NC Risk Handling Hint -Estoppel; Insurance Coverage; Sanctions
Defendant insurance carrier, New York State Insurance Fund (NYSIF), contracted to provide workers’ compensation coverage for Defendant-Employer, DenRoss Contracting, with a policy rider which specifically excluded “bodily injury occurring outside the State of New York.” DenRoss was annually audited by NYSIF, after which the policy was automatically renewed and premiums paid. DenRoss provided maintenance service throughout the U.S. and contracted with Defendant Kapstone Kraft Paper to provide services, for which DenRoss hired James Arthur Smith and several others. Smith filed a workers’ compensation claim after suffering a work-related injury. DenRoss denied the claim, stating NYSIF had coverage and Kapstone was the principal contractor and statutory employer. Kapstone denied liability stating Smith was either an independent contractor or the employee of an independent contractor, DenRoss.
The Deputy Commissioner ordered DenRoss to begin making payments immediately or notify the Commission of its denial that day and further ordered DenRoss to submit the claim to NYSIF for immediate payment. The order was not appealed. After a hearing the Deputy Commissioner entered an Opinion and Award ordering NYSIF to pay Smith benefits, including past medical expenses, attendant care and a 10 percent penalty for unreasonable and untimely denial of benefits under N.C.G.S. § 97-18(j).
On Appeal by NYSIF, the Full Commission determined that allparties were bound by the Workers’ Compensation Act, that DenRoss was covered under NYSIF’s policy at the time of Smith’s injury, awarded a 10 percent penalty for untimely and unreasonable denial and ordered Defendants to pay Smith’s attorney’s fees under N.C.G.S. § 97-88.1 as a sanction.
On December 18, 2012, inSmith v. DenRoss Contracting, U.S., Inc., the Court of Appeals first dismissed NYSIF’s contention that it was not subject to the jurisdiction of the North Carolina Industrial Commission and noted that New York law specifically stated that the NYSIF was created by statute, but was “nevertheless treated by statutes as a separate insurance business… especially in litigations.”Commissioners of State Insurance Fund v. Low, 3 N.Y.2d 590, 595, 148 N.E.2d 136, 138 (1958). The Court agreed with the Commission that Smith sustained compensable injuries while working for DenRoss who paid premiums to NYSIF to maintain coverage and, as such, NYSIF was liable for Smith’s injuries.
The Court also held that the Commission did not err in concluding that Smith’s injury was covered by the insurance policy between NYSIF and DenRoss inasmuch as the Commission did not base its decision on the coverage provided in the policy which specifically excluded bodily injury occurring outside of New York State. Rather, the Court noted, the Commission had instead concluded that NYSIF was estopped from denying coverage because its representations to DenRoss were sufficient for DenRoss to believe it was covered for injuries outside New York State.
Although the Court declined to determine whether NYSIF misled DenRoss, it concluded that the Commission did not err in finding that NYSIF’s actions were sufficient to induce DenRoss into believing it had coverage because NYSIF accepted premiums knowing that DenRoss only had clerical staff in New York State, but performed work throughout the United States.
The Court, however, did find that the Commission erred in awarding a late payment penalty against NYSIF even though it responded more than thirty days after Smith’s Form 18 since it did respond within thirty days of receiving notice of the claim from the Commission, as required under N.C.G.S. § 97-18(j)(2). The Court also held that the Commission erred in concluding that NYSIF unreasonably defended the claim since NYSIF’s policy specifically excluded claims for bodily injury outside of New York State and the Full Commission’s award on estoppel grounds was affirmed.
Risk Handling Hint: Carriers need to be aware of the specific business of their insured. In North Carolina, coverage may be found despite any policy language which otherwise attempts to limit the geographic scope of coverage.