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

Mary BETANCE, Plaintiff and Appellant, v. TRANSPORT INSURANCE COMPANY et al., Defendants and Respondents.


Decided: December 26, 1986

Rose, Klein & Marias and Douglas Hatchimonji, San Bernardino, for plaintiff and appellant. Spray, Gould & Bowers, Michael W. Champ, Robert M. Dean and James Link, Los Angeles, for defendants and respondents.

 Mary Betance appeals an order sustaining the demurrer of Transport Insurance Company and its independent adjusters, Instech Corporation and Wayne Grady, without leave to amend.   She contends the exclusivity provisions of the workers' compensation law do not preclude her from stating causes of action for (1) common law bad faith refusal to pay benefits against the surety of a permissibly self-insured employer and (2) violations of the Unfair Practices Act (Ins. Code, § 790.03, subd. (h)) against the surety and its agents.   We agree and reverse the judgment.


We recite the facts as alleged in the first amended complaint, which must be accepted as true.  (Carr v. Progressive Casualty Ins. Co. (1984) 152 Cal.App.3d 881, 885, 199 Cal.Rptr. 835.)   In September 1979, Mary Betance sustained personal injuries arising out of her employment with Red Ball Motor Freight, Inc.   Red Ball was a permissively self-insured employer and had obtained the required surety bond securing its workers' compensation liability from Transport Insurance Company.  (Lab. Code, §§ 3700, 3701.) 1

Betance filed a claim for compensation with the Workers' Compensation Appeals Board, which was ultimately resolved by her execution of a compromise and release.   The compromise and release was approved by the WCAB;  the next day Red Ball filed for reorganization under Chapter 11 of the Bankruptcy Code.   Since the bankruptcy proceeding created an automatic stay of workers' compensation proceedings (11 U.S.C. §§ 362, 523).   Betance made demand for payment from Transport on its surety bond.   She alleged Transport and its agents “wrongfully, unfairly, unreasonably and in bad faith fail[ed] and refuse [d] to pay [her] benefits pursuant to the Compromise and Release․”

Betance filed her first amended complaint for bad faith refusal to pay insurance benefits and unfair claims practices (Ins. Code, § 790.03, subd. (h)) against Transport and its claims adjusters, Instech Corporation and Wayne Grady.   The trial court sustained Transport's demurrer because “[e]xclusive jurisdiction is with the Workers' Compensation Appeals Board”;  it sustained the adjusters' demurrer because they were “not parties to the subject contract.” 2


 This case presents a question of first impression:  Is the surety of a self-insured employer immune from civil liability for bad faith due to the exclusive remedy provisions of the workers' compensation law?   We conclude the Legislature did not intend to include sureties in the exclusive remedy provisions, and, thus, Betance is entitled to maintain her action against Transport.

 Jurisdiction over claims by an employee against his employer for compensation for injury or death while on the job rests exclusively with the WCAB, and the employer is given immunity from civil suit arising out of those claims.  (§§ 3601, 3852.)   The insurer of an employer's workers' compensation liability is also immune from civil suit when it is acting in its proper role as an insurer.   In Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 102 Cal.Rptr. 815, 498 P.2d 1063, the Supreme Court relied on sections 3850 and 3852 3 to conclude an insurer was not a person other than the employer but was its alter ego.  “[S]ince ‘employer’ is for these purposes defined by section 3850 to include an insurer, a literal reading of the section would negate an action at law against the insurer as a third party under section 3852.   In other words, the insurer would retain immunity from lawsuit as the ‘alter ego ’ of the employer.”  (Id., at p. 625, 102 Cal.Rptr. 815, 498 P.2d 1063.)

This reasoning has been followed in a recent line of cases consistently holding workers' compensation insurers are immune from civil suit for bad faith refusal to pay benefits.   The courts have not found the allegations sufficient to remove the insurers from their proper role;  rather, the gist of the conduct alleged has been a delay in payments, resulting in “an ordinary nonperformance of a statutory duty․”  (Everfield v. State Comp. Ins. Fund (1981) 115 Cal.App.3d 15, 20, 171 Cal.Rptr. 164.   See also Caplan v. Fireman's Fund Insurance Co. (1985) 175 Cal.App.3d 146, 220 Cal.Rptr. 549;  Santiago v. Employee Benefits Services (1985) 168 Cal.App.3d 898, 214 Cal.Rptr. 679;  Cervantes v. Great American Ins. Co. (1983) 140 Cal.App.3d 763, 189 Cal.Rptr. 761;  Denning v. Esis Corp. (1983) 139 Cal.App.3d 946, 189 Cal.Rptr. 118;  Droz v. Pacific National Ins. Co. (1982) 138 Cal.App.3d 181, 188 Cal.Rptr. 10;  Depew v. Hartford Acc. & Indem. Co. (1982) 135 Cal.App.3d 574, 185 Cal.Rptr. 472;  Fremont Indemnity Co. v. Superior Court (1982) 133 Cal.App.3d 879, 184 Cal.Rptr. 184;  Ricard v. Pacific Indemnity Co. (1982) 132 Cal.App.3d 886, 183 Cal.Rptr. 502.)

Thus, the immunity of a workers' compensation insurer for bad faith refusal to pay benefits is clearly established.   Transport asks us to extend this immunity to a surety for a self-insured employer.   It argues the WCAB has jurisdiction over disputes concerning delays in compensation payments and that a surety is part of this statutory scheme.4  Betance, on the other hand, concedes the jurisdiction of the WCAB over a surety, but argues its exclusive jurisdiction extends only to an employer and its insurer.   We find her arguments more persuasive.

The definition of insurer under the Workers' Compensation Act does not include a surety.   Section 3211 defines ‘insurer’ as follows:  “ ‘Insurer’ includes the State Compensation Insurance Fund and any private company, corporation, mutual association, reciprocal or interinsurance exchange authorized under the laws of this State to insure employers against liability for compensation and any employer to whom a certificate of consent to self-insure has been issued.”   A surety for a self-insured employer, on the other hand, guarantees the employer's performance of its obligation to pay compensation.   (Ins.Code, § 105, subd. (a).)  It does not assume the risk of the employer's liability for compensation.   That risk remains with the employer.   (Richardson v. GAB Business Services, Inc. (1984) 161 Cal.App.3d 519, 523, 207 Cal.Rptr. 519.)

The definition of “insurer” in section 3211 was narrowly construed by the court in Unruh v. Truck Insurance Exchange, supra, 7 Cal.3d 616, 102 Cal.Rptr. 815, 498 P.2d 1063, when it declined to extend immunity to the company's agents.  “It is convenient to note at this point that this issue before us pertains only to defendant Truck, the sole compensation carrier of plaintiff's employer.   Defendants Farmers and Wishman, its agents, are clearly not the employer's insurers and at least on the face of the complaint are subject to civil suit as third parties.   Defendant Baker, the investigator employed by Truck, is also subject to civil suit as a third party regardless of Truck's independent liability as principal [citation].  We, therefore, conclude that the above defendants, other than defendant Truck, are persons ‘other than the employer’ within the meaning of section 3852, against whom plaintiff was entitled to bring an action for damages, and that the trial court erred in sustaining the demurrers on the ground of lack of jurisdiction with respect to those defendants.”  (Id., at pp. 625–626, fns. omitted, 102 Cal.Rptr. 815, 498 P.2d 1063.) 5

Transport argues the recent case of General Ins. Co. v. Mammoth Vista Owners' Assn. (1985) 174 Cal.App.3d 810, 220 Cal.Rptr. 291, compels the conclusion that a surety is treated the same as an insurer for purposes of a bad faith claim and thus is entitled to the same immunity.   Although General Insurance, which was not a workers' compensation case, held a surety was engaged in the business of insurance and was thus subject to a claim for violation of the Unfair Practices Act (Ins. Code §§ 790.01, 790.03), it did not hold a surety is the same as an insurer.  “We recognize liability insurance is not identical in every respect with suretyship.   But we are not concerned with the differences between suretyship and liability insurance.   We are concerned with whether the Legislature included suretyship among the classes of businesses it intended to regulate under the Insurance Code.   It clearly did so.”  (Id., at p. 824, fns. omitted, 220 Cal.Rptr. 291.)

Likewise, we are concerned solely with whether the Legislature intended to include a surety in the definition of insurer under the Labor Code.   In a recent case, Dill v. Claims Admin. Services, Inc. (1986) 178 Cal.App.3d 1184, 224 Cal.Rptr. 273, the court applied a literal reading of sections 3850 and 3852 to hold an independent claims administrator for a self-insured employer was not immune from an action for violations of the Unfair Practices Act.  “In reaching these conclusions, we defer to the literal meaning of the Labor and Insurance Codes, which we believe are the result of energetic legislative advocacy on the part of most if not all the affected interests.   We apply the literal meaning of the statutory provisions on the basic assumption the Legislature said what it meant.”  (Id., at p. 1186, 224 Cal.Rptr. 273.)

We adopt the Dill approach.   Had the Legislature intended to include sureties in the definition of insurer under section 3211, it would have said so.   Thus, Betance's causes of action against Transport are not barred by the workers' compensation act.


 Betance's cause of action against Transport's agents for violations of the Unfair Practices Act is not barred by the workers' compensation act as they are neither insurers nor employers under sections 3850 and 3852.  (Unruh v. Truck Ins. Exchange, supra, 7 Cal.3d at p. 625, 102 Cal.Rptr. 815, 498 P.2d 1063;  Dill v. Claims Admin. Services, Inc., supra, 178 Cal.App.3d at p. 1189, 224 Cal.Rptr. 273.   Cf. Santiago v. Employee Benefits Services, supra, 168 Cal.App.3d 898, 214 Cal.Rptr. 679;  Denning v. Esis Corp., supra, 139 Cal.App.3d 946, 189 Cal.Rptr. 118.)   Several recent cases outside the workers' compensation context have held adjusters are in the business of insurance so as to subject them to claims for violations of the Unfair Practices Act.  (Farah v. Superior Court (1986) 186 Cal.App.3d 1520, 231 Cal.Rptr. 461;  Davis v. Continental Insurance Co. (1986) 178 Cal.App.3d 836, 224 Cal.Rptr. 66;  Bodenhamer v. Superior Court (1986) 178 Cal.App.3d 180, 223 Cal.Rptr. 486.)

The judgment is reversed.   Betance is entitled to costs on appeal.


1.   All statutory references are to the Labor Code unless otherwise indicated.

2.   Betance concedes on appeal she cannot maintain an action against the agents for bad faith (breach of the covenant of good faith) because they were not parties to the suretyship contract.  (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576, 108 Cal.Rptr. 480, 510 P.2d 1032.)

3.   Section 3852 provides:  “The claim of an employee ․ for 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.”Section 3850 provides:  “As used in this chapter [ch. 5, ‘Subrogation of Employer,’ §§ 3850–3864], ․ (b) ‘Employer’ includes insurer as defined in this division.”

4.   It has long been recognized that the statutory scheme of workers' compensation includes the self-insured employer and its surety.   (Hartford Acc., etc., Co. v. Indus. Acc. Com (1932) 216 Cal. 40, 46, 13 P.2d 699.)   Furthermore, the Director of Industrial Relations, who issues a certificate to self-insure, may require a self-insuring employer to secure its compensation liabilities by posting a surety bond;  and the director determines the method of payment and claims administration by a surety, if necessary.  (Lab.Code, §§ 3700, 3701.5.)

5.   The Unruh court also narrowly construed an insurer's immunity.   The plaintiff alleged her employer's insurer hired an investigator who tricked her into an emotional relationship and caused her “to conduct herself in a manner beyond her usual and normal physical capabilities” (id., at p. 621, 102 Cal.Rptr. 815, 498 P.2d 1063) while under surveillance.   When she saw films of her behavior, she suffered a physical and mental breakdown.   She pleaded causes of action for negligence and various intentional torts.   Reasoning that the investigation of claims “is an important function of the insurer in the workmen's compensation scheme” and is “inextricably interwoven” with the insurer's status, the court concluded a negligent investigation did not take the insurer beyond its proper role.  (Id., at pp. 627–628, 102 Cal.Rptr. 815, 498 P.2d 1063.)   However, the insurer became a “person other than the employer” when it committed intentional torts and was subject to civil suit on those causes of action.  (Id., at pp. 630–631, 102 Cal.Rptr. 815, 498 P.2d 1063.)

WALLIN, Associate Justice.

TROTTER, P.J., and SONENSHINE, J., concur.