United States: Truck Insurance Exchange v. Workers' Compensation Appeals Board

In Truck Insurance Exchange v. Workers' Compensation Appeals Board, 2 Cal. App. 5th 394 (2016), the Court of Appeal affirmed the order excluding laches as an affirmative defense – finding Truck Insurance Exchange of Farmers Insurance Group ("Farmers") was deemed to know about a workplace injury when the employer had knowledge of the injury, despite that nearly seven years elapsed before a claim was filed – and remanded to the Workers' Compensation Appeals Board.

The parties did not dispute that Kwok, the injured worker, was employed as a manager and waiter by the restaurant owned by Mr. Cheung, Kwok's brother in law. In 2005, Kwok went to inspect a leak into the dining room, and was found a few minutes later lying unconscious on the ground with a ladder next to him. Kwok was severely injured, sustaining a brain hemorrhage as well as paralysis from the shoulders down, and receives 24 hour medical care.

Ms. Cheung, Kwok's wife, notified Mr. Cheung, who was then in Hong Kong, of the accident the following day. The workers' compensation administrative law judge ("WCJ") rejected Farmers' contention that Mr. Cheung did not know of the injury, finding Ms. Cheung's testimony about the call "far more believable." The appeals board supported this credibility determination. No evidence was presented to contradict Ms. Cheung's testimony, and Mr. Cheung neither testified nor was deposed. The Court noted California Labor Code section 5401(a) requires an employer, "[w]ithin one working day of receiving notice or knowledge of injury, [ . . . ] to provide to the employee a claim form and a notice of potential eligibility for workers' compensation benefits" and found this "was apparently never done." Breach of this duty tolls the limitations period "for the period of time that the employee remains unaware of his rights."

Ms. Cheung filed a workers' compensation claim in 2012, more than seven years later, after hearing about workers' compensation cases on the radio. Although she had procured workers' compensation insurance for the restaurant after the accident, she did not understand what that meant, and bought the insurance based on what the insurance agent had told her. According to the Court of Appeal, "Given Ms. Cheung's lack of familiarity with the workers' compensation system, this was exactly the kind of case where notice of workers' compensation rights under section 5401 was particularly important."

The parties stipulated Farmers provided workers' compensation insurance for the restaurant. A claims handler for Farmers, Wojcik, testified in favor of the laches defense. Wojcik testified about the difficulty in confirming information about the coverage and the claim: due to the passage of time, "it was difficult to verify the dates of coverage" although "[c]overage was ultimately confirmed through the Workers' Compensation Insurance Rating Bureau;" there was only limited information available about the ownership of the business from Mr. Cheung and the building owner; there was some indication that Kwok, Ms. Cheung, or an older brother may own the restaurant, but, after interviewing workers at the restaurant and subpoenaing records from various state agencies, she could not come to a conclusion as to whether Kwok owned the restaurant; and the cause of the fall was unknown – it would have been difficult to fall off the flat roof, the ladder was not available for inspection of defects, and she could not determine if the fall was intentional, involved horseplay, involved criminal activity, or involved intoxication, especially as she could not locate the witness referenced in the police report. Wojcik confirmed she did not sign a notice regarding the denial of benefits within the 90 day period required by section 5402, which "triggered the rebuttable presumption that the claim was compensable" although Farmers did not treat it as such.

The WCJ "concluded that Kwok sustained injury arising out of and occurring in the course of employment [and] also concluded that the statute of limitations did not bar Kwok's claim," but did not address the issue of laches. Farmers petitioned for reconsideration, asserting laches, the statue of limitations, "that employment had not been shown, and that the injury did not arise and was not sustained in the course and scope of employment." The WCJ recommended denial of the petition, noting "the undisputed and credible testimony at trial was that Mr. Cheung was notified of the injury the day after the accident [but] failed to provide Kwok a claim form or to process the injury claim." The WJC also rejected the laches and statute of limitations defenses. "The appeals board adopted and incorporated the WCJ's report and denied reconsideration. Other than noting that it gave great weight to the WCJ's credibility determination and that there was no evidence to contradict that determination, the appeals board did not issue an opinion of its own."

Farmers then filed a petition for writ of review in the Court of Appeal, solely contending laches applied to preclude liability. Farmers claimed Ms. Cheung must have had general knowledge as to workers' compensation, and specific knowledge of Kwok's rights as she had purchased the insurance for the restaurant.

The Court of Appeal issued a writ of review, limited to the laches defense, determining the appeals board's order was a reviewable order. The Court also "requested briefing on whether the defense of laches should be remanded to arbitration pursuant to Labor Code section 5275, subdivision (a), as a question of insurance coverage." Both parties responded "arbitration was no longer appropriate," and Kwok and the appeals board noted there was no coverage dispute raised, and Farmers had stipulated to coverage. The Court then "directed Farmers to explain the impact of the stipulation regarding coverage, if any, on its defense of laches," providing Kwok and the appeals board an opportunity to reply.

Farmers' position is that the stipulation is irrelevant to the defense of laches because laches has nothing to do with the merits of the cause against which it is asserted. [ . . . ] The appeals board noted Farmers' concession of its stipulations regarding insurance coverage and employment status. [ . . . ] Kwok underscored Farmers' failure to challenge the WCJ's findings of employment status, timely notice of the injury to the employer, and the employer's failure to provide statutory notice of workers' compensation rights.

The Court began its legal analysis by noting the appeals board's "broad equitable powers," and that equitable defenses such as laches apply in workers' compensation litigation. The Court determined the applicable standard of review is "supported by substantial evidence."

The Court noted Ms. Cheung's testimony regarding notification the day after the injury "is the only evidence on the question of notification," the WJC and appeals board found her to be credible, and her testimony was uncontradicted. With respect to the law regarding notification:

"Except as provided by sections 5402 and 5403, [footnote] no claim to recover compensation under this division shall be maintained unless within thirty days after the occurrence of the injury which is claimed to have caused the disability or death, there is served upon the employer notice in writing, signed by the person injured or someone in his behalf ... ." (§ 5400.) "Knowledge of an injury, obtained from any source, on the part of an employer, his or her managing agent, superintendent, foreman, or other person in authority, or knowledge of the assertion of a claim of injury sufficient to afford opportunity to the employer to make an investigation into the facts, is equivalent to service under Section 5400." (§ 5402, subd. (a).) Notice to or knowledge of the employer is deemed to be notice to or knowledge of the insurer. (Ins. Code, § 11652.)

Under the foregoing statutes, Farmers was on notice about the accident and the claim of injury, or had knowledge thereof, as of January 11, 2005, the day after Kwok's accident. Not only is this substantial evidence, the statutes do not allow for any other conclusion. [ . . . ]

The Court determined that absent delay, "the doctrine of laches simply has no application" and Farmers was in error in contending the doctrine of laches was misapplied. "The WCJ did not analyze the issue of prejudice because laches could not be applicable, given that there was no delay."

The Court also rejected Farmers' argument of collusion:

In Farmers' most recent filing, Farmers asserts that Mr. Cheung had no interest in limiting his brother-in-law's time to obtain workers' compensation benefits, thus extending the time to file indefinitely. According to Farmers, laches should be applied to prevent this type of open-ended time limitation. Even though there is no evidence that there was collusion among the family members, that is exactly what Farmers is contending. However, the basis for the laches defense in Farmers' petition for reconsideration was that the "carrier was greatly prejudiced by the lengthy delay in filing an Application for Adjudication." No claim was raised with respect to collusion between the employer and employee to leave the workers' compensation claim open. The argument therefore is deemed waived pursuant to section 5904.

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