- Florida Supreme Court Addresses Scope of "Coverage B,” Employers' Liability Coverage, Finding It Mutually Exclusive of Workers' Compensation Coverage
- March 16, 2015
- Law Firm: Conroy Simberg - Hollywood Office
On December 4, 2014, the Florida Supreme Court issued its opinion in Morales v. Zenith Ins. Co., Case No. SC13-696, a case certified to the Court by the federal Eleventh Circuit Court of Appeals. In Morales, Santana Morales, Jr. was crushed to death by a palm tree while working for his employer Lawns Nursery. His widow settled his workers' compensation claim with Lawns and its workers' compensation/employers’ liability insurance carrier, Zenith. The settlement contained a release expressly electing workers' compensation as Morales' sole remedy under the Zenith policy.
Thereafter, in a separate wrongful death lawsuit which had been pending at the time of the workers' compensation settlement, Morales' Estate alleged that Lawns had been negligent in causing Morales' death. Lawns did not appear in Circuit Court and the state Circuit Court ultimately entered a default judgment against Lawns for $9.25 million. After Zenith refused to pay that judgment, Morales sued Zenith alleging that it breached its employers' liability policy, and the breach of contract case was removed to federal court. The federal court found that the employers' liability policy's workers' compensation exclusion barred coverage for the claim and entered a summary judgment in favor of the carrier.
On appeal, the Eleventh Circuit concluded that Florida law is unsettled as to whether the Estate would have standing to sue Zenith under the employers' liability portion of the policy, but also found that the workers' compensation exclusion barred the negligence claim against Zenith's insured Lawns, and further found that the settlement releasing Lawns and Zenith prevented the Estate from collecting the tort judgment from Zenith. Because one of the issues in the case was unsettled under Florida law, the Eleventh Circuit certified the case to the Florida Supreme Court for its resolution.
The first issue was whether the Estate had standing under the liability policy to sue Zenith for breach of contract, and the Supreme Court agreed with the Eleventh Circuit that it did. The Court reasoned that the Estate was a judgment creditor with standing to sue as a third-party beneficiary of the coverage that would have otherwise been available to Morales. The Court observed that Florida's nonjoinder statute expressly contemplated just such a suit, after the underlying tort action against an insured had concluded.
The second issue considered by the Court was whether the workers' compensation exclusion in the employers' liability insurance policy excluded coverage for the Estate's claim against Lawns. The Court found the exclusion for "any obligation imposed by a workers compensation . . . . law" clear, unambiguous and enforceable to warrant Zenith's denial of liability coverage under its policy. The Court explained that employers’ liability coverage was designed to be a "gap-filler,” providing the employer with insurance protection for those rare cases in which an employee has a right to sue in tort regardless of workers' compensation immunity. In this case, however, because Lawns was only sued in simple negligence, and not a willful or intentional tort for which there is no workers' compensation immunity, the Estate had no right to sue Lawns for its alleged negligence, because its sole remedy was workers' compensation benefits.
In an effort to avoid what would appear to be an absolute bar to collection of the judgment against Zenith, the Estate's counsel creatively argued that Zenith could not avoid coverage for the tort judgment because the duty to pay that judgment was imposed by law, rather than an "obligation imposed by workers' compensation law,” which would have been covered under the workers' compensation portion of the Zenith policy. In other words, the Estate took the position that since that judgment was not covered under workers' compensation, it must necessarily be covered under the employers' liability section of the policy. The Supreme Court disagreed, finding that regardless of whether a claimant actually collects workers' compensation benefits under an employer's policy, where a claim would ordinarily have fallen within the scope of workers' compensation, it is excluded under the employers' liability portion of the policy, regardless of whether any workers' compensation benefits are actually paid. Thus, for example, if an employer unlawfully fails to obtain the required workers' compensation coverage, its failure to do so does not require its liability carrier to pay a claim that would have been covered by a workers' compensation policy; rather, it is the nature of the claim itself, and not the nature and scope of insurance coverage, which determines whether there is liability coverage for an employee's claim against his or her employer. The Court clarified that in this case, Morales' negligence claim against the decedent's employer was clearly within the scope of the workers' compensation law as well as Zenith's workers' compensation coverage, and therefore, it was necessarily excluded under Zenith's employers' liability coverage. Put another way, the two coverages are mutually exclusive.
The final question addressed by the Court was whether the Release signed by Morales' widow when she settled her workers' compensation claim against Lawns and Zenith barred the Estate's collection of the tort judgment from Zenith. Once again, the Court answered this question in the affirmative. The release provided, in part, "this settlement and agreement shall constitute an election of remedies by the claimant with respect to the employer and the carrier as to the coverage provided to the employer." The Court found this release absolutely clear in constituting an election of the Estate's remedies for Morales' death, regardless of whether there might have been liability insurance coverage for the claim. Further, because Zenith itself was a party to the agreement and was specifically released from liability, Zenith was entitled to enforce the terms of the settlement to avoid any obligation to pay the judgment rendered against Lawns.
Undaunted, the Estate argued that the release was not binding on Mrs. Morales because she signed the agreement in her capacity as parent and guardian of her four minor children, and not in her individual capacity or her capacity as the Personal Representative of the Estate. Further, since the probate court did not approve the settlement and the children were not represented by a guardian ad litem, Mrs. Morales could not have waived her children's tort claim. The Supreme Court disagreed, finding that since the workers' compensation law compensates an employee's beneficiaries, including the spouse and children, and does not require probate court approval or the appointment of a guardian ad litem, there was no reason why the workers’ compensation settlement would not be binding on both Mrs. Morales and her children. The fact that Lawns was defaulted and a judgment rendered against it did not preclude Zenith from enforcing the remedy that Mrs. Morales elected. Accordingly, the Supreme Court returned the case to the Eleventh Circuit for final disposition, which will now affirm the federal Circuit Court's judgment in Zenith's favor.
We hope that the foregoing has been informative. Please do not hesitate to contact the attorneys at Conroy Simberg with any questions you may have about this case and/or its effect on any workers' compensation or liability cases you may have pending.