Lapse in comp coverage causes logger's claim to falter

Under Tennessee law, an employer is not considered properly insured for purposes of invoking the Second Injury Fund if it does not hold workers' compensation insurance when the employee is injured, even if it was previously insured.

Case name: Seiber v. Reeves Logging, et al., No. M2008-01236-SC-R3-WC (Tenn. 05/01/09).

Ruling: The Tennessee Supreme Court reversed the trial court's judgment against the Second Injury Fund and dismissed the employee's claim. It held the trial court erred by requiring the Second Injury Fund to pay the employee workers' compensation benefits.

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What it means: Under Tennessee law, an employer is not considered properly insured for purposes of invoking the Second Injury Fund if it does not hold workers' compensation insurance when the employee is injured, even if it was previously insured.

Summary: An employee of a logging company was permanently and totally disabled when a log hit him on the knee. His employer was admittedly aware of a permanent physical disability he had previously sustained. When the employee was injured the second time, the employer did not carry workers' compensation insurance as required. The employee sued the employer and the Second Injury Fund for workers' compensation benefits. The Tennessee Supreme Court found the trial court improperly applied the law in awarding the employee $286,616 and allocating 15 percent of the liability to the employer and 85 percent to the Second Injury Fund.

The court held that because the employer did not carry workers' compensation insurance at the time the employee was injured, the company was not "properly insured" as that term is intended under the law. The court explained that four preconditions are necessary to hold the Second Injury Fund liable: 1) the injured employee has a permanent physical disability; 2) the employee suffers a subsequent work-related injury; 3) the employer has knowledge of the preexisting injury; and 4) the employer has "properly insured" its workers' compensation liability.

Because the logging company was small, the employer had the option of withdrawing from the workers' compensation law but failed to do so. Thus, it had allowed the coverage to lapse and was no longer keeping its employees properly insured. The court concluded the employer did not meet the fourth precondition, and the employee could not sue the Second Injury Fund. The court explained an opposite result would encourage employers to forgo insurance and allow them to become "free riders."

June 25, 2009

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