Employer can waive credit against future benefits without breaching policy

The 9th U.S. Circuit Court of Appeals upheld the District Court's decision granting summary judgment in favor of an employer in a breach of contract action brought by the employer's workers' compensation insurer.

Case name: Travelers Property Casualty Co. of America v. ConocoPhillips Co., as successor-in-interest to Tosco Corp., Nos. 06-15664, 06-15814 (9th Cir. 10/20/08).

What it means: Under California law, an employer may waive the statutory credit against future workers' compensation benefits without its insurer's consent where the waiver does not increase the insurer's liability but merely requires it to pay the "regularly provided" amount required by the workers' compensation law.

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Summary: A fire at the employer's refinery resulted in the deaths of several workers and injuries to others. As part of the settlement of the civil lawsuits brought by the workers or their estates, the employer agreed, without its insurer's consent, to waive the right to a statutory credit against future workers' compensation benefits. The insurer asked the Workers' Compensation Appeals Board for a credit of the settlement amount against any future benefits it would have to pay the workers. The board denied the insurer's request, concluding that the employer was entitled to waive the insurer's right to a credit under California's Labor Code. The insurer then sued the employer for breach of contract.

The 9th Circuit upheld summary judgment in favor of the employer. The employer's actions neither increased the insurer's liability nor constituted a voluntary assumption of obligations at the insurer's expense, the court reasoned.

"The fact that the amount of the workers' compensation benefits might have been reduced because of other money paid to the workers in the civil lawsuits does not increase the workers' compensation benefits paid to the workers beyond the 'regularly provided' amount required by the workers' compensation law," the 9th Circuit explained.

In addition, the employer did not "voluntarily make payments, assume obligations or incur expenses" at the insurer's cost in violation of the workers' compensation policy. This provision did not apply to "a non-monetary requirement simply to refrain from doing something."

The 9th Circuit also affirmed the District Court's award of costs to the employer of approximately $7,600.

November 20, 2008

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