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On August 24, 2022, the South Dakota Supreme Court issued its opinion in the matter of Douglas Ries v. JM Custom Homes, LLC, 2022 S.D. 52 indicating workers’ compensation was the only remedy available to Ries, an employee of JM’s subcontractor, under the workers’ compensation statutes SDCL 62-3-2 and SDCL 62-3-10.
Pine Tree Plumbing (“Pine Tree”) was a subcontractor of JM Custom Homes, LLC (“JM”). Ries was injured when he fell through a plywood stair while working as an employee of Pine Tree. Ries filed for workers’ compensation benefits against Pine Tree and Pine Tree’s insurer, Acuity Insurance. After Pine Tree and Acuity paid Ries’ workers’ compensation benefits, Ries filed a negligence claim against JM for failing to anchor the plywood or install handrails. In response, JM asserted the affirmative defense of statutory immunity under SDCL 62-3-2 and 62-3-10.
SDCL62-3-2 is an exclusivity provision, which limits an employee’s right to sue. The statute provides that, when an employer accepts liability for workers’ compensation, the employer is provided immunity against all other rights and remedies of an injured employee in return (except those arising from intentional torts). Also known as the “great compromise” the trade-off is a “quid pro quo” exchange inherently ingrained in South Dakota’s Workers’ Compensation Act.
SDCL 62-3-10 provides that a principal contractor (JM) is liable for workers’ compensation “to the same extent as the immediate employer” (Pine Tree). The statute extends liability upwards to general contractors for workers’ compensation claims from sub-contractor employees. However, it also extends the exclusivity provisions of SDCL 62-3-2 to general contractors, limiting a sub-contractor employees’ claims for injuries against higher-rung general contractors to workers’ compensation.
Under these statutes, JM argued that Ries’ sole remedy for his injuries was through workers’ compensation, and he could not sue JM for negligence. The circuit court agreed, and Ries appealed.
On appeal, Ries argued that JM’s insurance policy overrode the exclusive remedy provisions of SDCL 62-3-2. Ries argued that, under the language of the policy, JM was not liable for workers’ compensation claims of its subcontractors and, therefore, could not claim immunity from Ries’ negligence claims. In response, JM argued: (1) the language of the insurance policy was irrelevant; and (2) the policy provided coverage for workers’ compensation by stating “we will pay promptly when due the benefits required of you by workers compensation law.”
The Court determined the ultimate issue was whether JM accepted its obligation to be liable for workers’ compensation claims. If JM was deemed to have accepted its obligation by purchasing insurance coverage, Ries’ claims would be limited to workers’ compensation under SDCL 62-3-2, and JM would be entitled to immunity from Ries’ negligence claims. The Court determined that a private employer is deemed to have accepted its obligation under the Workers’ Compensation Act when it (1) purchases insurance (or enters into a reciprocal insurance agreement); or (2) complies with self-insurance rules.
The Court held the language of the insurance policy was relevant to determine whether JM had accepted its obligation to be liable for workers’ compensation. However, the Court found that JM’s policy secured the relevant coverage, so JM was deemed to have accepted its obligation under the Act. Accordingly, the Court held Ries’ sole remedy was limited to workers’ compensation, and affirmed the circuit court’s dismissal of Ries’ negligence claims against JM.
Although the opinion reinforced long-existing precedent, it is also significant because it clarified the importance of, not only securing insurance coverage for workers’ compensation claims, but also ensuring that the policy’s language is sufficient to establish the employer’s acceptance of its workers’ compensation obligations under the laws of South Dakota. Failure to do so in this case may have exposed JM to liability for injuries of its subcontractor’s employee under a theory of negligence. As always, please feel free to contact us for more information.