EMPLOYERS MUTUAL LIABILITY INSURANCE COMPANY OF WISCONSIN v. TUTOR SALIBA

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Court of Appeal, Second District, Division 4, California.

EMPLOYERS MUTUAL LIABILITY INSURANCE COMPANY OF WISCONSIN, Plaintiff and Respondent, v. TUTOR–SALIBA, Defendant and Appellant.

No. B094170.

Decided: November 27, 1996

Millard, Pilchowski, Holweger & Child, Jeniffer Wilder and Bradford T. Child, Los Angeles, for Defendant and Appellant. Robert T. Moulton, Glendale, for Plaintiff and Respondent.

This appeal is from an order denying attorneys fees to a general contractor after trial on a complaint-in-intervention brought by a workers' compensation insurance carrier for recovery of payments made on behalf of an injured worker.   The issue is whether or not an express provision for attorneys fees in a written contract between the general contractor and the subcontracting employer of the injured worker can be applied to the intervenor.   We conclude that it cannot and we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Appellant Tutor–Saliba was the general contractor of a high-rise office building.   PDM Strocal (PDM) and Cowelco, Inc. (Cowelco) were two of the subcontractors involved in the project.

In February 1989, George Staehling (Staehling), an employee of PDM, fell down stairs which had been installed by Cowelco.   Staehling filed a personal injury lawsuit against Cowelco and appellant, alleging that Cowelco had not properly barricaded the stairs and that appellant had negligently supervised its subcontractors, Cowelco and PDM.

Appellant cross-complained against Cowelco and PDM based upon an express agreement for indemnity contained in the written sub-contracts it had with each.   The cross-complaint also alleged causes of action for partial indemnity, concurrent negligence and declaratory relief.   Appellant's claim against PDM included a request for attorneys fees based upon an attorneys fees provision in the subcontract:  “All other claims and disputes between the parties shall be decided by the appropriate California State Court in the County of Los Angeles.   The prevailing party, shall be entitled to recover its attorneys' fees, witness fees and other expenses related to preparation and presentation of its case in a reasonable amount.”

Respondent, Employers Mutual Liability Insurance Company of Wisconsin, PDM's workers' compensation insurance carrier, intervened in the lawsuit pursuant to Labor Code section 3852, seeking recovery of workers' compensation benefits it had paid to Staehling.

The personal injury action by Staehling and the related cross-complaint by appellant were settled and dismissed, resolving all claims except for the outstanding claim by respondent to recover the workers' compensation benefits.

The intervention action proceeded to trial before a jury.   Evidence was presented relating to negligence of all parties and the total amount of damages suffered by Staehling.   The jury placed a value of $1,491,000 on the damages suffered by Staehling and apportioned negligence as follows:  20 percent to Staehling, 20 percent to PDM, 50 percent to Cowelco, and 10 percent to appellant.   The total claim for reimbursement respondent sought in the action was $185,925.   Because the resulting sum of damages attributed to PDM's negligence, $298,200, exceeded the amount sought by respondent, respondent recovered nothing from appellant.

Appellant filed a memorandum of costs requesting total reimbursement in the amount of $143,739.67, which included the sum of $91,218.95 for attorney fees.   In support of its request for attorney fees, appellant filed a motion for an order awarding attorney fees which relied upon Code of Civil Procedure section 1021 and the attorneys fees clause in its subcontract as the basis for entitlement to fees.   At the hearing on the motion the court did not focus on whether there was a legal basis for entitlement of an award of attorneys fees, instead, the court requested argument on the issue of who was the prevailing party in the litigation.   After argument, the court concluded that appellant was not a prevailing party for purpose of recovery of attorneys fees and denied appellant's motion.   The court did find that appellant was a prevailing party for recovery of other costs sought.

It is from the order denying attorney fees that appellant seeks review.   It contends that it is entitled to attorneys fees as a matter of law because it has a contract providing for attorneys fees and it was a defendant in an action in which respondent recovered no relief against appellant.  (Code Civ. Proc., § 1032, subd. (a)(4);  Hsu v. Abbara (1995) 9 Cal.4th 863, 39 Cal.Rptr.2d 824, 891 P.2d 804.)

DISCUSSION

 A party may make a claim for attorneys fees pursuant to Civil Code section 1717 or Code of Civil Procedure section 1021.  Civil Code section 1717 applies when the parties expressly provide for attorneys fees in a written contract provision.1  A broader provision is contained in Code of Civil Procedure section 1021, which provides that:  “Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties;  but parties to actions or proceedings are entitled to their costs, as hereinafter provided.”  (Adam v. DeCharon (1995) 31 Cal.App.4th 708, 712, 37 Cal.Rptr.2d 195;  Lerner v. Ward (1993) 13 Cal.App.4th 155, 159–160, 16 Cal.Rptr.2d 486.)   Therefore, absent an agreement or a statutory basis for an award of attorneys fees, attorneys fees are not recoverable.

 On appeal, as in the trial court, appellant bases its entitlement to attorneys fees on the contract between it and PDM, noting that although respondent was not a party to the subcontract, as a workers' compensation carrier, it stands in the shoes of PDM, its insured, and is thus liable to appellant for attorneys fees, citing Allstate Ins. Co. v. Loo (1996) 46 Cal.App.4th 1794, 54 Cal.Rptr.2d 541.   In that case, tenants of an apartment building lost personal property as a result of a fire in the building.   They made claim to Allstate under their renters policy and received reimbursement for loss of the property.   Allstate filed a subrogation suit against the owner of the apartment building for reimbursement of the moneys paid to its insured.   The owner prevailed in the action and sought attorneys fees against Allstate based upon an attorneys fees provision in the written lease contract signed by Allstate's insureds.   The trial court denied recovery of attorneys fees and the Court of Appeal reversed.   It quoted the reasoning from Rushing v. Intern. Aviation Underwriters (Tex.Civ.App.1980) 604 S.W.2d 239, 243–244 as follows:  “ ‘The question before us is whether [the insurance company], suing on a subrogation theory, succeeds to the contractual right of its insured to recover attorney's fees.   The insured expended none and thus, none were paid to the insured under the insurance contract.   Rather, the attorney's fees were directly incurred by the [insurance company].   We hold that the insurer may recover attorney's fees in a subrogation action where the insured would have been entitled to attorney's fees if it had prosecuted the suit.’ ”   (Allstate Ins. Co. v. Loo, supra, 46 Cal.App.4th at p. 1800, 54 Cal.Rptr.2d 541.)   The Allstate court concluded:  “Thus, under Rushing, had Allstate prevailed against [the owner], it would have succeeded to the rights of the insured/subrogor to recover a reasonable attorney fee.   We have been offered no reason in law or logic why the converse should not also be true.”  (Id. at p. 1800, 54 Cal.Rptr.2d 541.)

While we do not quarrel with the result in Allstate, we do not believe it is applicable in the context of this case.   Respondent's claim for reimbursement was brought pursuant to Labor Code section 3852 which provides, as pertinent:  “The claim of an employee, ․ for [workers'] compensation does not affect his or her claim or right of action for all damages proximately resulting from the injury or death against any person other than the employer.   Any employer who pays, or becomes obligated to pay compensation ․ may ․ make a claim or bring an action against the third person.   In the latter event the employer may recover in the same suit, in addition to the total amount of compensation, damages for which he or she was liable including all salary, wage, pension, or other emolument paid to the employee or to his or her dependents.”  Labor Code section 3850 provides that the term “employer” includes an insurer.

Section 3852 fits within the overall Workers' Compensation Act (the Act) adopted by the legislature from authority provided for by the California Constitution (art. XIV, § 4;  Lab.Code, §§ 3200, et seq.) 2  “The purposes of the Act are several.   It seeks (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 for tort liability for his employee's injuries.  [Citations.]”  (S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 354, 256 Cal.Rptr. 543, 769 P.2d 399.)

 The Workers' Compensation Act is compulsory for all employers in the state and, except for limited circumstances not relevant here, it establishes an exclusive system of compensation for claims by employees against their employers.  (Sections 3600, 3601 and 3700.)   Liability imposed by the Act is not based on an act or omission but is incidental to the employment relationship and, if the statutory conditions set forth in Labor Code section 3600, subdivision (a) are met, the employer is liable for industrial injury and death without regard to negligence.  (Potter v. Arizona So. Coach Lines, Inc. (1988) 202 Cal.App.3d 126, 132, 248 Cal.Rptr. 284;  Cooper v. Workers' Comp. Appeals Bd. (1985) 173 Cal.App.3d 44, 48–49, 218 Cal.Rptr. 783.)  In short, the Workers' Compensation Act is a comprehensive statutory scheme to benefit employees for injuries which arise in the workplace.

It is within the context of this Act that section 3852 makes it possible for the employer and the employee to recover damages from a third party, but providing that the third party need only defend one lawsuit.  (County of San Diego v. Sanfax Corp. (1977) 19 Cal.3d 862, 872–873, 140 Cal.Rptr. 638, 568 P.2d 363;  O'Dell v. Freightliner Corp. (1992) 10 Cal.App.4th 645, 653, 12 Cal.Rptr.2d 774.)   These statutes do not define the substantive law of the action, but it is generally tort law which governs, and “the general tort law works in parallel with the procedures which the Legislature has set up.”  (19 Cal.3d at p. 874, 140 Cal.Rptr. 638, 568 P.2d 363, see Breese v. Price (1981) 29 Cal.3d 923, 929, 176 Cal.Rptr. 791, 633 P.2d 987, which recognizes “the common law tort basis for an employer's reimbursement remedy.”)  “[A]n employer seeking reimbursement for compensation payments bears the burden of establishing that a defendant's negligence is the proximate cause of an employee's injuries and the amount of tort damages reasonably resulting therefrom.   The defendant, in such a third party tort action, must be permitted the opportunity of presenting evidence to the contrary, and this is so whether the claim is asserted by an employee for his own injury, or by an employer (or carrier) for reimbursement of compensation paid.”  (Breese v. Price, supra, 29 Cal.3d at pp. 930–931, 176 Cal.Rptr. 791, 633 P.2d 987.)

This statutory scheme is consistent with the common law principles of equitable subrogation which were utilized in Allstate Ins. Co. v. Loo, supra, and even without these statutory provisions, an employer would be able to recover against a third party who was responsible for the employer having to pay workers' compensation benefits.  (Breese v. Price, supra, 29 Cal.3d at p. 930, 176 Cal.Rptr. 791, 633 P.2d 987;  County of San Diego v. Sanfax Corp., supra, 19 Cal.3d at p. 876, fn. 7, 140 Cal.Rptr. 638, 568 P.2d 363.) It is within this context that respondent stands in the shoes of PDM and any negligence attributed to PDM serves to offset the reimbursement claim of the insurer.   However, there is a subtle difference between the common law subrogation rights recognized in Allstate, and the rights exercised by respondent pursuant to the workers' compensation scheme.

In Allstate, the carrier was claiming a right to reimbursement based upon the legal relationship between its insureds and the owner of the apartment building.   The relationship was established by a written lease which contained a provision for attorneys fees.   Because the insureds could have recovered attorneys fees if they had sued the owner directly, the owner could exercise reciprocal rights against Allstate.

Here, while the law recognizes that the carrier stands in the shoes of the employer, the claim for reimbursement does not flow from the relationship established by the contract between appellant and PDM. Instead, respondent's claim for recovery is based upon its duty to pay benefits to the injured employee because of the relationship between the employee and PDM. Section 3852 allows the employer or the carrier to intervene in the employee's action against the third party and all rights for reimbursement flow from the employee's claim, a claim which traditionally does not provide a basis for an award of attorneys fees.3  There is no indication in this case that had Staehling prosecuted his action to a conclusion he would have been able to recover attorney fees against appellant.   Thus, Allstate is not applicable.

We conclude that it would be improper to insert into the statutory scheme of workers' compensation a right to recovery of attorneys fees on behalf of the third party defendant.   If such a right is socially desirable then the Legislature should so provide.

The judgment is affirmed.

FOOTNOTES

1.   Section 1717 provides that:  “(a) In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party ․ [¶] (b)(1) The court ․ shall determine who is the party prevailing on the contract for purposes of this section․   The court may also determine that there is no party prevailing on the contract for purposes of this section.  [¶] (2) Where an action has been voluntarily dismissed ․, there shall be no prevailing party for purposes of this section.”

2.   All further references will be to the Labor Code unless otherwise noted.

3.   It is true that recovery of attorneys fees by counsel for the carrier or the employer in reimbursement situations is contemplated within the Workers' Compensation Act. (Sections 3856 and 3860.)   However, the fees are not visited upon the third party defendant, they are deducted from the recovery prior to distribution to the employer or the employee.

HASTINGS, Associate Justice.

CHARLES S. VOGEL , P.J., and BARON, J., concur.