STATE FARM FIRE AND CASUALTY COMPANY, Petitioner, v. WORKERS' COMPENSATION APPEALS BOARD and Patrick A. Leonard, Jr., Respondents.
In this case we conclude a property owner whose homeowner's insurance policy includes a statutorily-required workers' compensation liability endorsement for residence employees cannot be deemed, on that basis alone, to have elected to extend coverage to an injured worker, here the property owner's son, who otherwise would not have been a covered employee.
In 1989 Patrick Leonard, Sr., and Jeanne Leonard (the Leonards) hired their son Patrick Leonard, Jr. (Patrick), to repair a vacant rental house they owned in Frazier Park, nearby their home in Lebec. On November 20, Patrick injured his back while working at the house. The Leonards were insured at the time under a homeowner's policy issued by State Farm Fire and Casualty Company (State Farm) for the Frazier Park house. The policy included a mandatory endorsement (Ins.Code, § 11590) providing coverage against the Leonards' liability for workers' compensation benefits due to a “residence employee,” defined in the policy as an employee who “performs duties … in connection with the maintenance or use of the residence premises.”
Patrick filed a claim for workers' compensation benefits. It was denied and he appealed to the Workers' Compensation Appeals Board (the Board). A hearing before a referee was held in 1995. State Farm maintained Patrick was not entitled to benefits because the Labor Code 1 precludes coverage for an otherwise eligible residence employee who is employed by his or her parents. (§§ 3351, subd. (d), 3352, subd. (a).) Patrick conceded he ordinarily would not have been covered but argued his parents had elected to extend coverage to him, as the law permits (§§ 4150, 4151), by purchasing a policy containing the mandatory endorsement. On the basis of the admitted facts and joint exhibits submitted by the parties,2 the referee agreed with Patrick that the Leonards had made such an election. The Board denied State Farm's petition for reconsideration. This writ of review followed. (Code Civ. Proc., § 1068; Cal. Rules of Court, rule 57.)
The Applicable Statutes
Section 11590 of the Insurance Code requires a comprehensive personal liability policy, such as the one purchased by the Leonards, to provide coverage against liability for the payment of workers' compensation benefits to certain household workers. The statute provides in part:
“Except as provided in Section 11591 [pertaining to services provided in connection with the insured's business or occupation], no policy providing comprehensive personal liability insurance may be issued or renewed in this state … unless it contains a provision for coverage against liability for the payment of compensation, as defined in Section 3207 of the Labor Code, to any person defined as an employee by subdivision (d) of Section 3351 of the Labor Code. Any such policy …, whether or not containing such provisions, shall be construed as if such provisions were embodied therein.”
Section 3351, subdivision (d) defines an “employee” as follows:
“Except as provided in subdivision (h)of Section 3352, any person employed by the owner or occupant of a residential dwelling whose duties are incidental to the ownership, maintenance or use of the dwelling … or whose duties are personal and not in the course of the trade, business, profession, or occupation of the owner or occupant.”
The parties agreed for purposes of the Board's determination that Patrick came within this definition inasmuch as his employment duties were “incidental to the ownership, maintenance, or use” of the Frazier Park house and were unrelated to the Leonards' business or occupation,4 and he was not disqualified by section 3352, subdivision (h). State Farm, however, took the position Patrick was made ineligible for benefits by section 3352, subdivision (a) which excludes from the definition of an employee “[a]ny person defined in subdivision (d) of Section 3351 who is employed by his or her parent, spouse, or child.” Patrick conceded the section 3352, subdivision (a) exclusion ordinarily would have disqualified him but argued he was nonetheless entitled to benefits because his parents, by purchasing a policy containing the mandatory workers' compensation endorsement, had elected to extend coverage to him. They were permitted to make such an election by section 4150 which provides:
“When an employer has in his employment any person not included within the term ‘employee’ … such employer and such person employed by him may, by their joint election, come under the compensation provisions of this division in the manner hereinafter provided.”
Pursuant to section 4151 an employer may elect to extend workers' compensation coverage in one of two ways, including:
“(a) By insuring against liability for compensation, in which case he is deemed, as to all persons employed by him and covered by insurance, to have so elected during the period such insurance remains in force.”
The employee is deemed to have accepted the election unless he or she gives timely written notice to the employer to the contrary. (§ 4154.)
In an “OPINION ON DECISION” explaining her finding Patrick was a covered employee, the workers' compensation referee wrote:
“It should be noted that Insurance Code § 11590 refers to Labor Code § 3351(d). The Stipulations of the parties established the fact that [Patrick] was not excluded under Labor Code § 3352(h) which is the only code section mentioned in Labor Code § 3351(d). The Insurance Code does not exempt State Farm from Labor Code §§ 4150 and 4151. Labor Code § 4150 shows that the legislature intended to permit voluntary expansion of coverage to include otherwise excluded employees. When this retired longshoreman purchased a Homeowner's policy for the [Frazier Park] residence, he complied with Labor Code § 4151(a) and elected to cover his son. There is no evidence that [Patrick] declined to be covered.”
In its order denying State Farm's petition for reconsideration, the Board stated:
“Our disposition is limited to the specific facts of this case, e.g., the employer obtained a specific workers' compensation endorsement to his homeowner's policy, and the carrier required payment of a separate additional premium (see Insurance Code section 11593).” 5
The Workers' Compensation Endorsement
The workers' compensation endorsement, entitled “ADDITIONAL COVERAGE ENDORSEMENT [¶] WORKERS' COMPENSATION (Residence Employees),” appears on a single page attached to the end of the Leonards' homeowner's policy. In it, under “Coverage I,” State Farm agrees with respect to residence employees “[t]o pay when due all benefits required of an insured by the California Workers' Compensation law .…” The endorsement incorporates the definition of a “residence employee” contained in the policy, which says:
“ ‘residence employee’ means an employee of an insured who performs duties, including household or domestic services, in connection with the maintenance or use of the residence premises. This includes employees who perform similar duties elsewhere for you. This does not include employees while performing duties in connection with the business of an insured.”
The endorsement goes on to say a residence employee is covered if he or she, in effect, meets the wage and hour requirements of section 3352, subdivision (h). It does not expressly exclude from coverage a residence employee who is employed by his or her parent, spouse, or child. (§ 3352, subd. (a).)
Among “Additional Provisions Applicable to Coverage I,” the endorsement provides:
“a. We shall be directly and primarily liable to any residence employee of an insured entitled to the benefits of the California Workers' Compensation Law.
“d. We will be subject to the orders, findings, decisions or awards rendered against an insured, under the provisions of the law imposing liability for compensation, subject to the provisions, conditions and limitations of this policy. This policy shall govern as between an insured and us as to payments by either in discharge of an insured's liability for compensation.”
And finally, under “Conformity to Statute,” the endorsement states that “[t]erms of this insurance which are in conflict with the California Workers' Compensation Law are amended to conform to that law.”
The parties appear to agree the workers' compensation endorsement, by its express terms at least, does no more or less than Insurance Code section 11590 requires. That is, it covers a homeowner's liability for the payment of workers' compensation benefits to a person defined as an “employee” in section 3351, subdivision (d). This definition in turn includes any person employed by the homeowner whose duties are “incidental to the ownership, maintenance or use of the [residential] dwelling” or are “personal and not in the course of the [homeowner's] trade, business, profession, or occupation,” with the exception only of those persons who fail to meet the wage or hour requirements of section 3352, subdivision (h). Most significantly, neither section 3351, subdivision (d) nor the workers' compensation endorsement expressly incorporates the provision of section 3352, subdivision (a) which excludes from the definition of an employee “[a]ny person defined in subdivision (d) of section 3351 who is employed by his or her parent, spouse, or child.” Thus the focus of the present dispute is whether the section 3352, subdivision (a) exclusion nonetheless must be read into the endorsement. As the facts bearing on this question are undisputed, it is a matter of law upon which we exercise our independent judgment. (California State Univ. Fullerton v. Workers Comp. Appeals Bd. (1993) 16 Cal.App.4th 1819, 1822, 21 Cal.Rptr.2d 50 disapproved on other grounds in Arriaga v. County of Alameda (1995) 9 Cal.4th 1055, 1067, fn. 10, 40 Cal.Rptr.2d 116, 892 P.2d 150; Hoppmann v. Workers Comp. Appeals Bd. (1991) 226 Cal.App.3d 1119, 1122, 277 Cal.Rptr. 116.)
We begin with the well-established rule that insurance policies are governed by the statutory and decisional law in effect when the policy is issued. Such provisions are read into the policy and are binding on the parties. (Interinsurance Exchange v. Ohio Cas. Ins. Co. (1962) 58 Cal.2d 142, 148, 23 Cal.Rptr. 592, 373 P.2d 640; Contreras v. America, Compania General De Seguros, S.A. (1975) 48 Cal.App.3d 270, 275, 121 Cal.Rptr. 694.)
“As a general rule, ‘ “all applicable laws in existence when an agreement is made, which laws the parties are presumed to know and to have in mind, necessarily enter into the contract and form a part of it, without any stipulation to that effect, as if they were expressly referred to and incorporated.” ’ [Citation.]” (Swenson v. File (1970) 3 Cal.3d 389, 393, 90 Cal.Rptr. 580, 475 P.2d 852.)
Moreover by the terms of the endorsement, State Farm agreed with respect to residence employees “[t]o pay when due all benefits required of an insured by the California Workers' Compensation law .…” (Emphasis added.) And other provisions, noted above, likewise made the endorsement's provisions subject to the workers' compensation law. Accordingly, coverage must be determined in light of all applicable provisions of the Labor Code, including section 3352, subdivision (a).
It follows the Leonards did not elect to extend workers' compensation coverage to Patrick merely by purchasing a homeowner's policy including a mandatory Insurance Code section 11590 endorsement. An employer makes such an election “[b]y insuring against liability for compensation, in which case he is deemed, as to all persons employed by him and covered by insurance, to have so elected during the period such insurance remains in force.” (§ 4151, subd. (a) (emphasis added).) The mandatory endorsement, which necessarily incorporated the section 3352, subdivision (a) “parent, spouse, or child” exclusion, did not cover Patrick. The Leonards cannot be deemed to have elected to extend coverage to Patrick by purchasing insurance which did not apply to him.
The requirement that an employer and an otherwise ineligible employee jointly elect to bring themselves within the workers' compensation scheme envisions that they both must make a conscious decision to do so. (§ 4150, Jones v. Brown (1970) 13 Cal.App.3d 513, 518, 89 Cal.Rptr. 651.) 7 According to their depositions, neither Patrick Leonard, Sr., nor insurance agent George Human recalled having had any discussion about the workers' compensation endorsement which, Human explained, was included automatically in every homeowner's policy. The portion of Leonard Sr.'s application form provided for requesting a “Workers' Compensation Policy” was left blank. The unmistakable impression left by this record is that the Leonards purchased the homeowner's policy for their Frazier Park house without giving any thought at all to their workers' compensation liability coverage.
If, on no more of a substantial basis than this, an Insurance Code section 11590 endorsement can be deemed to constitute an election to extend workers' compensation coverage to a residence employee injured while working for his or her parent, spouse, or child, then such an election would apply to every homeowner's policy and section 3352, subdivision (a) would cease to have any application. In an apparent effort to avoid this result, the Board sought to distinguish this case on the ground the Leonards “obtained a specific workers' compensation endorsement to [their] homeowner's policy, and [State Farm] required payment of a separate additional premium.” We agree with the Board's premise that an election by the Leonards to extend coverage to Patrick would have required them to obtain something more than the mandatory workers' compensation endorsement. But we disagree with the Board's conclusion the Leonards did so here.
The original declarations page accompanying the Leonards' homeowner's policy, under the heading “FORMS, OPTIONS, & ENDORSEMENTS,” identified a “SPECIAL FORM” numbered FP–7193 (the policy itself), an “AMENDATORY ENDORSEMENT” numbered FE–7205.3 (a modification of the policy concerning cancellation), and a “LENDER'S LOSS PAYABLE END” numbered 438 (whose identity is unclear). The declarations page did not separately refer to the workers' compensation endorsement, which was issued at the same time as the policy. The Board's statement about a separate additional premium evidently referred to an amended declarations page prepared a few months after the first which showed an “ENDORSEMENT PREMIUM INCREASE” of $13.72. The coverages and endorsements listed in the amended declaration were identical to those in the original one in all respects but one: the amended declaration indicated the limit of liability for personal property loss had been increased from $38,500 to $41,250. It thus appears the premium increase was attributable to this change and not to the workers' compensation liability endorsement.
The Board's decision denying reconsideration of State Farm's petition is annulled and the matter remanded for further proceedings consistent with this opinion.
1. Except as noted, all further statutory references are to the Labor Code.
2. There were four joint exhibits: the Leonards' homeowner's policy and transcripts of the deposition testimony of Patrick Leonard, Sr., Patrick Leonard, Jr., and George Human, the State Farm agent who sold the policy.
3. Section 3352, subdivision (h) excludes from the definition of an employee:“Any person defined in subdivision (d) of Section 3351 who was employed by the employer to be held liable for less than 52 hours during the 90 calendar days immediately preceding the date of the injury [or] injuries … or who earned less than one hundred dollars ($100) in wages from the employer during the 90 calendar days immediately preceding the date of the injury [or] injuries .…”
4. The parties agreed that: “At the time of the claimed injury herein, Patrick Leonard, Sr., was a retired longshoreman whose sole income was derived from retirement benefits through the Longshoreman's Union and through Social Security. The [Frazier Park] property … basically generated enough income to cover the cost of paying off the property and covering repairs and incidentals.”
5. Insurance Code section 11593 states in its entirety:“The premium charged for the coverage required by Section 11590 shall not be separately stated from that charged for other coverage under the policy in the insured's copy of the following: premium notice, endorsement or memorandum of insurance.”
6. The policy defines “residence premises” as “the one, two, three or four-family dwelling, other structures, and grounds or that part of any other building where you reside and which is shown in the Declarations.” (Emphasis added.) As noted earlier, the Leonards never lived in the Frazier Park house. They lived in a home in Lebec for which they purchased a separate homeowner's policy.
7. To the extent it constituted an election by his parents to extend coverage to him, there is nothing in the record to suggest Patrick was aware of the workers' compensation liability endorsement such that he had the opportunity to opt out of coverage. (Jones v. Brown, supra, 13 Cal.App.3d at p. 518, 89 Cal.Rptr. 651.)
MARTIN, Acting Presiding Justice.
DiBIASO and HARRIS, JJ., concur.