prosecution of a frivolous appeal against it.

ADDITIONAL ISSUES

By letter dated May 19, 1993, this court requested the parties to address by supplemental letter briefs (Gov.Code, § 68081) certain additional issues including whether Western may relieve itself of the obligation to insure its employees for workers' compensation by entering into a contract with TRI pursuant to which TRI agreed to obtain workers' compensation insurance for Western's drivers.

DISCUSSION

1. General principles of workers' compensation.

 An employee injured in the course of employment is entitled to receive workers' compensation benefits from the employer without regard to negligence.   Generally, this recovery is the employee's exclusive remedy against an employer but does not preclude suit by the employee against a negligent third party.  (DaFonte v. Up–Right, Inc. (1992) 2 Cal.4th 593, 598, 7 Cal.Rptr.2d 238, 828 P.2d 140;  O'Dell v. Freightliner Corp. (1992) 10 Cal.App.4th 645, 653, 12 Cal.Rptr.2d 774.)   One exception to the exclusive remedy rule is where the employer fails to secure the payment of compensation.  (§ 3706.)   Section 3700 requires employers either to be insured for workers' compensation liability or to obtain a certificate of consent to self-insure.2

 An employee may have more than one employer.   A special employment relationship arises when an employer lends an employee to another employer and relinquishes to the borrowing employer the right to control the employee's activities.  (Marsh v. Tilley Steel Company (1980) 26 Cal.3d 486, 492, 162 Cal.Rptr. 320, 606 P.2d 355.)   The right to control and direct the activities of the alleged employee or the manner in which the work is performed, whether exercised or not is the primary factor in determining whether an employment relationship, special or otherwise, exists.  (Kowalski v. Shell Oil Company (1979) 23 Cal.3d 168, 175, 151 Cal.Rptr. 671, 588 P.2d 811;  Riley v. Southwest Marine, Inc. (1988) 203 Cal.App.3d 1242, 1250, 250 Cal.Rptr. 718.)   The borrowed employee is held to have two employers, the original or general employer and the special employer.

 “[B]oth the general and special employers are liable for any injuries to the employee.  [Citations.]”  (County of Los Angeles v. Workers' Comp. Appeals Bd. (1981) 30 Cal.3d 391, 405, 179 Cal.Rptr. 214, 637 P.2d 681;  Kowalski v. Shell Oil Co., supra, 23 Cal.3d at p. 175, 151 Cal.Rptr. 671, 588 P.2d 811.)  “Thus the employee has the benefit of having the special employer as an additional party responsible for any industrial injury [the employee] suffers on that employer's job.”  (Martin v. Phillips Petroleum Co. (1974) 42 Cal.App.3d 916, 920, 117 Cal.Rptr. 269, italics added, disapproved on another point by Kowalski v. Shell Oil Co., supra, 23 Cal.3d at pp. 177–178, fn. 9, 151 Cal.Rptr. 671, 588 P.2d 811;  McFarland v. Voorheis–Trindle Co. (1959) 52 Cal.2d 698, 702, 343 P.2d 923.)   Where there is a general and a special employer, the worker is barred from maintaining an action against either employer.  (Kowalski v. Shell Oil Co., supra, 23 Cal.3d at p. 175, 151 Cal.Rptr. 671, 588 P.2d 811.)

This case was tried on the theory TRI was Gregory's general employer and Western was his special employer.

2. The special employment issue properly was before the trial court.

 Douglas contends the jury's finding of a special employment relationship between Gregory and Western must be set aside because Western failed to allege this affirmative defense in its pleadings.   We find Douglas had notice of the issue, raised the issue in its own pleadings, and tried the case as if special employment had been pleaded.   This claim therefore fails.

a. Doney v. Tambouratgis (1979) 23 Cal.3d 91, is distinguishable.

Doney v. Tambouratgis (1979) 23 Cal.3d 91, 151 Cal.Rptr. 347, 587 P.2d 1160, is the seminal case on the employer's need to plead the existence of an employment relationship and the conditions of compensation if the exclusive remedy of workers' compensation is to be relied upon at trial.  Doney held:  “[A] defendant in a civil action who claims to be one of that class of persons protected from an action at law by the provisions of the Workers' Compensation Act bears the burden of pleading and proving, as an affirmative defense to the action, the existence of the conditions of compensation set forth in the statute which are necessary to its application.  [Footnote omitted.]  [Citations.]  ‘The employee is pursuing a common law remedy which existed before the enactment of the statute and which continues to exist in cases not covered by the statute.   It is incumbent upon the employer to prove that the Work[ers'] Compensation Act is a bar to the employee's ordinary remedy.’  [Citation.]”  (Id., at pp. 96–97, 151 Cal.Rptr. 347, 587 P.2d 1160, italics added.)

Western argues this case may be distinguished from Doney on its facts.   We agree.

(1) Douglas's own pleadings acknowledged the issue.

Western's answer did not raise the defense of the exclusive remedy of workers' compensation insurance.

However, in its answer to Western's cross-complaint Douglas alleged as a special affirmative defense that at the time of the accident, Gregory had been “an employee of WESTERN ASPHALT SERVICE and acting within the course and scope of that employment;  [Western] had insurance provisions that covered [Gregory] for the injuries and damages alleged;  that [Western] was negligent in a manner which proximately caused [Gregory's] injury and that any verdict rendered in favor of [Gregory] herein should be reduced by the amount of whatever benefits have been paid.”

 Thus, Douglas, in its own pleadings, acknowledged the possibility workers' compensation constituted Gregory's exclusive remedy against Western.   This allegation in Douglas's answer to Western's cross-complaint, standing alone, arguably is sufficient to fulfill the Doney requirement that the pleadings must place the affirmative defense of the workers' compensation bar in issue.   However, on this record there is more.

(2) Western's motion for summary judgment raised the issue of special employment.

Western filed a motion for summary judgment in March of 1984, four years prior to trial, which specifically and extensively argued Gregory could not maintain the instant suit against Western because Western was Gregory's special employer at the time of the accident.   Western asserted it controlled the operative details of Gregory's daily work and, as his special employer, was immune from suit for damages arising out of the employment relationship.

All papers filed respecting the motion were served on Douglas.   Gregory successfully opposed the motion.   Thus, Douglas not only pleaded an employment relationship between Gregory and Western in its answer to Western's cross-complaint, but also Douglas had particularized knowledge Western intended to rely on the special employment relationship as a defense.

(3) The issue was raised again at trial.

At the time of trial, Western raised the issue of special employment in opening statement, throughout the trial, in a written motion for nonsuit at the close of Gregory's evidence, in closing argument, in the discussions on jury instructions, and in the special verdict form.

Finally, although Douglas couches Western's asserted pleading deficiency in terms of the trial court's failure to grant Douglas's motion for judgment notwithstanding the verdict, Douglas did not raise this issue before the trial court at any time.   Douglas seeks to avoid this omission by asserting a jurisdictional defect may be raised for the first time on appeal.   Douglas's argument is not persuasive.

Rowland v. County of Sonoma (1990) 220 Cal.App.3d 331, 269 Cal.Rptr. 426, noted the issue of employment may be injected into a tort action by means other than the pleadings.   That case stated:  “Evidence disclosed from declarations, admissions, or deposition testimony in support of or in reply to a motion for summary judgment may be stronger than bare pleadings in the complaint to notify the parties and the court of the possible exclusive remedy of workers' compensation.”  (Id., at p. 335, 269 Cal.Rptr. 426.)

This authority is appropriately applied in this case.

b. Waiver and/or estoppel also bind Douglas.

 Because Douglas had actual notice that Western was relying on its employment of Gregory as a defense to liability, Western's argument that Douglas waived any error associated with the failure to plead employment, or should be estopped from raising it for the first time on appeal, is meritorious.

This case, unlike Doney, was tried by the parties as if the issue of special employment properly had been joined by the pleadings.   No case cited by Douglas which relied upon Doney for the proposition the defendant must affirmatively plead and prove the workers' compensation bar was so tried.  (See, Popejoy v. Hannon (1951) 37 Cal.2d 159, 231 P.2d 484 [issue of exclusive remedy raised on appeal in the context of instructional error;  no indication the matter previously had been raised];  Coca–Cola Bottling Co. v. Superior Court (1991) 233 Cal.App.3d 1273, 1283–1284, 286 Cal.Rptr. 855;  Rowland v. County of Sonoma, supra, 220 Cal.App.3d 331, 269 Cal.Rptr. 426;  Dorado v. Knudsen Corp. (1980) 103 Cal.App.3d 605, 610, 163 Cal.Rptr. 477;  cf., Green v. City of Oceanside (1987) 194 Cal.App.3d 212, 223–225, 239 Cal.Rptr. 470.)

Under these circumstances, Douglas properly is foreclosed from asserting a pleading defect.

 “A party cannot permit an issue to be litigated and on appeal escape the consequences by claiming that such issue was not pleaded.  [Citations.]”   (Vaughn v. Jonas (1948) 31 Cal.2d 586, 605, 191 P.2d 432.)   Similarly, “ ‘[w]here the parties try the case on the assumption that ․ [an] issue ․ [is] raised by the pleadings, ․ neither party can change this theory for purposes of review on appeal.’  [Citations.]   This is the doctrine of ‘the theory on which the case was tried’ or ‘the theory of trial’ and is a well-established rule of appellate practice.”  (Hilliard v. A.H. Robins Co. (1983) 148 Cal.App.3d 374, 392, 196 Cal.Rptr. 117.)

We, therefore, conclude Douglas is estopped from asserting the instant deficiency for the first time on appeal and reject Douglas's claim of error.

3. The evidence supports the jury's finding Gregory was Western's special employee.

a. Standard of review.

“[I]n examining the sufficiency of the evidence to support a questioned finding, an appellate court must accept as true all evidence tending to establish the correctness of the finding as made, taking into account, as well, all inferences which might reasonably have been thought by the [fact finder] to lead to the same conclusion.   Every substantial conflict in the testimony [must] ․ be resolved in favor of the finding.”  (Bancroft–Whitney Co. v. McHugh (1913) 166 Cal. 140, 142, 134 P. 1157;  Estate of Teel (1944) 25 Cal.2d 520, 526–527, 154 P.2d 384.)

b. Substantial evidence supports the jury's finding.

 Douglas contends Western merely acted as a dispatcher and gave Gregory no special instructions.   It asserts the evidence establishes only that Western told Gregory “where to go to deliver or pick up oil.   Western did not have control over how [Gregory] accomplished the details of his work and, therefore, could not have been his employer.”   Douglas also relies on Gregory's testimony that Western told him after his release from the hospital he was not a Western employee.

Notwithstanding Douglas's assertion, sufficient evidence supports the jury's finding of special employment in the light of the instructions given.3

Gregory testified TRI essentially acted as an employment agency which “physically leased” him to Western.   Gregory drove Western's trucks, Western directed his day-to-day activities, and Gregory stayed in contact with Western's dispatcher throughout the day.   Gregory also understood Western had the right to determine whether he was a qualified driver.   Finally, Western's contract with TRI permitted it to require TRI to replace any employees Western found unacceptable.

This evidence adequately supports the jury's conclusion that Western was Gregory's special employer.

4. Failure to “secure the payment of compensation” prevents Western from asserting the exclusive remedy of workers' compensation to defeat Douglas's claim for contribution.

a. Equitable considerations argument unavailing to Douglas.

 Douglas argues equitable considerations should operate to deprive Western of the benefit of section 3864.   That section provides an employer has no liability to reimburse a third-party defendant for a judgment in favor of an employee in the absence of a written indemnity agreement executed prior to the injury.4

Section 3864 was enacted to eliminate the employer's liability for equitable or implied indemnification of a third party tortfeasor and thereby reduced insurance costs to the level contemplated by the workers' compensation law.   (Pacific Gas & Elec. Co. v. Morse (1970) 6 Cal.App.3d 707, 713, 86 Cal.Rptr. 7.)

Douglas claims it is inequitable to apply section 3864 here because (1) Western incurred no workers' compensation insurance burden by reason of its contract with TRI which required TRI to carry such insurance, and (2) Western had no liability insurance exposure because its status as a special employer allowed it to raise the exclusive remedy of workers' compensation.   Douglas argues the “inequity of this situation is dramatized when one considers the interplay of the Witt v. Jackson [ (1961) 57 Cal.2d 57, 17 Cal.Rptr. 369, 366 P.2d 641] doctrine.”

Under Witt and its progeny, the third party, here Douglas, is entitled to reduce its tort responsibility in the amount of the employer's percentage share of the employee's total recovery up to the amount of the workers' compensation benefits paid to the employee.  (Associated Construction & Engineering Company v. Workers' Compensation Appeals Board (1978) 22 Cal.3d 829, 841–842, 150 Cal.Rptr. 888, 587 P.2d 684;  Galvis v. Petito (1993) 13 Cal.App.4th 551, 563, 16 Cal.Rptr.2d 560.)

Douglas argues it cannot assert the Witt defense against TRI, the general employer, because the jury found TRI free of negligence.   Douglas complains Western and TRI “traded the employer's cloak back and forth between themselves” at their convenience.   It contends the circumstances of this case eliminate Western's monetary incentive to maintain a safe work place.

Douglas concludes Western should be required to contribute 65 percent of the damages paid to Gregory or, alternatively, to contribute the amount of the workers' compensation benefits Gregory received under a Witt offset theory.

Douglas's contribution arguments are not persuasive.   First, as an employer Western was entitled to the benefit of section 3864.   Second, although the offset theory appears to comport with the policies underlying Witt, section 3864 precludes Douglas from seeking contribution from Western in the amount of the workers' compensation benefits paid to Gregory in order to approximate the Witt result.   In order to achieve the result Douglas desired, it should have (a) sought an offset against its payment to Gregory in the amount of the workers' compensation benefits Gregory already had received, or (b) raised the claim in the context of Homeland's complaint in intervention.5  Therefore, Douglas is not entitled to contribution based on the equitable arguments raised in its brief.

b. Parties' response to this court's inquiries.

Douglas's repeated assertion Western had paid no workers' compensation insurance premiums and Western's concession of the point suggested to this court an issue which should have been explored in the trial court and which the parties had not addressed.   Specifically, it appeared Western's failure to obtain a policy of workers' compensation insurance in its own name precluded its right to avoid civil damages under the exclusive remedy rule.

Western's brief conceded it was not insured by a policy of workers' compensation insurance but instead had relied on TRI's policy.   Departing from the special employment concept urged at trial to avoid liability, in response to this issue Western claims it was Gregory's co-employer and that only one employer in such a situation need obtain a policy of workers' compensation insurance.   Western's brief states:  “Western and [TRI] were in effect Gregory's co-employers.   As such, they share the workers' compensation cost burden.   Although [TRI] actually paid Gregory his benefits, the cost was shared by Western through the fees paid to [TRI].”

Western relies on Sehrt v. Howard (1960) 187 Cal.App.2d 739, 10 Cal.Rptr. 128, for this proposition.   There, a civil action was barred even though one of two employers carried no insurance.   However, Sehrt merely noted this fact in passing and did not state as a proposition of law that only one of two employers was required to carry compensation insurance.

More recent cases have concluded the lack of workers' compensation insurance exposes an employer to an action for civil damages.   Section 3700 requires “[e]very employer ” to secure the payment of workers' compensation by being insured.   Section 3706 permits an employee to maintain an action at law against an employer who fails to secure the payment of compensation.  (See, Hernandez v. Chavez Roofing Inc. (1991) 235 Cal.App.3d 1092, 1094–1095, 286 Cal.Rptr. 919 [survivors of deceased worker could sue subcontractor for wrongful death based on subcontractor's failure to purchase workers' compensation insurance notwithstanding payment of benefits to survivors by general contractor's carrier];  Strickland v. Foster (1985) 165 Cal.App.3d 114, 117–118, 211 Cal.Rptr. 305 [survivors of special employee entitled to sue general employer even though compensation benefits collected from special employer's carrier].)

Western responded to our inquiry by distinguishing the cases cited by this court and reiterating its compliance with the Labor Code through its contract with TRI.   It also asserted an employee bears the burden of demonstrating Western's lack of insurance and, based on the punitive consequences attributable to the failure to obtain insurance, the issue should not be raised for the first time on appeal.

 Upon due consideration in the face of statutory and case law, we conclude Western's contract with TRI did not relieve it of the burden of being insured under a policy of workers' compensation.

c. Western's failure to secure the payment of compensation crucial.

Western asserts its contract with TRI, pursuant to which it paid a surcharge over the hourly wage paid to the employees to defray, among other things, the cost of compensation insurance, constitutes securing the payment of compensation within the meaning of section 3706.   Western's reliance on the dictionary definition of the word “secure” in this context is misplaced.

“Pursuant to the ‘plenary power’ the Constitution has granted to the Legislature ‘to create, and enforce a complete system of workers' compensation’ (Cal. Const., art. XIV, § 4), the Legislature has created a statutory scheme requiring all employers to secure the payment of workers' compensation to injured workers, either by obtaining insurance coverage of their liability or by obtaining a certificate of consent to self-insure issued by the Director of Industrial Relations.  (§ 3700 et seq.)”  (DuBois v. Workers' Comp. Appeals Bd. (1993) 5 Cal.4th 382, 388, 20 Cal.Rptr.2d 523, 853 P.2d 978;  Rymer v. Hagler (1989) 211 Cal.App.3d 1171, 1183, 260 Cal.Rptr. 76;  Self–Insurers' Security Fund v. ESIS, Inc. (1988) 204 Cal.App.3d 1148, 1156, 251 Cal.Rptr. 693.)

“Section 3700 effectively defines the term ‘secure the payment of compensation’ by providing that the employer may accomplish this by ‘being insured against liability to pay compensation’ or by securing ‘a certificate of consent to self-insure.’ ”  Campos Food Fair v. Superior Court (1987) 193 Cal.App.3d 965, 968, 238 Cal.Rptr. 685.)

“Thus an employer who is ‘insured’ has a proper workers' compensation insurance policy and an employer who is ‘self-insured’ has a certificate of consent to self-insure.”  (Human Engineering Laboratory v. Workers' Comp. Appeals Bd. (1980) 108 Cal.App.3d 339, 346, 166 Cal.Rptr. 501.)

Western concededly falls outside both categories.

(1) Factual distinctions between this case and Hernandez and Strickland do not affect their applicability.

Western attempts to distinguish Hernandez and Strickland on the various factual grounds.

Concededly, neither case is factually congruent with this case.  Hernandez is distinguishable because it involved statutory dual employment.   That is, the injured worker, in fact, was not on employee of the general contractor and was permitted to claim compensation benefits under the general contractor's policy based on a statutory provision permitting such recovery upon the subcontractor's failure to hold a valid contractor's license.

Strickland involved a general employer who furnished a truck as well as a driver and thus necessarily retained some control over the manner in which the truck was operated.   TRI, on the other hand, appears to have exercised little, if any, control over the conduct of Gregory's activities.

Relying on these differences, Western asserts it has complied with the spirit of the workers' compensation laws by contracting with TRI to obtain coverage.

However, none of the factual distinctions undermines the statutorily compelled conclusion, bluntly stated in Hernandez v. Chavez Roofing Inc., supra, 235 Cal.App.3d at p. 1095, 286 Cal.Rptr. 919, as follows:  “The price that must be paid by each employer for immunity from tort liability is the purchase of a workers' compensation policy.  (§ 3706.)  [The subcontractor] chose not to pay that price, so it should not be immune from liability.  [Citation.]”

(2) Riley v. Southwest Marine (1988) 203 Cal.App.3d 1242, does not assist Western.

Western's analogy to Riley, a case involving a laborer provided to Southwest Marine by Manpower, Inc., a labor broker, is instructive but distinguishable.  Riley held the employee could not sue Southwest Marine, the special employer, in tort.   Southwest Marine did not carry compensation insurance for the injured employee.

However, the injury in Riley was compensable under the federal Longshoremen's and Harbor Workers' Compensation Act (LHWCA), title 33 of the United States Code section 901, et seq., which specifically allows a subcontractor to fulfill its obligation to secure the payment of compensation through another.   LHWCA section 904, subdivision (a), provides in part:  “A subcontractor shall not be deemed to have failed to secure the payment of compensation if the contractor has provided for such compensation for the benefit of the subcontractor.”  Riley concluded Southwest Marine had secured “LHWCA coverage for Riley by arranging to have Manpower make the insurance payments on its behalf.”  (Riley v. Southwest Marine, supra, 203 Cal.App.3d at p. 1256, 250 Cal.Rptr. 718.)

There is no comparable provision in the Labor Code.

Instead, California requires every employer to secure the payment of compensation by being insured.  “Where the words of the statute are clear, we may not add to or alter them to accomplish a purpose that does not appear on the face of the statute or from its legislative history.  [Citation.]”   (Burden v. Snowden (1992) 2 Cal.4th 556, 562, 7 Cal.Rptr.2d 531, 828 P.2d 672.)

 Additionally, section 11663 of the Insurance Code has been written based on the premise both employers in a special employment situation will be insured.   It states the compensation insurer of the general employer is liable for the entire cost of compensation benefits unless the special employer had the employee on its payroll at the time of the injury.   Thus, California law contemplates that both employers in a special employment situation will be insured for workers' compensation liability.

Western's reliance on this court's opinion in Johnson v. Berkofsky–Barret Productions, Inc. (1989) 211 Cal.App.3d 1067, 260 Cal.Rptr. 67, which cited Riley, similarly is misplaced.   Although that case involved the employment of a television commercial actor by a casting company and a production company, we did not consider whether both employers had to have workers' compensation insurance policies.   The issue was never raised.  Johnson referred to Riley in the context of determining whether employees of a labor broker should be permitted to prosecute a tort action against the special employer for policy reasons.   We concluded, as had Riley, the existence of a labor brokerage arrangement did not provide a reasoned basis upon which to create an exception to the exclusive remedy rule.

 Faced squarely with that issue here, we are constrained to conclude the settled law in California requires every employer to secure the payment of workers' compensation benefits by being insured.   Any other course of action is undertaken at the risk of tort liability.   To the extent Western disagrees with this proposition, its quarrel is with the Legislature, not this court.   It would require a giant step of judicial activism for this court to rectify what we perceive as a legislative oversight through the medium of a published opinion on the subject.6

d. Defect not waived by failure to raise in trial court.

 Western argues Douglas has waived any claim it may have asserted in this regard by failing to raise the matter in the trial court.   Western also claims it impliedly asserted compliance with the Act.

We are unpersuaded.

This is not a case in which any dispute in the evidence appears.   Western conceded in a colloquy with the trial court 7 and has admitted in its briefs and supplemental letter brief filed in this court, that it was not insured for workers' compensation liability.   Western disputes only whether its contract with TRI adequately fulfilled its statutory obligation.

Muffett v. Royster (1983) 147 Cal.App.3d 289, 195 Cal.Rptr. 73, involved a similar situation.   There the employer paid for workers' compensation insurance by deducting the premiums from the employees' paychecks in violation of section 3751 which declares such conduct a misdemeanor.   Muffett held the employer's actions precluded a finding the employer had “ ‘secured payment of compensation.’  ․   To allow the employer to raise the worker's compensation [act] as a bar to the civil suit where the employer so blatantly fails to comply with so fundamental a part of the act, would be inconsistent with the purposes of the act.”  (Id., at p. 301, 195 Cal.Rptr. 73)

Although the jury in Muffett had not considered whether the employer had secured the payment of compensation, Muffett concluded the issue was one of law.   It held:  “An issue not raised at trial can be considered for the first time on appeal when it relates to “noncurable, undisputed” evidence as a pure question of law.  [Citation.]   An appellant may be permitted to change his theory when a question of law is presented on the facts appearing in the record.   That is because in such a case the opposing party is not required to defend for the first time on appeal against a new theory which contemplates a controverted factual situation.  [Citation.]”  (Muffett v. Royster, supra, 147 Cal.App.3d at p. 300, 195 Cal.Rptr. 73.)

Because a determination of whether the employer's undisputed acts “legally constitute ‘securing payment of compensation’ is a legal question,” Muffett held the issue could be addressed for the first time on appeal.   (Muffett v. Royster, supra, 147 Cal.App.3d at p. 300, 195 Cal.Rptr. 73.)

In this case, similarly there is no dispute as to the underlying facts.   The only dispute is the legal conclusion to be drawn from those facts.

 Accordingly, this court may address Western's failure to secure the payment of compensation for the first time on appeal.8  In so doing, we are compelled to conclude the denial of Douglas's motion for contribution must be reversed.

5. Western's conditional cross-appeal against West–Mark is not frivolous.

 In its cross-appeal Western contends the trial court erroneously failed to grant its motion for judgment notwithstanding the verdict and for new trial regarding the liability of West–Mark.   Western claims the evidence was insufficient to relieve West–Mark of liability.

We disagree.

One of the issues at trial was whether the trailer/tanker involved in this accident had been equipped with a catwalk at the time of manufacture by West–Mark and whether Western improperly had removed it, thereby rendering the tanker unsafe.   Western argues the expert witnesses uniformly testified the tanker had no weld marks which necessarily would have been present had a catwalk been removed by Western.

Western asserts “it is inconceivable how the jury could apportion liability against Western [in the amount of 65 percent] and not find the manufacturer of the subject vehicle, West–Mark, responsible at all.   This is based on the simple fact that no weld marks were on the trailer.”

However, Western concedes the Bill of Materials respecting the purchase of the trailer indicated it was to have been supplied with a catwalk.   It argues the inference the tanker had been so supplied cannot stand in the face of contradictory physical evidence.

West–Mark points to other evidence in addition to the Bill of Materials which supports the inference the trailer had a catwalk when it was delivered to Western.   A West–Mark vice-president testified it was the custom and practice of West–Mark to inspect the trailers during construction to assure conformity with the Bill of Material;  West–Mark's expert testified the catwalk specified in the Bill of Materials was not defective;  and, one of Western's maintenance men testified he saw the tankers after their purchase and at that time they had catwalks with toe guards and a 24–inch painted non-slip surface.

It accordingly appears the record contains sufficient evidence to support the jury's finding of no liability on the part of West–Mark.

West–Mark requests sanctions against Western for prosecuting a frivolous appeal because Western “makes no effort to state facts which demonstrate that there was indeed substantial evidence at trial to justify the jury's verdict․”

 Although the evidence of West–Mark's freedom from fault is sufficient to support the jury's finding, it does not appear Western prosecuted this cross-appeal for an improper motive and the cross-appeal is not “totally and completely without merit.”  (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650, 183 Cal.Rptr. 508, 646 P.2d 179.)   Accordingly, the request for sanctions is denied.

CONCLUSION

The issue of special employment properly was before the trial court.   The evidence supports the jury's finding Western was Gregory's special employer.   However, Douglas is entitled to contribution toward the judgment from Western based upon Western's failure to “secure the payment of compensation” by being insured as required by the Labor Code.   Accordingly, Western may not avail itself of the exclusive remedy provisions.

Western's conditional cross-appeal lacks merit.   West–Mark's request for sanctions against Western is denied.

DISPOSITION

The trial court's denial of Douglas's motion for contribution is reversed.   In all other respects, the judgment is affirmed.   Parties to bear respective costs on appeal;  Western to bear costs on its conditional cross-appeal.

I dissent in part.

I must disagree with the majority's decision to deny Western the protection of the exclusive remedy rule of Labor Code sections 3600 and 3602.   The business and economic reality of this case is that there was but one employer and that was Western.   For financial and tax reasons it chose to pay another (TRI) to handle the administrative management of its employees.   This, as the opinion notes, is an increasingly common practice and, given the increased efficiency of such a division of an employer's administrative and operational burdens, it is one which should be encouraged rather than punished by the application of our workers' compensation law.

I do not disagree with the majority's repeated assertion that the statutory burden placed upon an employer is to “secure the payment of compensation.”   Under the statute this may be accomplished by either purchasing a policy of insurance or obtaining a certificate of consent to self-insure.   However, recitation of the statutory requirements and goals only begs the question before this court.

In my view, Western did comply through its administrative agent, TRI.   A policy of workers' compensation insurance was purchased, with funds provided by Western, which was intended to and did benefit all of Western's employees, including most specifically Gregory.   Unlike the usual dual employer situations addressed by the cases cited by the majority opinion, the undisputed facts before us demonstrate that Gregory was effectively and in reality Western's employee.   He drove Western's trucks, he reported for work at Western's yard and received his work instructions from Western's dispatcher.   He was never supervised by TRI.   He was paid by TRI with funds supplied by Western.   Western retained the effective right to hire and fire.   Gregory was an “employee” of TRI in name only, and that only for the administrative purposes already described.

The majority insists, although reluctantly, that none of this matters.   Western should have purchased a second policy, thereby doubling its costs for compensation insurance, but providing no greater or additional benefits to Gregory or any of its other employees.   I simply cannot read the statute this way.   The majority's construction of the Labor Code presents a shocking example of the triumph of form over substance which this court should not tolerate much less perpetrate.   I do not believe the common sense application of existing statutory language to the very novel fact situation before us in any way constitutes judicial activism;  rather, it is what separates judges from administrative bureaucrats.

In this case there was but one employer and that was Western.   A single policy of workers' compensation insurance was all that was required.1  That the premiums were paid by a check written by TRI (from funds supplied by Western) should not deprive Western of the benefit of what it specifically purchased in its contractual arrangement with TRI.   Where there is, in economic reality, but one employer, a single policy of workers' compensation insurance satisfies the command of the Labor Code that every employer be insured and all of the purposes of the workers' compensation laws.

Those purposes have been identified as the following:  (1) to ensure that the cost of industrial injuries will be part of the cost of goods rather than a burden on society;  (2) to guarantee prompt, limited compensation for an employee's work injuries, regardless of fault, as an inevitable cost of production;  (3) to spur increased industrial safety;  and (4) in return, to insulate the employer from tort liability for an employees' injuries.   (Privette v. Superior Court (1993) 5 Cal.4th 689, 697, 21 Cal.Rptr.2d 72, 854 P.2d 721;  C.J.L. Construction, Inc. v. Universal Plumbing (1993) 18 Cal.App.4th 376, 385, 22 Cal.Rptr.2d 360.)

All of those factors are satisfied here.   By its contract with TRI, Western did not insulate itself from its responsibilities as an employer.   To the contrary, it fully discharged them as the benefits paid to Gregory demonstrate.   It simply handled them indirectly rather than directly.   In imposing a $975,000 burden on Western for having chosen this method of admittedly providing what the law required, the majority does a terrible injustice.   Of equal significance is the injury done by this decision, should it stand, to the strong public policy directed toward making compensation insurance more efficient and economical.

I would affirm the judgment.

FOOTNOTES

1.   All subsequent statutory references are to the Labor Code.

2.   Section 3700 provides in relevant part:  “Every employer except the state shall secure the payment of compensation in one or more of the following ways:  [¶]  (a) By being insured against liability to pay compensation in one or more insurers duly authorized to write compensation insurance in this state.  [¶]  (b) By securing from the Director of Industrial Relations a certificate of consent to self-insure․”Section 3706 provides:  “If any employer fails to secure the payment of compensation, any injured employee or his dependents may bring an action at law against such employer for damages, as if this division did not apply.”

3.   The trial court's instruction to the jury on the issue of special employment advised it to consider numerous relevant factors and indicated:  “In determining whether a special employment relationship exists, the primary consideration is whether the special employer has the right to control and direct the activities of the employee or the manner and method in which the work is performed, whether such ․ right is exercised or not.

4.   Section 3864 provides:  “If an action ․ prosecuted by the employee, the employer, or both jointly against the third person results in judgment against such third person, or settlement by such third person, the employer shall have no liability to reimburse or hold such third person harmless on such judgment or settlement in absence of a written agreement so to do executed prior to the injury.”

5.   This court's letter to the parties, mentioned above, included questions concerning the manner in which Douglas paid the judgment.   We asked:  (1) whether Douglas asserted the Witt offset in connection with the resolution of Homeland's complaint in intervention;  (2) what consideration Douglas had given Gregory to obtain the acknowledgement of full satisfaction of judgment;  and, (3) whether the consideration paid Gregory for the satisfaction of judgment took into account Gregory's prior receipt of $200,000 in workers' compensation benefits from Homeland.In its supplemental letter brief Douglas advised this court it paid the $1.5 million judgment in full, did not obtain a Witt offset from any party, and Homeland “settled its lien with the plaintiff prior to trial.”

6.   Whereas we believe the business arrangement between TRI and Western—one entity providing employees, payroll service, insurance and bookkeeping, and the other concentrating on the operational details of business—will become increasingly prevalent, no modification of the relevant statutes was made in the recent overhaul of the workers' compensation laws to allow such arrangements to proceed on a single workers' compensation insurance policy.   It would have been an easy matter to amend the key sections to accommodate such arrangements.This was not done even though all levels of California government recognize the state is not “business friendly,” and the workers' compensation morass is one of the main reasons cited therefor.It would seem to this court the workers' compensation policy obtained by TRI, which by contract and otherwise was acquired to cover Western's drivers, ought to suffice to meet the requirements of the workers' compensation scheme.   However, to reach that result, this court would have to (1) find as a matter or law that TRI acted solely as a labor broker, and (2) ignore the plain meaning of the relevant statutes.   Although it appears TRI acted only as a labor broker, on the present record this court can only assume that was so.   This aspect of the case thus stands in contrast to Western's admission it was not insured for workers' compensation liability.Moreover, even if this court confidently could say TRI was no more than a labor broker, we nonetheless would reach the same result based on the statutory requirement that every employer secure the payment of compensation by being insured or by obtaining a certificate of self-insurance.Thus, we are constrained to make the instant ruling and call upon the Legislature to address this seeming oversight—at least in the modern business world—at the earliest possible time.   Employers, whether special/general employers or co-employers, should not have to pay workers' compensation insurance twice!

7.   The trial court inquired of counsel regarding the provision in the contract between Western and TRI which stated drivers employed by TRI are not to be considered the employees of Western for any purpose.   The trial court asked, “Now if you go over to the Compensation Board, you'd assert over there very quickly, ‘Hey, we're not the employer of this person who got hurt on the job,’ and you come over here and you want to say, ‘We're the employer of this person who got hurt on the job.’  [¶]  You want to say, ‘Heads I win;  tails you lose.’ ”“Are you permitted in the law to deny that you're an employer in one for [u]m and assert that you are in another.”The trial court then summarized its view of the contract between TRI and Western by stating:  “ ‘My relationship with you and your employees is such that none of your employees are my employees.   You and I have an agreement.   Those people who are being paid by you are yours for the purpose of workmen's compensation.   I'm not going to carry workmen's compensation [insurance] for them.   You had better carry it.   It's yours and you promise to indemnify me against any such liability.   I am not the employer.’  [¶]  ‘․ I will deny employer-employee relationship every time it comes up except that once it appears that I am negligent,’ ․  [¶]  ․ Can Western Asphalt take the position that I am the employer only when it benefits me?”Western's counsel cited the trial court to Riley, a then recently published case.   The trial court promised to read the case and return to the issue.   Unfortunately, the matter was not addressed again.

8.   Western contends its failure to secure the payment of compensation must be pleaded by Douglas because various sanctions, including criminal penalties, might be imposed based thereon.   We agree such penalties are available.   An employer who does not purchase insurance or qualify as a self-insurer may be subjected to criminal prosecution and penalty assessments.  (Self–Insurers' Security Fund v. ESIS, Inc., supra, 204 Cal.App.3d at p. 1157, 251 Cal.Rptr. 693;  §§ 4554, 3700.5.)However, inability to assert the exclusive remedy provision of the Labor Code is merely one of the consequences that flow from failure to secure the payment of compensation.   We see no basis upon which to relieve Western of that consequence simply because there may be other consequences.

1.   The majority expresses some concern that there is some factual uncertainty as to the precise relationship between TRI and Western.   That is, was TRI truly only the administrative alter ego of Western?   If any such a doubt exists, then it is incumbent upon this court to send the matter back to the trial court for a proper determination.   This issue is before us only because Douglas claimed that Western had no insurance and thus was not entitled to the statutory immunity.   Under the facts as I see them Douglas's claim is unsupported.   Western concedes only that there was no policy in its own name, not that it had failed to provide any insurance.

KLEIN, Presiding Justice.

KITCHING, J., concurs.