CITY OF TORRANCE v. WORKERS COMPENSATION APPEALS BOARD (1981)

The sole issue here is whether certain portions of the amendments to Labor Code section 5500.5 by Statutes 1977, chapter 360, section 1, page 1334, are an unconstitutional impairment of contract under article I, section 10 of the United States Constitution¹ and article I, section 9 of the California Constitution.²

This proceeding arises out of a claim by the heir of Kenneth Atkinson, who died on March 12, 1978, allegedly as the result of repetitive and cumulative trauma and exposures during his employment by the City of Torrance as a fireman from July 20, 1956, through April 30, 1977. The Atkinson petition joined the City and the State Compensation Insurance Fund as defendants. The State Fund had insured the City for workers' compensation liability from a time prior to July 20, 1956, through June 30, 1971. Since that time the City has been self-insured.

The City settled the Atkinson claim for a cash payment of $28,165.49, reserving the right to seek contribution from the Fund, which agreed that it would pay 72% of the total if the 1977 amendment were held to be unconstitutional.

The Fund made a motion for dismissal upon the ground that its coverage of the City of Torrance ended prior to July 1, 1971, and that under the 1977 amendment to Labor Code section 5500.5, it was not liable for any part of the Atkinson claim. The Workers' Compensation Appeals Board granted the motion and dismissed the State Fund. The City then filed its petition in this court to review that order of dismissal.

We first review the development of the law on this subject in order to place the issue in its context.

In Flesher v. Workers' Comp. Appeals Bd. (1979) 23 Cal.3d 322, 327, 152 Cal.Rptr. 459, 590 P.2d 35, the Supreme Court outlined the earlier history of section 5500.5:

“(Labor Code) Section 5500.5 was enacted in 1951 to codify the rule announced in Colonial Ins. Co. v. Industrial Acc. Com. (1946) 29 Cal.2d 79, 82 (172 P.2d 884), that an employee disabled by a progressive occupational disease may obtain an award for his entire disability against any one or more of his successive employers or insurance carriers and that those held liable have the burden of seeking apportionment. (Citations.) Originally, section 5500.5 was limited by its express language to occupational disease claims, but its procedures were applied by analogy to cumulative injury claims as well. (Citations.) In 1973, section 5500.5 was amended to expressly cover cumulative injury as well as occupational disease claims. (Stats. 1973, ch. 1024, s 4, p. 2032.)”

Prior to the 1973 amendments, section 5500.5 authorized joinder of every employer with whom the employee had been exposed to the hazards of the occupational disease; and the Workers' Compensation Appeals Board was required to apportion the liability among them. When a single employer had been insured by successive insurers during the period of exposure, liability was apportioned among them. (See Royal Globe Ins. Co. v. Industrial Acc. Com. (1965) 63 Cal.2d 60, 63, 45 Cal.Rptr. 1, 403 P.2d 129.)

This system, which was unlike that used in most other states, (see 4 Larson, Workmen's Compensation Law (1981) s 95.21, pp. 17-79), created a procedural morass, as employers, insurers and their attorneys embarked on the task of tracing employment and insurance into the remote past. The 1973 amendment to section 5500.5 sought to ameliorate these problems by limiting liability for occupational disease or cumulative injury to those who had employed the worker during the five years immediately preceding the injury or the last date of hazardous employment, subject to an exception, commonly known as the single employer rule, which is of particular interest in this case. That exception was in subdivision (d) of section 5500.5, which read as follows:

“(d) If the employment exposing the employee to the hazards of the claimed occupational disease or cumulative injury was for more than five years with the same employer, or its predecessors in interest, the limitation of liability to the last five years of employment as set forth in subdivision (a) shall be inapplicable. Liability in such circumstances shall extend to all insurers who insure the workers' compensation liability of such employer, during the entire period of the employee's exposure with such employer, or its predecessors in interest. The respective contributions of such insurers shall be in proportion to employment during their respective periods of coverage. As used in this subdivision, ‘insurer’ includes an employer who during any period of the employee's exposure was self-insured or legally uninsured.

“The provisions of this subdivision shall expire on July 1, 1986, unless otherwise extended by the Legislature prior to that date.” (Stats. 1973, ch. 1024, s 4, p. 2032.)

The 1977 amendments to section 5500.5 provided that the liability period would be reduced annually until January 1, 1981, when the liability period for cumulative trauma and occupational disease claims would be only one year.³ The 1977 amendments also eliminated the one-employer rule of subdivision (d).

The 1977 amendment of section 5500.5 provides in subdivision (i): “The amendments to this section adopted at the 1977 Regular Session of the Legislature shall apply to any claims for benefits under this division which are filed or asserted on or after January 1, 1978, unless otherwise specified in this section.”

The claim involved here was filed April 10, 1978, and the 1977 amendment is, by its terms, the applicable law. Under this statute the City of Torrance as a self-insurer is liable for the full amount of the award. Under the statutes which had been in effect prior to the operation of the 1977 amendment, the City would have been entitled to contribution from the State Fund, as an insurer during a portion of the time the employee had been exposed to the hazardous employment.

Before enacting the 1977 change in law, the Legislature had before it a report from the Assembly Finance, Insurance and Commerce Committee on Assembly Bill 155, which contained these amendments. The report explained “The function of the amendments to Labor Code section 5500.5 is to shorten the period of exposure for individual risks to one year thereby permitting loss experience to be more closely reflected in current dollars. The amendment is tantamount to converting a workers' compensation insurance policy from an ‘occurrence’ basis to a ‘claims made’ basis.”

The report went on to point out that one of the consequences of the bill would be a shift of liability. The report stated: “To the extent that the shift is from one insurer to another, and assuming that each has a fairly representative spectrum of risks, the net fiscal impact of enactment of Assembly Bill 155 would appear relatively insignificant. To the extent that an insurer is absolved of liability in one case, he may be presented with a larger liability on another. The net effect may be a ‘wash.’ (P) On the other hand, however, if an employer has recently become self-insured, he may be held fully liable for the payment of benefits for cumulative injury without being able to turn to a prior insurer for contribution in cases where the single employer exception applies. Opponents argue that since they paid their premium on an ‘occurrence’ basis and are entitled to contribution under existing law, it would be unfair for the Legislature to absolve those worker compensation insurers of liability and shift that loss to the self-insured employer. The exact amount of this shift is not known but it has been estimated by the insurance industry to be approximately $52.7 million for the period of 1978 through 1981.”

It is this shift which is the basis of the City's contention that the 1977 amendment impaired the obligation of a contract. From 1956 to 1971 the City paid insurance premiums to the State Fund, during which time the law required the cost of a cumulative injury to be shared by all who had insured the City during any part of fireman Atkinson's exposure. The effect of the 1977 amendment was to relieve the Fund of that potential liability. Before discussing the City's contention, we must examine the nature of the relationship between the parties involved in workers' compensation.

The duty of any employer to provide compensation for an injured employee arises from the California Constitution and the statutes enacted to carry out the constitutional mandate. Section 4 of article XIV of the state Constitution provides: “The Legislature is hereby expressly vested with plenary power, unlimited by any provision of this Constitution, to create, and enforce a complete system of workers' compensation, by appropriate legislation, and in that behalf 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, and their dependents for death incurred or sustained by the said workers in the course of their employment, irrespective of the fault of any party.”

Pursuant to that constitutional provision, and its predecessors dating back to 1911, the Legislature has created a system of compensation which has been revised and amended from time to time as the Legislature deems appropriate. One of the features of that system is, and long has been, that the employer must either be insured by a duly qualified insurer against liability to pay compensation or must qualify as a self-insurer by establishing its ability to administer and pay workers' compensation claims. (Lab.Code, s 3700.)

The insurance policy under which State Fund insured the City of Torrance during the period ending June 30, 1971, is attached to the City's petition to the Workers' Compensation Appeals Board for reconsideration. The policy, in substance, requires the insurer to pay what the law requires to be paid under the Workers' Compensation Law.⁴ This is the coverage which the law requires. (Ins. Code, ss 11651, 11654.) It is not disputed that the period covered by the policy terminated on June 30, 1971, long before Atkinson's death.

We turn now to a consideration of what effect the change of law after the expiration of the policy period has upon the relationship between the State Fund and the City.

In carrying out its constitutional mandate to provide a system of workers' compensation insurance which makes “adequate provisions for the comfort, health and safety and general welfare” of workers and their dependents, the Legislature needs to modify the system from time to time. The evolution of social and economic conditions and the teaching of experience impel continual reexamination of the compensation system.

As changes in substantive and procedural law occur, whether by legislative enactment or judicial interpretation, some impact upon the insurer's risk is inevitable. A few examples will illustrate this truism.

The Legislature has from time to time changed the rate of compensation for disability; and it has long been recognized that the measure of compensation is governed by the law in force at the time the employee sustains an industrially caused disability. Thus in Argonaut Mining Co. v. Ind. Acc. Com. (1951) 104 Cal.App.2d 27, 230 P.2d 637, a disability occurring in 1948 as a result of exposure to silica hazards between 1923 and 1928 was held compensable under the statutes in effect in 1948. The employer contended that this result violated the contract impairment clauses of the California and federal Constitutions, arguing that the statutes in existence at the time of employment were a part of the contract of employment. The Court of Appeal rejected that argument, pointing out that the employer's duty to pay compensation was not contractual but statutory; and that the applicable rate was that which the law provided at the time the right to compensation came into existence. The court said at page 31: “Regardless of the date of exposure to disease, the claimant has no cause of action and no rights accrue to him until that point in time when the cumulative effects of his disease result in a compensable disability. It would seem that the law then in effect should govern the claimant's rights.”

In State of California v. Industrial Accident Commission (1959) 175 Cal.App.2d 674, 346 P.2d 861, the employer and its compensation carrier were awarded partial indemnification from the California Subsequent Injuries Fund under a provision of Labor Code section 5500.5 which was then in force. While the state's proceeding to review that award was pending in the Court of Appeal, legislation deleting that provision of section 5500.5 went into effect, together with a legislative declaration that the deletion should apply retrospectively to any cases pending before the Commission or the courts. Accordingly, the Court of Appeal ordered the Commission to annul the indemnification award.

The development of the law with respect to progressive occupational disease and cumulative trauma itself illustrates the impact of changes in the law upon the risks to which compensation insurers and self-insurers have been exposed.

It was decisional law, based on interpretation of pre-existing general statutes, that developed the concept that the employee disabled by occupational disease might, at his option, obtain an award for the entire disability against any one of successive employers or successive insurance carriers, who might then seek contribution from the other employers or carriers. (See Colonial Ins. Co. v. Industrial Acc. Com. (1946) 29 Cal.2d 79, 172 P.2d 884.) The impact of such a rule upon the liability of compensation carriers and self-insurers is obvious.

In 1951 that rule was codified in Labor Code section 5500.5.

Although section 5500.5 originally referred only to occupational disease, the courts interpreted that language as including cumulative traumas. (See Fruehauf Corp. v. Workmen's Comp. App. Bd. (1968) 68 Cal.2d 569, 576, 68 Cal.Rptr. 164, 440 P.2d 236.)

The 1973 amendment, discussed above, shifted liability from carriers whose policies had been in force during the earlier period to insurers who covered the last five years.

In Harrison v. Workmen's Comp. Appeals Bd. (1974) 44 Cal.App.3d 197, 118 Cal.Rptr. 508, the issue was whether the five-year limitation applied to a pending case in which the injury had occurred prior to the effective date of the 1973 amendment. The court recognized that applying the amendment retrospectively might substantially affect the rights and liabilities of the employers who came within the five-year period. Nevertheless, the court concluded that the Legislature intended the amendment to apply retrospectively, and accordingly, the court affirmed the Board's order dismissing those insurance carriers which had not provided insurance within five years prior to the date of injury.

In Flesher v. Worker's Comp. Appeals Bd., supra, 23 Cal.3d 322, 152 Cal.Rptr. 459, 590 P.2d 35, the Supreme Court was required to interpret the five-year limitation in the 1973 amendment. In that case the worker had been disabled by cumulative injuries sustained in employment by several employers between 1934 and 1973. The Board interpreted the 1973 amendment as meaning that compensation for the cumulative injury was limited to the portion sustained during the five years immediately preceding the time he became disabled. The Supreme Court reversed, pointing out that the 1973 amendment did not limit the time period for which the worker might recover, but limited only the employers and insurance carriers who could be held liable. It does not appear that the constitutionality of the 1973 statutory shift of liability was raised in that case.

The development of workers' compensation law in this state and the principles discussed and applied in the cases cited above bring us to these conclusions:

Although the relationship between the employer and the compensation insurer is contractual in origin, the scope of the insurer's liability is established by law. In particular, the terms and conditions of compensation payable to the injured worker or his survivors are as determined by the Legislature and are subject to change by legislative action.

In the operation of this compensation system, the time when the employee was exposed to hazard does not necessarily determine which employer or insurer will be liable for the payments required by statute. Nor does the law in effect at the time of the employee's exposure necessarily determine the amount payable. Development of the law relating to compensation for occupational disease and cumulative trauma has from time to time imposed upon insurers and self-insurers liabilities of a kind and magnitude not known when the obligation was undertaken. Those liabilities were incurred because the insurers and self-insurers were obligated to pay what the law required as compensation and medical care for the disabled employee. The possibility of changes in the applicable law has become a part of the risk assumed by the compensation carriers and the self-insurers.

The feature of the current law to which the City objects is simply the repeal of a provision which would have enabled the City to seek contribution from an insurer whose period of coverage expired June 30, 1971. That provision was repealed because of problems which it had raised, particularly the difficulty of establishing proper rates and adequate reserves for the incurred-but-not-reported liabilities which had been accruing. This change is consistent with the constitutional mandate to create a complete and effective system of compensation.

The change in law which relieved State Fund of an obligation which would have existed under the prior law, does not in any sense impair the obligation of any contract.

The order of the Board is affirmed.

FOOTNOTES

1.  “No State shall pass any Law impairing the Obligation of Contracts, ” (U.S.Const., art. I, s 10.)

2.  “A bill of attainer, ex post facto law, or law impairing the obligation of contracts may not be passed.” (Cal.Const., art. I, s 9.)

3.  As amended by Statutes 1977, chapter 360, section 1, page 1334, Labor Code section 5500.5, subdivision (a) provides: “(a) Except as otherwise provided in Section 5500.6 (which applies to household employees), liability for occupational disease or cumulative injury claims filed or asserted on or after January 1, 1978, shall be limited to those employers who employed the employee during a period of four years immediately preceding either the date of injury, as determined pursuant to Section 5412, or the last date on which the employee was employed in an occupation exposing him to the hazards of such occupational disease or cumulative injury, whichever occurs first. Commencing January 1, 1979, and thereafter on the first day of January for each of the next two years, the liability period for occupational disease or cumulative injury shall be decreased by one year so that liability is limited in the following manner:“If, based upon all the evidence presented, the appeals board or referee finds the existence of cumulative injury or occupational disease, liability for such cumulative injury or occupational disease shall not be apportioned to prior or subsequent years; however, in determining such liability, evidence of disability due to specific injury, disability due to nonindustrial causes, or disability previously compensated for by way of a findings and award or order approving compromise and release, or a voluntary payment of disability, may be admissible for purposes of apportionment.”

4.  The policy states: “State Compensation Insurance Fund does hereby agree (1) To pay promptly and directly to any person entitled thereto under the Workmen's Compensation Laws of the State of California, and as therein provided, any sums due for compensation for injuries, and for the reasonable cost of medical, surgical and hospital treatment, including nursing, medicines, medical and surgical supplies, crutches, apparatus and artificial members; to be directly and primarily liable to employees covered by this Policy, or in the event of their death, to their dependents, to pay the compensation, if any, for which the Insured is liable (except the increase in any award imposed under Labor Code section 4553 or 4557, or both, for serious and wilful misconduct of the employer or for injury to an employee under sixteen years of age and illegally employed at time of injury); and, as between the employees and the Fund, the notice to or knowledge of the occurrence of an injury on the part of the Insured shall be deemed notice or knowledge, as the case may be, on the part of the Fund; and jurisdiction of the Insured shall, for the purpose of the law, be jurisdiction of the Fund; and the Fund shall in all things be bound by and subject to the orders, findings, decisions or awards rendered against the Insured under the provisions of the Workmen's Compensation Laws of the State of California ”

FILES, Presiding Justice.

KINGSLEY and McCLOSKY, JJ., concur.