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Court of Appeal, Fourth District, California.


UNITED VAN LINES, Petitioner, v. WORKERS' COMPENSATION APPEALS BOARD, etc., et al., Respondents.

No. E015020.

Decided: February 23, 1996

Laughlin, Falbo, Levy & Moresi, and Priscilla W. Lloyd and David Kristjanson, Ibold & Anderson, Charles R. Ibold, and Thomas E. Wack for Petitioner. No appearance for respondent Workers' Compensation Appeals Board of the State of California. Jack Goodchild, Robert E. Robinson, Cotkin & Collins, Terry L. Kesinger, Robert A. Pallemon and Bryan Cave Law Offices of Sacks, Rivera & Zolonz, Law Offices of Gray & Prouty, John Banks, and David T. Weir for Respondents.


These matters, which we have consolidated for hearing and decision, stretch back well over ten years to the 1984 accident which rendered Jeanette Shulda a quadriplegic. We will briefly summarize the past proceedings (some of which have reached this court) before setting out the issues before us now.

John Shulda, the husband of Jeanette, worked for petitioner/respondent United Van Lines. (“United.”) Strictly speaking, as earlier proceedings have established, John worked for respondent Citizens Moving and Storage (“Citizens”), which in turn may be characterized as one of the principals of United. United, as has been shown earlier in this matter, is in effect a shell, comprised of several hundred local moving agents (such as Citizens), which directly hire drivers. United's main functions are to handle advertising and to arrange and coordinate shipments under one name.

United required “its” (and/or Citizens') drivers to have workers' compensation coverage (in their presumed capacity as independent contractors), and in fact a policy was provided, issued by Transit Casualty Company. This company originally provided benefits for Jeanette, but then went bankrupt. Called upon to determine whether the California Insurance Guarantee Association was compelled to assume the obligations of the defunct company, this court held that it was not because the policy technically did not qualify as a policy of workers' compensation such as the Association is legally required to guarantee.

This holding, combined with the later conclusion of the Workers' Compensation Appeals Board (“Board”) that John was actually the joint employee of Citizens and United, established the joint and several liability of their carriers, as they shared the liability of John. As pertinent here, Royal Insurance Company (“Royal”) insures Citizens, and United States Fire (“U.S. Fire”) insures United.

As part of the overall arrangement creating United as an umbrella company for the local agents, Citizens agreed to hold United harmless for any workers' compensation liability which might be imposed upon United with respect to the drivers or their assistants.1 The enforcement and applicability of this clause was then decided by the Workers' Compensation Judge and the Board in the proceedings under review. The provision was construed in favor of United, as the Board placed primary responsibility upon Citizens' carrier, Royal, to cover Jeanette's benefits.2 The Workers' Compensation Judge made no finding on the question of John's general and special employment as between Citizens and United.

Also in the proceedings under review, U.S. Fire raised the issue of coverage and its own obligations to United. In essence, U.S. Fire argued that its policy, issued to United, was intended to cover only those employees working directly for United in its operations concerning advertising, scheduling, and similar. United contended that the policy provided workers' compensation coverage for all persons who might be legally held to be United employees. The Board resolved this issue against United and in favor of U.S. Fire.3

The instant petitions followed. As suggested above, United's petition is limited to attacking the decision on the extent of U.S. Fire's liability. Royal makes a number of attacks on the Board's decision construing Citizens' obligation to United, the most serious of which is that the Board had no jurisdiction to interpret the agreement between Citizens and United. Royal also argues that a finding should have been made either that John was Jeanette's general employer, while Citizens and United were special employers, or that United was the general employer while John and Citizens were only special employers. Royal then joins United in arguing that the U.S. Fire policy provides coverage.


I.Royal's ContentionsA.The Board's Jurisdiction

We begin with the issue of jurisdiction. We agree with Royal that the Board exceeded its jurisdiction in construing the agreement between Citizens and United.

Article 14, § 4 of the California Constitution vests the Legislature with “plenary power” “to create, and enforce a complete system of workers' compensation, by appropriate legislation, and ․ to create and enforce a liability on the part of any or all persons to compensate any or all of their workers for injury or disability․” The Legislature is also authorized to create an administrative body (i.e. the Board) “to determine any dispute or matter arising under such legislation ․” Accordingly, the Legislature enacted Labor Code section 53014 , formally prescribing the Board's jurisdiction and vesting it “with full power, authority, and jurisdiction to try and determine finally all the matters specified in Section 5300.” Section 5300, in turn, provides that the Board has exclusive jurisdiction (i.e. to the exclusion of the courts, except in matters of review) over proceedings “[f]or the recovery of compensation, or concerning any right or liability arising out of or incidental thereto ․ For the enforcement against the employer or an insurer of any liability for compensation imposed upon him by this division in favor of the injured employee ․ For the determination of any other matter, jurisdiction over which is vested by Division 4 in the Division of Industrial Accidents.”5 (Emphasis supplied.)

As a creature of the Legislature, the Board has no powers beyond those conferred on it. (State Comp. Ins. Fund v. Ind. Acc. Com. (1942) 20 Cal.2d 264, 266; State Comp. Ins. Fund v. Ind. Acc. Com. (1949) 89 Cal.App.2d 821, 824.) The simple question6 before us is whether section 5301 confers jurisdiction on the Board to decide an issue of contract interpretation between two employers.

At first blush, State Comp. Ins. Fund, supra, 20 Cal.2d 2647 appears to answer the question firmly in the negative. In that case, the injured worker was characterized as the “general employee” of one employer, and the “special employee” of another. An award was rendered in favor of the employee against the insurance carriers for both employers. Later, one insurer applied to the Industrial Accident Commission8 for a “supplemental adjustment of obligations between carriers.”

The Supreme Court held that the Commission properly declined to decide the question on the basis of its lack of jurisdiction. Citing the Constitutional and statutory provisions conferring jurisdiction which we have quoted above, the court rejected the contention that the Commission had what might be called “pendent jurisdiction” over “any controversy whatsoever that may develop between parties in interest respecting the compensation awarded.” The court pointed out that earlier cases, upon which the petitioning insurer relied, had merely confirmed the Commission's power to act “in connection with the rendition of an award in favor of an injured employee or his dependents and necessarily were involved in the enforcement of the compensation benefits contemplated under the basic liability of the employer to the employee.” (20 Cal.2d at p. 267; emphasis in original.) By contrast, in the case at bar, the court explained, “the right of action in the employee to enforce his claim was finally determined by the joint and several award in his favor against the insurance carriers ․ By such award the employee was assured of the scheduled payments, and the employers were discharged from all liability therefor. This adjudication concluded the authority of the commission to act in the matter. Any controversy between the insurance carriers relative to the burden of payment for which both have been held responsible concerns neither the employee nor the joint employers in their essential relationship.” (Id. at pp. 267-268.)

It is argued that State Comp. Ins. Fund is distinguishable from the case at bar in that here, the Board purported to decide a controversy directly between employers, or, it might be said, between the employers and a carrier, and not simply between the carriers themselves. It is true that in the passage quoted above, the Supreme Court noted that the dispute did not concern the employers, who had been discharged from liability when the original award issued in favor of the employee.9

However, we do not consider this determinative. Whether or not the carrier(s) has (have) assumed liability so that the employer(s) may properly be discharged from direct liability is a matter of happenstance and cannot expand or contract the Board's jurisdictional powers. In our view, the pivotal factor in State Comp. Ins. Fund was that the original order had finally determined the rights of the worker to compensation. The Commission, by its first order, had fixed the parties' liabilities and the employee's rights; the employee was indifferent to the dispute between the general and special employers, because he had the fixed right to recover from either of them. Thus, the dispute between the carriers concerning their obligations to each other was entirely divorced from the “enforcement” of benefits over which the Commission has been given jurisdiction by the Legislature. We find State Comp. Ins. Fund to be in substance indistinguishable from the case before us.

However, State Comp. Ins. Fund has not stood as a beacon of certainty on the issue. Four years later, and without citing the earlier case, the Supreme Court gave its apparent approval to a procedure similar to that which it had just firmly repudiated. In Colonial Ins. Co. v. Industrial Acc. Com. (1946) 29 Cal.2d 79, the employer had been covered by several insurance carriers during the period of the worker's employment, an employment which resulted in a cumulative disability. The award issued only against the carrier who covered the employer when the worker actually became disabled. The Supreme Court held that the worker could, at his option, proceed against any or all of the carriers and obtain an award against any or all--but that the carrier or carrier against whom the award was made could seek apportionment among the several carriers, in further proceedings before the Commission. (29 Cal.2d at p. 86.)

Although it did not cite State Comp. Ins. Fund., the court in Colonial Ins. Co. did analogize the problems created by the successive-insurer situation to those which arise from a case involving a general and special employer, which was the focus of the earlier case. It is therefore somewhat difficult to limit the later case to its own facts and the successive-insurer situation, or circumstances of precisely the same type.10

However, we are persuaded that we should view Colonial Ins. Co. as being somewhat limited in its application, and that we should follow State Comp. Ins. Fund in this case. We explain our reasons.

The first is that Colonial Ins. Co. does not even mention State Comp. Ins. Fund, let alone purport to overrule it. The earlier case therefore stands as the pronouncement of our Supreme Court on the issue of whether or not the Board has jurisdiction to determine a dispute between a general and special employer (and/or their insurers), when the employee's rights cannot be affected by any decision. Under Auto Equity Sales Co. v. Superior Court (1962) 57 Cal.2d 450, 455, we are bound to follow the decisions of the Supreme Court until they are overruled or altered by statute, unless they can be validly distinguished.

The second reason for our deference to State Comp. Ins. Fund is that the Legislature's actions subsequent to the Colonial Ins. Co. decision support a limited application of the latter case. In 1951 the Legislature added section 5500.5 to the Labor Code. This statute has been described as generally a codification of the Colonial Ins. Co. holding (City of Torrance v. Workers' Comp. App. Bd. (1982) 32 Cal.3d 371, 374), and in what is now subdivision (e), the employer is explicitly authorized to seek apportionment of liability and contribution from other employers.11

Prior to the decision in Colonial Ins. Co., the Labor Code recognized only two situations in which liability for a disability would be apportioned. Under section 4663, if an employee suffers from a pre-existing disease and then an industrial injury, “compensation shall be allowed only for the proportion of the disability due to the aggravation of such prior disease which is reasonably attributed to the injury.” If an employee has an actual disability, followed by an industrial injury, the employer is liable “only for that portion [of the disability] due to the later injury as though no prior disability or impairment had existed.” Colonial Ins. Co. recognized what commentators described as a “judicially established” “third type of situation calling for apportionment,” which related to cumulative injury. (See Royal Globe Ins. Co., supra, 63 Cal.2d at p. 62, quoting 2 Hanna, Employee Injuries and Workmen's Compensation (1954) p. 271.) Evidently appreciating the justice of permitting apportionment between the employers (or carriers) where an employee has suffered a cumulative trauma over a long period of time, the Legislature responded by enacting section 5500.5 as a third codified situation in which the Board could apportion benefits or liability.

However, there was no such reaction to the earlier decision in State Comp. Ins. Fund. If section 5500.5 should be seen as a legislative validation of the rule of Colonial Ins. Co., the absence of any “corrective” legislation in response to the earlier case is significant.

We have noted above that the Board's jurisdiction is limited to that conferred by the Legislature. It is true that it is no longer accepted that the Constitutional language acts as any restriction on the legislative power, because “[e]ven without such specific authorization, the Legislature possesses the authority, under the now firmly established view of the concept of the police power, to adopt appropriate legislative measures for the protection of employees and their dependents.” (City and County of San Francisco v. Workers' Comp. Appeals Bd. (1978) 22 Cal.3d 103, 114.) However, although the Legislature may possess untrammelled power to confer jurisdiction on the Board, the Board must limit its actions to those fields in which the Legislature has, in fact, authorized it to act. For example, both Ogdon v. Workmen's Comp. Appeals Bd. (1974) 11 Cal.3d 192, 196, and Coltherd v. Workers' Comp. Appeals Bd. (1990) 225 Cal.App.3d 455, 461 (a decision of this court) held that the Board exceeded its jurisdiction when it awarded a lien not specified by the Legislature as allowable under sections 4903 et seq․

At this point in time, it is unnecessary to consider the wisdom of the decision in Colonial Ins. Co. with respect to the jurisdictional issue apparently resolved the opposite way in State Comp. Ins. Fund, because section 5500.5 now validates the procedure for apportionment in cumulative injury cases which the Supreme Court upheld in the later case. But there is no such enactment which allows the Board to consider the obligations inter se of a general and special employer, especially where the decision turns on a specific contract.12 As the court pointed out in State Comp. Ins. Fund, the dispute between the employers has nothing to do with the employee's right to benefits. While it might well be convenient for the parties to have their respective obligations determined by the Board13 , it is axiomatic that jurisdiction cannot be conferred by consent.14 (Summers v. Superior Court (1959) 53 Cal.2d 295, 298; 2 Witkin, Cal. Proc. [3d ed. 1985) Jurisdiction § 10, pp. 374-375.) If the Legislature has not seen fit to empower the Board to decide the dispute in the case before us, the Board's attempt to do so was void.15

We return briefly to sections 5300-5301, which comprise the basic legislative grant of power to the Board. Subdivision (a) of section 5300 confers jurisdiction over proceedings “for the recovery of compensation, or concerning any right or liability arising out of or incidental thereto.” An argument might be made that the rights of two employers, or insurers, between themselves is “incidental” to the employee's right to recover compensation; however, State Comp. Ins. Fund expressly holds that “the adjustment of such dispute obviously is not” within the scope of the subdivision. (20 Cal.2d at p. 268; emphasis supplied.) We are not at liberty to ignore this flat statement.

None of the other issues and proceedings over which the Board is given jurisdiction can reasonably be claimed to cover the situation in this case. The only other possibility is subdivision (b), but it is inapplicable because no liability is being “enforce[d] against the employer or an insurer ․ in favor of the injured employee.” Jeanette's rights run jointly and severally against the two employers and cannot be affected by this dispute. Thus, the Board had no jurisdiction to decide that Royal's insured, Citizens, owed a duty to hold United harmless.

Having so concluded, we will briefly dispose of the other arguments by Royal's opponents--the proponents, that is, of the Board's decision. It is true that it is sometimes said that the Board's jurisdiction is to be upheld in doubtful cases. (See e.g. Foremost Dairies v. Industrial Acc. Com. (1965) 237 Cal.App.2d 560, 565.) Many of these cases, however, are merely variants of the “liberal construction” rule of section 3201; for example, Foremost Dairies upheld “jurisdiction” in the sense that it found that substantial (although conflicting) evidence supported the jurisdictional finding that an injury had in fact occurred in the scope of the worker's employment. Other cases cite (perhaps unnecessarily) the rule of expansive jurisdiction in preventing the worker from taking his case away from the Board and seeking civil damages. (See § 3601, setting out the “exclusive remedy” rule barring most tort actions against the employer or carrier.) Thus, in Mitchell v. Scott Wetzel Services, Inc. (1991) 227 Cal.App.3d 1474 and Fremont Indemnity Co. v. Superior Court (1982) 133 Cal.App.3d 879, the employees sued the employers' carriers for alleged improprieties in handling their workers' compensation claims, and in both cases the Board was held to have jurisdiction over the dispute (to the exclusion of the courts). Both cases speak of the “preferred” status of Board jurisdiction, but these comments must be understood in context. Neither case stands for the proposition that the Board's assumption of jurisdiction must be given any particular deference when it does not serve either the purpose of providing the worker with a speedy and effective remedy, or that of protecting the employer/carrier from civil lawsuits.

Nor do we believe that the interests of Jeanette Shulda are significant. U.S. Fire, in its return, admits that she is “not, strictly speaking” a party, but nevertheless insists that she has a “vital interest.” (Emphasis in original.) U.S. Fire asserts vigorously that “the interests at stake here go far beyond the question of who will write the check for the continuing administration and payment of Jeanette Shulda's claim․” (Emphasis in original.) U.S. Fire and United argue that Jeanette has a critical interest in whether Royal or United (as United puts it, a California insurer or a Missouri trucking company) will administer the ongoing benefits to which she is entitled.16

This speculative but supposedly “vital” interest is to some extent contradicted by the fact that Jeanette elected not to file a formal return in this matter, although she did file a brief informal response to the petition in 1994 in which she raised the same point.17 However, in any event we reject it as a basis for distinguishing State Comp. Ins. Fund. Jeanette may enforce the obligation to pay benefits against either Royal or United; their rights inter se do not affect hers. If the decision of the Board is annulled, the only consequence will be that if Jeanette chooses to seek enforcement from United (which she intimates would be less desirable), United cannot look to Citizens/Royal. Annulling the Board's order will have no effect on her ability to seek enforcement from Royal. She has no genuine interest in the result.18

Finally, United and U.S. Fire point out that some commentators believe that State Comp. Ins. Fund has been tacitly superseded by a general expansion of Board jurisdiction. We cannot agree that broad language in cases--especially those from lower courts--which do not involve our issue can be taken as authority to ignore State Comp. Ins. Fund. We have explained that the fact that the Board has been given jurisdiction over disputes among multiple employers or carriers in the context of cumulative injury does not justify an unauthorized judicial expansion of that jurisdiction where there is no cumulative injury. We adhere to that position.


We now more briefly address the arguments that Royal either waived any jurisdictional defect, or is estopped to raise it, or that we should otherwise make an “exception.”

We noted above the rule that jurisdiction cannot be conferred by consent. (See Summers v. Superior Court, supra, 53 Cal.2d 295.) Objections to subject matter jurisdiction cannot be waived, and a party cannot be estopped to raise them. (Harris v. Billings (1993) 16 Cal.App.4th 1396, 1405; Mid-Wilshire Associates v. O'Leary (1992) 7 Cal.App.4th 1450, 1455; Viejo Bancorp, Inc. v. Wood (1989) 217 Cal.App.3d 200, 207.) As the court stated flatly in Mid-Wilshire Associates in the context of an attempt to appeal a nonappealable order, “[a]ppellate jurisdiction is solely within the province of our Legislature․ This court is without power to bestow jurisdiction on itself, nor may the parties create jurisdiction by consent, waiver, or estoppel.” The same salutary rule applies to the Board.

United and U.S. Fire argue that the Board merely exceeded its jurisdiction, but did not act without it. The distinction is sometimes difficult to draw. (See the seminal case, Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 288-291.) An act in excess of jurisdiction is one in which the court has no power to act in a certain way, or to award a certain kind of relief, or to disregard certain procedural safeguards. This assumes, however, the existence of jurisdiction over the subject matter.

In our view, this is not merely a case in which the Board exceeded its jurisdiction. Such would have been the case, for example, if the Board had awarded compensation to Jeanette in an amount greater than that authorized by statute, or directed a nonemployer to make payment. In those situations, the Board would have had subject matter jurisdiction over the question of payment and responsibility; it would, however, have lacked the power to act as it did. (See People v. Superior Court (Marks) 1 Cal.4th 56, 70-71, explaining that although a court should suspend criminal proceedings when the required showing for a competency hearing under Penal Code section 1368 has been made, it does not lose subject matter jurisdiction over the criminal case, but merely exceeds its jurisdiction in proceeding; City of Los Angeles v. Centex Telemanagement, Inc. (1994) 29 Cal.App.4th 1384, 1387-1388, holding that a court which takes up a case before the plaintiff has exhausted his administrative remedies exceeds its jurisdiction although it has subject matter jurisdiction.)

In this case, the Board's jurisdiction was to provide for the recovery of compensation to Jeanette. (§ 5300, subd. (a).) This it did years ago. When it purported to decide whether Citizens had contractually bound itself to indemnify United for their joint obligation, it did not act merely in excess of this jurisdiction; instead, it took it upon itself to decide a question which it had no power to consider. This was “lack of jurisdiction in its most fundamental or strict sense ․” (Abelleira, at p. 288; People v. Mendez (1991) 234 Cal.App.3d 1773, 1781.)19

Accordingly, we need not base our decision on an evaluation of Royal's behavior below. However, we would find no reason to alter our conclusion. United and U.S. Fire rely upon the fact that Royal introduced the lease agreement between Citizens and United during proceedings on the employment issue which took place in 1990; apparently Royal did not object when the document was introduced more recently at what United calls the “contribution/coverage” hearings. This is claimed to estop Royal from complaining about the Board's use of the document.

We certainly would not find that because a document was introduced as evidence relevant to a subject over which the Board incontrovertibly had jurisdiction (the employment relationship), any party was thereby precluded from objecting if the Board chose to take up any other issue to which the document might possibly be relevant.20

It is true that apparently Royal was prepared to have the Board determine not only the question of general and special employment, but also the issue of primary responsibility to Jeanette. (See also Ins. Code 11663, placing primary liability on the workers' compensation carrier for the employer who carried the employee on the payroll).21 However, even this cannot be deemed a consent that the Board interpret a hold-harmless provision in the contract which is distinct from the general common law and statutory rules governing the rights of multiple employers/carriers in the specific context of workers' compensation. We also note that although U.S. Fire, in particular, briefed the “hold harmless” issue at length in its post-trial brief submitted to the workers' compensation judge, Royal did not even mention it ;this suggests that Royal did not realize that the judge intended to resolve the contractual issue -- and a fortiori did not acquiesce in the procedure.22

In any event, we repeat that, there being a fundamental lack of jurisdiction, nothing that Royal or Citizens did could confer jurisdiction by waiver or estoppel. The same considerations require us to reject real parties' urgent contentions that overturning the decision would permit Royal and Citizens to trifle with the system, would be uneconomical, and would cause additional delay.23

The Board's decision must be annulled to the extent that it fixes the respective obligations of Citizens and United under the lease agreement.24


Our decision makes a detailed consideration of Royal's other points unnecessary.25

Royal argues that the Board did not perform its statutory duty to review the entire record and that it failed to state the reasons for its decision pursuant to section 5908.5.26 These contentions are without merit.

Even if the Board did not review the entire record, any such error must have been harmless because the issue raised by Royal involved only a tiny portion of the record and did not depend in any way on an evaluation of evidence.27 It is true that in its opinion on reconsideration, the Board merely adopted the report on reconsideration of the workers' compensation judge. There is nothing essentially improper in this (Levesque v. Workmen's Comp. App. Bd. (1970) 1 Ca.3d 627, 633-635), but the report (like the judge's original decision) quotes liberally from U.S. Fire's trial brief in lieu of setting forth original reasoning. It has been held that a Board decision which does nothing more than incorporate by reference a party's brief violates section 5908.5. (Urlwin v. Workers' Comp. Appeals Bd. (1981) 126 Cal.App.3d 466, 469.)

However, the primary concern of the Urlwin court appears to have been that the incorporated brief was argumentative and inaccurate, thus making the appellate court's review of the decision and its basis more difficult. It is to be noted that if the Board determines to deny reconsideration, it need not give its own reasons for doing so but may (and routinely does) direct attention to the workers' compensation judge's report. (Levesque.). While to some extent the Urlwin concerns apply to our examination of the reasons given in the judge's report, we do not find any error to require reversal on its own. The judge here, faced with over two hundred pages of post-trial briefs and exhibits, took the short-cut of inserting chunks of U.S. Fire's brief in his opinion and report on reconsideration. By explicitly adopting this reasoning as his own, he satisfied the requirement that the basis of his decision be clear. (See Levesque.) Given the difficulties inherent in managing this case, we find no serious or prejudicial error in the procedure employed.

Royal argues that the Board improperly declined to make a finding as to which, between Citizens and United, was the general employer of Jeanette, and which the special employer. (Assuming that such a distinction can be drawn.) The Board felt that no such finding was necessary because Citizens had to indemnify United in any event. Because this holding must be annulled, we will remand to permit the Board to consider whether a general/special employment finding should, or may, be made.28


United's Contentions

In its petition,29 United attacks the ruling of the Board that the policy of workers' compensation insurance issued to it by U.S. Fire did not provide coverage for Jeanette Shulda.

The policy in question purports to cover United's California and Texas employees. It further described the California employees for whom coverage was specifically intended to be provided as “freight handlers” performing duties of “packing, handling, or shipping merchandise on docks or railroad platforms.” It indicated that the estimated total remuneration of the covered employees was $45,600, and that with an applicable premium rate of 9.45%, the total premium due was $4,318.30

In the general text of the policy, however, U.S. Fire agreed without limitation to pay “all compensation and other benefits required of the insured by the workmen's compensation law.”31

The problem, from the parties' point of view, arose when the Board found that John Shulda was an employee of United rather than an independent contractor (of either United or Citizens), and that Jeanette, by virtue of her hire by John, also was an employee. When United found itself on the hook, so to speak, it turned to U.S. Fire. The latter, realizing that it had collected only a paltry premium and was now facing a seven-figure liability, resisted United by asserting that the policy did not provide coverage for the drivers.

The Board, in essence, found that neither United nor U.S. Fire intended to cover drivers such as John Shulda or, as a consequence, helpers such as Jeanette. Of significant importance to the decision was a letter written in 1984 by United's Director of Insurance, Frank M. Early, to its insurance broker. The crucial statements read as follows (spelling and punctuation original): “Prior to 1980 some Workers compensation coverage for drivers was included for drivers contracted to United Van Lines. Currently United Van Lines employes no drivers nor do we provide insurance for any drivers under your Workers Compensation policy.” Early also explained that “․I would feel that it is safe to assume that 99% of the exposure is the Clerical/Office class․”

We begin with the obvious: that it would be entirely inequitable to require U.S. Fire to provide coverage for innumerable drivers32 and other workers in return for a premium of $4,318, and based upon U.S. Fire's belief (and United's representation) that United had only a few actual employees in California. However, we recognize that law and equity are not always congruent, and we therefore turn to the reasons urged by United in favor of construing the policy to provide coverage for benefits due to Jeanette.


The first argument which we address is actually presented as two arguments by United. First, that the Board erred in refusing to honor what United calls the “plain and explicit” language of the policy; second, that the Board erred in allowing extrinsic evidence to explain the policy.

To begin with, we do not agree that the policy is unambiguous. It is true that the policy obligates U.S. Fire to pay for all workers' compensation benefits for which United is liable in California and Texas, and specifically extends coverage to “any person entitled to the benefits of the workmen's compensation law under this policy.” This implicitly is restricted to “employees,” as there is no liability for workers' compensation benefits to non-employees. So far, the policy appears clear. However, the “Declarations” portion of the policy describes the covered employees as “freight handlers” with a total payroll remuneration of $45,600. We must presume that United acted in good faith when it listed this limited number of employees; when it is realized that United is now--as of 1990, over five years after the policy was issued--legally considered to be the employer of numerous drivers and helpers not specifically mentioned in the policy, an ambiguity as to the parties' meaning becomes apparent. Although the policy does provide that the “Declarations” do not modify other provisions (such as the coverage for “any person” awarded workers' compensation benefits), the use of hindsight would cause any reasonable person to wonder whether “any person” really means “any person.”33

“While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.” (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264.) Where a contract is ambiguous, parol or other extrinsic evidence is admissible to explain the ambiguity. (Pistone v. Superior Court (1991) 228 Cal.App.3d 672, 680.) The key focus of interpretation is to ascertain the intent of the parties at the time the contract was formed. (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821-822.) When a claim of coverage is made, the court must determine whether the policyholder had an objectively reasonable expectation of coverage. (Bank of the West, supra, 2 Cal.4th at p. 1265.)

It is true that insurance policy ambiguities are often interpreted against the insurer, and policies are typically construed to define coverage broadly. (AIU Ins. Co., at p. 822.) However, the party who is responsible for an ambiguity cannot demand a favorable construction, and although this party is most often the insurer, that is not always the case. (Id. at p. 823.) In the unusual circumstances of this case, it is fair to say that United, by providing misleading or incomplete information, helped to create the ambiguity.

However, it is not really necessary to favor U.S. Fire in our choice of interpretive rules. As the court in AIU Ins. Co. explains, insurance policy ambiguities are first considered in light of the promisor's understanding of the promisee's expectations. (Id. at p. 822; Civ. Code, § 1649.) Usually the promisee benefits when the promisor is bound to the promisee's reasonable expectations; that is not the cas here.

The policy itself plainly reflects that U.S. Fire (the promisor) understood that United (the promisee) expected coverage for a strictly limited set of employees (presumably only those which United admitted were employed directly by it). This is confirmed by Early's later communication, expressly denying that drivers were covered by insurance obtained by United. As far as the record shows, U.S. Fire has never denied this expected coverage. United simply wants the policy expanded in light of its own mistake about the legal efficacy of its efforts to distance itself from the drivers.

Extrinsic evidence was properly admitted and the finding of no intent by either party to cover John Shulda was supported by substantial evidence.


Despite this clear evidence of intent, United argues that the policy could, and should, have been written to exclude more clearly drivers such as John Shulda. United's position is that on its terms the policy is unlimited, and that it should be enforced as such. We find United's authorities on the point inapplicable. Insofar as United relies on the statutory requirements for an enforceable limitation, we find that they were met.

In Bass v. John Hancock Mutual Life Ins. Co. (1974) 10 Cal.3d 792, an employee waived health coverage under a 1964 plan offered by his employer, but was never consulted when a new plan was offered in 1967. The Supreme Court first found that there was no waiver with respect to the 1967 plan, and then found that the insurer was liable even though the employer (who relied on the 1964 waiver by the employee) had paid no premiums on the employee's behalf. However, the basis of the decision was that the insurer had offered to ensure all employees, that it was the employer's mistake which led to the exclusion of the particular employee, and that the insurer was bound by the employer's mistake under agency principles. (10 Cal.3d at pp. 797-798.) Here, there was no mistake by United which affected John or Jeanette Shulda; United asked for exactly the coverage it wanted and neither John nor Jeanette had a right to be consulted.

Fyne v. Ind. Acc. Com. (1956) 138 Cal.App.2d 467 is closer on point, and provides the strongest support for United. In that case, the policy listed the insured as “․ a partnership, DBA Two-Minute Auto Car Wash, 590-20th Street, Oakland, California.” The injured worker was a carpenter working on an apartment building at another location. However, analogously to the U.S. Fire policy, the policy in Fyne also obligated the insurer to pay “benefits required by the Workmen's Compensation Laws of the State of California to any person entitled thereto.” The court remarked rather inconsistently that the language “seems to compel the conclusion that it clearly, certainly, and without ambiguity affords workmen's compensation insurance coverage for each and every employee of this employer without regard to the nature of the work or the place of the work.” (138 Cal.App.2d at p. 472; emphasis supplied.)

In finding coverage, the Fyne court supported its position in two ways. First, it cited Insurance Code sections 11657-11660 and the related provisions of what was then the Administrative Code, governing exclusions from coverage in workers' compensation policies. Then, as now, these statutes and rules allowed such policies to be limited in application, but any limitation had to be by endorsement according to an approved form. The court commented that “When, despite these emphatic and meticulously detailed requirements governing the “limitation or restriction of coverage”, an insurer writes a policy with the all-inclusive coverage of the policy here involved and attaches no endorsements or riders of any kind to it, the conclusion is irresistible that the insurer intended full coverage without limitation or restriction of any kind whatsoever.” (Id. at p. 474; emphasis supplied.)

It is noteworthy that although Insurance Code section 11660 apparently makes a policy which has not been drafted with the approved endorsements unlimited as a matter of law, the court in Fyne nevertheless felt it appropriate to use the noncompliance with the statutory requirements simply as evidence of intent to afford full coverage. The court continued in this vein by quoting at length from the insurer's own promotional brochure, which included such damaging statements as a promise that--in contrast, it was expressly claimed, to most policies--the insurer's offered policy fully covered “undisclosed operations” and business operations or locations not mentioned in the declarations.

This emphasis on the insurer's intent is not entirely consistent with the flat language of Insurance Code section 11660 and its requirement that any exclusion from coverage be reflected in an endorsement of approved form. In this case, fortunately, U.S. Fire does have such an endorsement upon which it can rely to confirm the lack of coverage.

“Endorsement No. 14,” on an approved form (see Cal. Code of Regs., Title 10, § 2269.14), specifically excludes coverage for “operations conducted jointly by said named employer with any other person, firm, or corporation․” U.S. Fire argues persuasively that this exclusion operates to eliminate any possibility of coverage for Citizens' drivers and their helpers.34

To begin with, United claims that the provision is ambiguous in that it fails to define “operations conducted jointly” and the language has been held ambiguous.35 It is quite true that the language was found to be ambiguous in Cal. Comp. & Fire Co. v. Ind. Acc. Com. (1965) 62 Cal.2d 532, 534. However, what the court specifically held was that the language “is at best ambiguous insofar as it relates to the situation before us.” (Emphasis supplied.) In that case, the policy was issued to a partnership consisting of three persons. Later, without the knowledge of the insurer, a fourth partner was added. When injury to employees occurred, the insurer argued that the insured, three-man partnership was conducting operations “jointly” with the fourth partner. In the context of this rather peculiar argument, the court's finding that the language was ambiguous in the circumstances is readily understandable; if the insurer could propose such an interpretation as possible, this obviously meant that at least two interpretations existed, and the court could then find the provision ambiguous and interpret it against the insurer.36

If we find Cal. Comp. & Fire Co. to be applicable and agree with United that the language of Endorsement No. 14 is ambiguous under the facts of this case, this would be of no assistance to United. In that event, we would have come full circle to the issue of extrinsic evidence and intent. As we discussed above, we agree entirely with the Board that neither party intended that the policy should cover Citizens' drivers. In the circumstances of this case, then, the interpretation of “operations conducted jointly” which conforms to the parties' expectations is that it does apply to the coordinated operations between United and its member-agents such as Citizens.37

United also argues, however, that the exclusion applies only to true joint ventures, and as United and Citizens concededly did not share equally, or even proportionally, in profits and losses38 , no such venture existed. (See generally 9 Witkin, Summary of Cal. Law, Partnership, §§ 17-18.)

For this construction of “operations conducted jointly,” United relies upon the frail reed of a “writ denied” case, Truck Insurance Exchange v. W.C.A.B. (1979) 44 CCC 278. The matter involved a roughly similar lease and business arrangement in which one Rogers leased trucks from Hersevoort and employed the injured drivers. The insurer argued that the joint operations exclusion applied, based on Hersevoort's participation in assigning jobs, writing paychecks, and maintaining the trucks. Although the workers' compensation judge found the exclusion inapplicable because no true joint venture was involved, he also noted that only Rogers had workers' compensation insurance and Rogers' only employees were the truck drivers. The conclusion was inescapable that the policy was intended to apply to the drivers, because otherwise it would not have applied to anyone . The denial of review by the Court of Appeal affords no clue to its views other than presumably it believed the result was correct. (See Davey v. Southern Pac. Co., supra.)

We need not decide here whether the view taken by the workers' compensation judge (and presumably the Board) in Truck Insurance Exchange was too narrow, because we think that the correct approach is that signalled by the workers' compensation judge's observation of the parties' respective insurance coverage. (I.e., Rogers had it, Hersevoort did not.) In that case, Rogers' maintenance of workers' compensation insurance would have had no point (and no value to him) if the drivers were to be considered excluded by the joint operations endorsement. Here, the lease agreement obligated Citizens to provide workers' compensation insurance for its personnel “furnished” to operate the trucks leased from United.39 Citizens also agreed to hold United harmless from any workers' compensation claims. (See Part I, infra.) United consistently maintained that the Citizens' personnel were not its “employees” and that it would have no workers' compensation obligation to them. As United had (it thought) carefully prevented the Citizens personnel from claiming employment status, and had protected itself through the coverage and hold harmless provisions in the lease agreement, there was no reason to have them covered by the U.S. Fire policy. Accordingly, that policy, especially Endorsement No. 14, is most reasonably read as excluding coverage for any liability which United might be held to incur as a result of its operations in cooperation with Citizens. As those operations were certainly “joint” in the common meaning of the word, this construction is proper and does not conflict with United's reasonable expectations.40

We are cognizant of the desirability of construing policies of workers' compensation insurance to safeguard the employee's ability to secure payment. However, although we determine that the Board correctly found that U.S. Fire did not provide coverage for the Shuldas, the result we reach in this part of our opinion operates equitably for all parties and exposes no one to undue or unforeseen risk. As we have explained, Jeanette's care will be provided for and she has more than one “back-up” source of payment.41 There is thus no question of leaving an injured worker without recourse. As far as we know, U.S. Fire has performed all of the obligations (if any arose) which it can reasonably be held to have assumed--and for which it received an appropriate premium. United, having taken pains (albeit unsuccessful pains) to insulate itself from an employer's responsibility, cannot complain if it received exactly that coverage for which it asked; furthermore, United remains protected in exactly the manner it intended it should be protected--by the insurance procured by Citizens (i.e. the Royal policy, and probably also Citizens' hold harmless agreement). The Board reached the correct result.42

The order of the Board is annulled insofar as it purports to establish contractual rights and obligations between Citizens and United. In all other respects, the decision of the Board is affirmed. The matter is remanded for such further proceedings as the Board deems necessary.


1.  Most of the mess before us can be traced to the efforts of Citizens and United to create a set-up in which the drivers operated as independent contractors rather than employees; the former, of course, would not be entitled to workers' compensation benefits from either Citizens or United, and neither Citizens nor United would normally be liable for benefits payable to persons hired by the independent contractors. The Board refused to recognize this attempt to avoid the application of the workers' compensation laws, and this court denied the subsequent petitions for review. The status of United and Citizens as Jeanette's legal employers is not now subject to challenge; we will only remark that there was more than substantial evidence to support the Board's finding that John Shulda was subject to such detailed control that he was in legal fact an employee.

2.  As noted below, however, the decision does not affect Jeanette's rights against either United or Citizens, or their carriers.Yet another party with potential liability is the California Uninsured Employers Fund. (See Labor Code, § 3716.) However, the Fund, although joined as a party, has taken no part in the proceedings before this court. Presumably it feels that there are enough solvent entities above it on the liability ladder, and that its potential liability is insignificant.

3.  In the current posture of the case, the decision on U.S. Fire's coverage has no effect, because it is Citizens/Royal who must pay Jeanette's benefits. However, the issue is not moot. Even if the finding on primary liability under the Citizens-United contract is eventually upheld, United could later become the primary source of benefits should both Royal and Citizens become insolvent. That this is not entirely speculative is shown by what happened to the original carrier, Transit Casualty Company, whose insolvency ignited this litigation.

4.  All subsequent statutory references are to the Labor Code unless otherwise specified.

5.  We quote the provision concerning jurisdiction relating to the Division of Industrial Accidents, but no party has contended that this clause amplifies the Board's jurisdiction beyond those two quoted above it.

6.  Simple in formulation, not necessarily in answer.

7.  All subsequent references to the case of this name are to the Supreme Court case, not the Court of Appeal case also cited above.

8.  It is probably unnecessary to remark that the Industrial Accident Commission was the predecessor of the Workers Compensation Appeals Board.

9.  Under Labor Code sections 3756-3759, an employer may be formally discharged from liability if he demonstrates that his insurance carrier has assumed liability for whatever benefits shall be ordered payable.

10.  The approach and principles of Colonial Ins. Co. were also applied to apportionments between successive employers as well as insurers. (See e.g. Royal Globe Ins. Co. v. Industrial Acc. Com. (1965) 63 Cal.2d 60, 61.) Analytically, the situations are the same.

11.  Although the statute speaks in terms of “employers,” it is clear that insurance carriers are covered by its provisions, and may themselves seek apportionment. (See Tidewater Oil Co. v. Workers' Comp. Appeals Bd. (1977) 67 Cal.App.3d 950, 956.)

12.  At oral argument, counsel drew our attention to the 1995 amendment to section 3602, adding a new subdivision(d). That subdivision provides that an employer may satisfy its obligation to secure the payment of compensation by contracting with another employer so that the second employer agrees to, and does, procure insurance to cover the employee in question. This amendment, of course, was not in effect at the time the Board decided this case. Furthermore, it relates to a well-established area of Board jurisdiction--the ability to enforce liability, and to penalize an employer who fails to secure insurance (see § 4554) -- and not to a dispute between employers over a hold-harmless agreement, which is distinct from an agreement to procure insurance.Counsel also suggested that we have recognized the existence of implied grants of jurisdiction, in that we remand for the purpose of having the Board determine priorities between a general and special employer. (See Ins. Code, § 11663.) On the contrary; we express no view on the propriety of such an order, as the issue is not before us. We leave this to the Board.

13.  Although obviously Royal does not think so.

14.  We discuss the issue of waiver or consent in more detail below.

15.  It is not necessary for us to attempt to resolve the apparent conflict between State Comp. Ins. Fund and Colonial Ins. Co. However, it may be that the Supreme Court, having created in the latter case a rule of apportionment among successive insurers, felt that this new rule, specific to workers' compensation law, should be dealt with by the Board. On the other hand, the respective obligations of a general and special employer (and their insurers) involve generally applicable principles of contribution and subrogation which are routinely considered by the civil courts. (See Fireman's Fund Indem. Co. v. State Comp. Ins. Fund (1949) 93 Cal.App.3d 408, 411-412.)Interestingly, Fireman's Fund, which held that the dispute between the general and special employers was for the court to decide, not the Industrial Accident Commission, does not cite Colonial Ins. Co. -- decided three years earlier -- and presumably did not consider that case relevant.

16.  This argument assumes that the decision finding that U.S. Fire's policy does not provide coverage for United is upheld.

17.  However, Jeanette's primary concern appears to have been the delay in reaching a final resolution of the matter which the instant petitions for review made necessary. We agree that Jeanette has an interest in finality.

18.  We also would hesitate to establish a rule of Board jurisdiction which depended upon the worker's subjective concerns about the payor, or even on the fortuitous nature of the worker's injuries--here, that is, the fact that Jeanette requires ongoing physical care, which might arguably require more than the usual level of involvement on the part of the payor.

19.  United also relies on Pason v. Westfal-Larson Co., Inc. (9th Cir. 1974) 504 F.2d 1226. However, the federal court was actually faced with a situation in which it admitted that the question of whether original jurisdiction had been possessed by the state workers' compensation system, or the federal court under the law of maritime injuries, or both, was wholly unclear. The best the federal court could say was that it “may” have been inappropriate for the Board to have exercised jurisdiction. Furthermore, the insurer seeking to void the state Board action in the federal case had reduced its liability exposure by submitting to the state system rather than the more generous federal law. Hence, there was as unusual fairness element in giving effect to California law in determining the insurer's procedural rights in the employee's federal third-party tort action.Insofar as the court suggests that the insurer validly conferred jurisdiction on the Board where none may have existed, we disagree. Federal law is consistent with California law; subject matter jurisdiction cannot be conferred by consent and the doctrine of waiver does not apply. (W.G. v. Senatore (2d Cir. 1994) 18 F.3d 60, 64; Cripps v. Life Ins. Co. of North America (9th Cir. 1992) 980 F.3d 1261, 1264; Wright, The Law of Federal Courts [4th Ed. 1983] § 7, p. 25.)

20.  We imagine that no party would argue that the Board had jurisdiction, for example, to decide whether United had breached its obligations under the lease agreement to compensate Citizens for the use of the motor vehicles therein described at the rates therein prescribed.

21.  This statute does not, it should be noted, affect the employee's rights, or change the rule that the employee may recover an award for workers' compensation benefits against both or all employers/carriers. The Insurance Code section merely governs the rights between the carriers. (McFarland v. Boorheis-Trindle Co. (1959) 52 Cal.2d 698, 702.)

22.  Royal did raise the issue of lack of jurisdiction in its petition for reconsideration by the Board.

23.  To the extent that it is argued that a contrary decision, which increased the likelihood that United would actually have to pay something, would lead to extreme delay because the California Uninsured Employers Fund might then decide to participate actively in the matter and raise new issues, it should be obvious to the parties that our decision cannot turn on whether or not the Board reached the right result. The issue is one of jurisdiction, not the merits of the dispute.

24.  We may appropriately give short shrift to United's argument that the hold-harmless provision in the lease is required under federal law governing interstate carriers. We will assume that this is true, but the point has no relevance to the issue of whether the Board has the power to construe the lease. Our decision only affects the forum in which United must enforce its rights or in which, alternatively, Citizens must seek to avoid its apparent obligations.

25.  It is entirely unnecessary to address Royal's fairness claim to the effect that it was improper to admit extrinsic evidence in construing U.S. Fire's policy, but to exclude it in construing the lease. Since the Board should not have construed the lease at all, any error is moot.We also defer our discussion of Royal's arguments with respect to the U.S. Fire policy to part II of this opinion.

26.  “Any decision of the appeals board granting or denying a petition for reconsideration or affirming, rescinding, altering, or amending the original finds, order, decision, or award ․ shall state the evidence relied upon and specify in detail the reasons for the decision.”

27.  The record prepared for this proceeding, by stipulation of the parties, fills five volumes and represents only a small portion of the overall record. We, in turn, have found it necessary to consult only a small portion of the record filed with us.

28.  We decline Royal's invitation to make the finding ourselves. It is more appropriate for the trier of fact to do so in the first instance.

29.  We originally summarily denied United's petition. United sought review in the California Supreme Court, which granted review and transferred the case back to us with directions to issue the alternative writ and place the matter on calendar. We did so, and consolidated United's petition with Royal's for hearing and decision.

30.  The Texas employees were described as clerical workers, and were subject to a much lower premium rate. The total expected remuneration for the Texas employees was $70,200, which gave rise to a premium of only $277.

31.  Given the length of Part I, it is as well for us to note at this point that the Board's jurisdiction indisputably does extend to controversies over coverage. The Board's power to enforce a liability for compensation against an insurer extends even so far as to determine the validity of policies and to consider the reformation of policies. (See § 5300, subd. (b); Bankers' Indem. Ins. Co. v. Indus. Acc. Com. (1935) 4 Cal.2d 89, 94-98.)

32.  The record indicates that about 3500 “independent” drivers were associated with the companies comprising United. We have not located any reference to the exact number of drivers employed by Citizens.The parties argue over whether all of the “independent contractor” drivers would be held to be employees. There is no indication that John Shulda's method of operation was unusual or that his contract with Citizens was unique to him. The evidence which supported a finding of employment by Citizens and United showed that United exercised substantial control over Shulda, and its operations were such that it must have exercised similar control over all drivers in order to provide reliable, consistent service. We may conservatively agree with U. S. Fire that at least enough drivers (and their helpers) would be held to be employees to make the policy ambiguous.California workers' compensation coverage is extended to all California residents working under a contract of hire executed in California, no matter where they are injured. (§ 5305.) It also covers nonresidents hired or regularly employed in California, even if injured out of state. (§ 3600.5.) Nonresidents not hired in this state who are nevertheless injured in California may or may not apply for California benefits, depending on the coverage offered by the home state. (§ 3600.5.)Given the size and population of California, and assuming only a normal mobility (which may be conservative), it is apparent that United's construction would impose a very substantial risk on U.S. Fire if the policy were held to cover all drivers and helpers working under the United name who qualified for benefits under California law.

33.  We recognize that we are arguably working backwards to find an ambiguity in order to justify the admission of parol evidence. In light of our application of the limiting endorsement (see Section B. of this part) it may be unnecessary to find an ambiguity in the basic provisions of the policy. If the endorsement is ambiguous (as United in fact contends), we may consider the same parol evidence to establish the parties' intentions with respect to the endorsement as we do with respect to the basic language.

34.  As United points out, this provision was not expressly relied upon by the Board; although the original opinion and the report on reconsideration prepared by the workers' compensation judge quote heavily from U.S. Fire's brief, the arguments concerning Endorsement No. 14 are not cited. However, U.S. Fire did strenuously argue the applicability of the endorsement.In any event, we are not barred from considering the effect of the endorsement. “No rule of decision is better or more firmly established by authority, nor one resting upon a sounder basis of reason and propriety, than that a ruling or decision, itself correct in law, will not be distrubed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.” (Davey v. Southern Pac. Co. (1897) 116 Cal.325, 329.) Nothing in the following ninety-eight years has altered this principle. (See Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 769.)

35.  We summarily reject United's argument that the provision is unenforceable because it was inconspicuous and “buried” in the policy. No contention is made that the endorsement does not meet the language or type requirements of the regulations. It is set out on a page with one other endorsement; both are brief and are surrounded by expanses of blank paper. Neither provision on the page can be said to be “buried” in any sense. The policy as a whole is relatively short.United's citation of consumer cases is not convincing. (E.g. Ponder v. Blue Cross of Southern California (1983) 145 Cal.App.3d 709.) Nothing suggests that the endorsement is commercially unreasonable, goes against United's reasonable expectations, or was imposed arbitrarily by a party with superior bargaining power. (See Coon v. Nicola (1993) 17 Cal.App.3d 1225, 1238-1239, citing cases.) If it was unaware of the endorsement, it has no excuse for such ignorance. (Bolanos v. Khalatian (1991) 231 Cal.App.3d 1586, 1590-1591.)

36.  Two interpretations existed because the provision could certainly also be read as excluding only those operations “undertake[n] jointly with an individual or business entity outside the partnership”--the interpretation applied by the court.We have explained above, and will repeat below, that insurance contracts are no longer almost automatically interpreted against the insurer, insofar as they ever were.

37.  At oral argument, it was suggested that the exclusion, if applied as U.S. Fire argued it should be, would swallow coverage entirely. To begin with, the record does not establish that the specifically-described employees were involved in a joint operation, although we admit that it is probable. More importantly, it would be patently absurd to construe the policy to exclude coverage even for expressly described employees. Such a construction would not only result in U.S. Fire's promise being wholly illusory, but would cut against the clear intent of the parties.

38.  This results from the fact that most expenses were borne directly by Citizens and/or John Shulda, while United took a percentage of gross charges.

39.  Our examination of the record does not reveal whether Citizens did in fact obtain a policy with the intention to cover its drivers, although the drivers were supplied with the Transit policy to cover their helpers. Royal and Citizens apparently had a dispute over the coverage afforded by the Royal policy, but this dispute has been settled and Royal has accepted coverage for Jeanette.

40.  It would have been a facially foolish expenditure of funds for United to insure a workers' compensation liability which it had taken such pains to avoid.Of course, it is not disputed that United did not pay for coverage of the Citizens' drivers. The policy did allow U.S. Fire to adjust the premium based on the actual remuneration of employees during the policy period, and also to inspect United's payroll records for accuracy. However, as U.S. Fire points out, the Citizens drivers and other personnel were never listed on United's payroll, and U.S. Fire therefore never had an opportunity, before its final audit, to recalculate its premium to include these persons. It is also to be noted that Jeanette was not held to be United's employee until 1990--six years after the injury, and long after the three year period during which United had the right to conduct an audit.

41.  Including, potentially, either C.I.G.A. or the U.E.F. However, it would be like lightning striking twice for a second insurer (i.e. Royal) to become insolvent.

42.  The Board did not expressly consider the issues of estoppel and/or reformation. As we noted above (see fn. 30), the Board had the power to order the insurance policy reformed to reflect the intent of the parties. As our opinion should make clear, on the state of the evidence U.S. Fire would have been entitled to a reformation of the contract; instead, the Board chose to find that it provided no coverage. Either way, the result was right.

HOLLENHORST, Acting Presiding Justice.


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