Miller v. Northside Danzi Construction Company: Immunity, the Contractor-under Clause and Alaska's Workers' Compensation Act

• Publication year: 1982

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 5, No.2SPRING 1982

Miller v. Northside Danzi Construction Company: Immunity, the Contractor-Under Clause and Alaska's Workers' Compensation Act

Timothy R. Gosselin

In Miller v. Northside Danzi Construction Co.,(fn1) the Alaska Supreme Court held that a general contractor,(fn2) required by Alaska's Workers' Compensation Act(fn3) to pay compensation to an uninsured subcontractor's injured employee, is not immune from liability at common law for the same injuries. Interpreting narrowly the Act's "employer" definition,(fn4) the court prohibited the general contractor from asserting the exclusive liability defense(fn5)granted to the primary employer who pays compensation to its injured employee, and thus permitted the injured worker to claim awards under the Act and independently at common law. By allowing the injured employee recovery from the contractor on both statutory no fault(fn6) and negligence grounds the court upset the balance created by the Act's compensation scheme, created internal inconsistencies in the Act's wording, and forced distinction between parties who, for purposes of compensation payments, should be equals.

Douglas Miller was an employee of Sweet and Sour Construction Company, a subcontractor of defendant general contractor, Northside Danzi Construction Company. In the course of his employment, Miller was electrocuted. Discovering that Sweet and Sour had failed to secure workers' compensation coverage, decedent's personal representative sought and received compensation from Danzi pursuant to the Alaska Workers' Compensation Act.(fn7) Miller's representative later instituted a negligence action,(fn8) asserting that the compensation award did not preclude his pursuit of Danzi as a third-party tort feasor.(fn9) The superior court granted Danzi's motion for summary judgment, holding that the general contractor's liability for the compensation award rendered it immune from tort liability under the Act's exclusive liability clause.(fn10) On appeal, the supreme court reversed, finding Danzi was potentially liable to the employee under both the Workers' Compensation Act and in tort. The court reasoned that the Act's history and language did not manifest a legislative intent to include a "contractor" within the scope of the "employer" definition merely by virtue of its duty to pay compensation benefits to the subcontractor's injured employee. And, since the Act explicitly grants exclusive liability only to "employers,"(fn11) a general contractor cannot assert the exclusive liability provision in defense of the injured worker's tort claim.(fn12)

Danzi's liability to pay Miller's compensation benefits arose from the contractor-under clause of Alaska's Workers' Compensation Act.(fn13) Contractor-under clauses require a general contractor to pay workers' compensation benefits to an uninsured subcontractor's injured employee.(fn14) Two theories support these provisions. First, the clause provides incentive for the general contractor (the party in the best position to police the relationship) to insist that the subcontractor secure compensation coverage for its employees.(fn15) Second, the clause prevents evasion of the responsibility to provide compensation by those who would subdivide their regular operations among smaller subcontractors to escape primary employment relationships.(fn16) The goal is to assure that all eligible workers enjoy coverage under the Act's compensation scheme. The effect is to place the general contractor in the shoes of the workers' primary employer for purposes of providing workers' compensation coverage,(fn17) even though the employment contract that activates the responsibility to secure that coverage is nonexistent. The general contractor, instead, becomes the worker's "statutory employer." Thus, in Miller the injured worker received compensation, though his primary employer was uninsured. Because Danzi conceded its liability to pay Miller's compensation according to the Act, that liability was not in issue.(fn18) At issue was whether Danzi's status as Miller's statutory employer rendered Danzi immune from additional liability in tort.

Alaska's Workers' Compensation Act provides tort immunity for the employer who secures compensation payments for his injured employee.(fn19) Because liability for the payments arises regardless of fault, immunity from tort liability serves as a counter-balance.(fn20) On one hand, the employee gains swift and sure compensation for injuries suffered in the course of employment irrespective of fault; on the other, the employer receives immunity from further damage liability at law regardless of whether his negligence caused the injury.(fn21) A third party, not subject to the no fault liability, has no tort immunity even though the worker previously recovered compensation under the Act.(fn22) By restricting the exclusive liability provision to primary employers, the Miller court held that a statutory employer, also subjected to the Act's absolute liability, can nonetheless be sued independently in tort.(fn23) The holding allows the injured worker to pursue the general contractor as both an employer and a third-party, a result, the court reasoned, consistent with the Act's history.

Alaska's first state legislature revised the workers' compensation laws in 1959.(fn24)The pre-1959 Act contained no contractor -under clause, placing the general contractor in the same position as a third party under the Act.(fn25) The prior act included the employer's insurance carrier within the definition of "employer," rendering the carrier immune to the worker's tort claims.(fn26) Most significantly, however, it stated the limitation on the employer's liability in terms of the employee's exclusive remedies.(fn27) By stating the immunity in this way, the pre-statehood Act protected the employer from tort actions by the compensated employee. Because the Act also permitted the employee to pursue a third-party action, where the third party and the employer were joint tort feasors, the third party could potentially recover the amount of his liability from the employer via an indemnification action. The 1959 amendments changed each of these elements in the Act.

The legislature patterned the new Act after the Federal Longshoremen's and Harbor Worker's Compensation Act.(fn28) The revisions set out the immunities in terms of the employer's exclusive liabilities, rather than the employee's remedies. A subsequent revision also brought the injured worker's co-employee within the immunity.(fn29) Moreover, the legislature removed the employer's insurance carrier from the "employer" classification.(fn30) Finally, the legislature enacted the contractor-under clause, imposing contractor liability when the subcontractor fails to provide the required compensation coverage.(fn31) The revisions also expanded the employer's immunity by prohibiting employee's tort claims and third-party indemnity actions.(fn32) By expanding the immunity to the worker's employer and fellow employees and removing the insurance carrier from the "employer" status, the legislature altered the immunity coverage to include only claims arising out of the common employment.(fn33)The revised Act does not specifically define the position of the general contractor, as statutory employer, regarding the immunity.

The Miller court looked primarily to the nature of the Act's revisions to determine the scope of the immunity clause.(fn34) The court reasoned that because the legislature, at the time of the revisions, considered both the "employer" definition and the exclusive liability clause without specifically including the general contractor in either, the omission evidenced the legislature's intent to exclude it from both.(fn35) The court read the statute as including only the primary employer within the "employer" definition. Since the immunity provision covered only the "employer" and the injured worker's fellow employees, the court prohibited the general contractor from asserting the immunity in defense of the worker's independent action in tort.

By construing the Act only in light of the legislative revisions the court ignored its previously recognized policy of looking to the Act's purpose and policy for guidance when interpreting the Act's terms.(fn36) Moreover, the court failed to interpret the Act's separate provisions in pari materia with its total compensation scheme. The result-permitting the injured worker to institute actions against the contractor both under the Act and in tort-upsets the balances the Act strikes between the employee's interests and the employer's liability. Considering these factors, the soundness of the Miller decision is questionable.

First, the court's decision contradicts the Act's underlying policy. The Act's keystone is the balance struck between the employer and the injured worker:(fn37) the employee exchanges his right to actions at law for the guarantee of certain compensation by his employer regardless of fault.(fn38) Because the liability to pay compensation is absolute, irrespective of fault, courts perceive the exclusive liability provision as a method of assuring that the burdens, imposed to carry out the Act's social goals,(fn39) do not fall on only one class of individuals. Consequently, courts generally deny relief where a claim seeks to override the statutory immunity, and tip the balance to favor one...