Marsh & McLennan, Inc. v. Superior Court , 49 Cal. 3d 1 ( 1989 )

Opinion

PANELLI, J.

This case presents the issue whether the California workers’ compensation system preempts a private cause of action by an injured worker against the independent claims administrator of his self-insured employer for the delay or refusal to pay compensation benefits. We conclude that the system does preempt such an action.

Facts

Frank Silvestri died of cardiac arrest in January 1984, allegedly arising out of and during the course and scope of his employment with the San Francisco Newspaper Agency (Agency). As a result, his widow applied for workers’ compensation benefits.

The Agency utilizes a self-insured workers’ compensation program and retains Marsh & McLennan, Inc., as its independent claims administrator. On behalf of the Agency, Marsh & McLennan paid Mr. Silvestri’s funeral expenses and began paying monthly death benefits to Mrs. Silvestri in June 1984. In September 1985, however, it discontinued the payments, allegedly before paying all of the benefits due to Mrs. Silvestri. The record does not reveal Marsh & McLennan’s reasons for stopping the payments.

Mrs. Silvestri brought suit against Marsh & McLennan, alleging fraud, intentional infliction of emotional distress, breach of fiduciary duty, and violation of Insurance Code section 790.03, subdivision (h).¹ Marsh & McLennan demurred to the complaint pursuant to the exclusive remedy provisions of the workers’ compensation system, arguing that the trial court had no jurisdiction to entertain Mrs. Silvestri’s complaint. The trial court allowed the causes of action for fraud, emotional distress and breach of duty to stand, but sustained the demurrer as to the alleged violation of the Insurance Code. Marsh & McLennan then petitioned the Court of Appeal for a writ of mandate to require the trial court to sustain the demurrer as to the remaining causes of action; the Court of Appeal summarily denied the petition. We granted review and issued an alternative writ.

Discussion

The Workers’ Compensation Act (Act), codified in section 3201 et seq. of the Labor Code, sets forth an elaborate scheme for the compensation of California employees injured in the course and scope of their employment. Labor Code section 3602 expressly states that the right to recover workers’ compensation benefits is “the sole and exclusive remedy” available to an injured employee against his employer.² Moreover, the WCAB has exclusive jurisdiction over disputes regarding an employee’s right to compensation or the liability of an employer. (§ 5300, subds. (a) & (b).)³

The exclusive remedy provisions of the system are designed to provide “a quick, simple and readily accessible method of claiming and receiving compensation.” (Everfield v. State Comp. Ins. Fund (1981) 115 Cal.App.3d 15, 20 [171 Cal.Rptr. 164].)

Additionally, an employee may not sue his employer’s insurance carrier (subject to a narrow exception discussed below) because the Act defines “employer” to include “insurer.” (§ 3850, subd. (b).)⁴ The Act does, however, allow an employee to bring suit against any person other than his employer who proximately caused his injury. (§ 3852.)⁵ The Act further provides that an employee’s award will be increased by 10 percent if the insurer unreasonably delays or refuses to pay benefits. (§ 5814.)⁶

We carved out a narrow exception to the WCAB’s exclusive jurisdiction in Unruh v. Truck Insurance Exchange (1972) 7 Cal. 3d 616 [102 Cal.Rptr. 815, 498 P.2d 1063]. Truck, a workers’ compensation carrier, hired Baker, a private investigator, to evaluate the extent of the plaintiff’s work-related back injury. Baker was overzealous in his investigation: He first “caused [plaintiff] ‘to become emotionally interested’ in him,” then took her to Disneyland, where he made her cross rope and barrel bridges on the “Tom Sawyer Island” attraction. In order to discredit her claim of physical limitation, he secretly filmed her attempting to negotiate the bridges while he “did . . . violently shake and disturb” them. After viewing the film at her WCAB hearing, the plaintiff suffered a physical and mental breakdown requiring hospitalization. (Id. at p. 621.)

We allowed the plaintiff to bring an action against Truck for assault and intentional infliction of emotional distress based on the tortious acts of Baker, its agent. (7 Cal. 3d at pp. 630-631.) After stating that the detection of “fraudulent, or grossly exaggerated claims for benefits . . . is an important function of the insurer in the workmen’s compensation scheme” (id. at p. 627), we found that Truck’s conduct was so extreme and outrageous that it had in effect stepped out of its role as an insurer and could therefore be held liable under section 3852 as “any person other than the employer.” (Id. at pp. 630-631.) We also noted that the Act did not preclude the plaintiff from bringing a separate suit against Baker, since investigators are neither employers nor insurers. (Id. at pp. 625-626.)

Subsequent decisions from the Courts of Appeal have limited the liability of insurance carriers under Unruh. The court in Everfield, supra, 115 Cal.App.3d 15, held that an insurer that delays making payments to an injured worker or changes the amount of payments is not, under Unruh, subject to liability outside of the workers’ compensation scheme. “The reasons for delay, whether intentional or negligent, whether excusable or not, can be well inquired into by the board and where necessary discipline imposed. The same is true of reasons for changing amounts of periodic payments.” (Id. at p. 19.) The court in Fremont Indemnity v. Superior Court (1982) 133 Cal.App.3d 879 [184 Cal.Rptr. 184] relied on Everfield in disallowing causes of action for bad faith, emotional distress and violation of the Insurance Code against an insurer that delayed and altered an injured worker’s benefits. These cases confirmed the principle that the WCAB is the most appropriate forum for resolving disputes over the delay or discontinuance of benefits. (Fremont, supra, 133 Cal.App.3d at p. 882; Everfield, supra, 115 Cal.App.3d at p. 19. See also Depew v. Hartford Acc. & Indem. Co. (1982) 135 Cal.App.3d 574 [185 Cal.Rptr. 472]; Ricard v. Pacific Indemnity Co. (1982) 132 Cal.App.3d 886 [183 Cal.Rptr. 502].)

Mrs. Silvestri bases her claim against Marsh & McLennan on Unruh, relying extensively on Dill v. Claims Admin. Services, Inc. (1986) 178 Cal.App.3d 1184 [224 Cal.Rptr. 273]. There, the court allowed Dill, an employee of Kaiser Permanente Medical Group (a self-insured company) to sue CAS, the independent claims administrator retained by Kaiser, after CAS refused to pay Dill workers’ compensation benefits. Dill’s complaint included causes of action for violation of the implied covenant of good faith and fair dealing, breach of fiduciary duty, conversion, and intentional infliction of emotional distress.⁷ The court applied “the literal meaning” of sections 3850 and 3852 in reaching the conclusion that CAS is “neither an employer nor an insurer” (id. at p. 1188) and is therefore “a person ‘other than an employer’ against whom Dill is allowed to maintain an action in the superior court.” (Id. at p. 1189; see ante, fns. 4 & 5.)

In our view, the Dill court erred by focusing solely on sections 3850 and 3852. The exclusive remedy doctrine stems also from sections 5300 and 5814, which refer to the “recovery of compensation” and the “payment of compensation.” (See ante, fns. 3 & 6.) These latter terms imply that the workers’ compensation system encompasses all disputes over coverage and payment, whether they result from actions taken by the employer, by the employer’s insurance carrier or, as occurred in this case, by an independent claims administrator hired by the employer to handle the worker’s claim. Accepting the Dill court’s distinction would vitiate the very purpose of the exclusive remedy provisions of the Act.⁸

In addition, the Dill court failed to appreciate the deterrent effect of section 5814. (178 Cal.App.3d at p. 1189, fn. 3.) Section 5814 authorizes the WCAB to increase a compensation award by 10 percent if it finds that the employer has “unreasonably delayed or refused” compensation. (See ante, fn. 6.) An employer who must pay the statutory penalty due to the misconduct of its independent claims administrator would most likely request reimbursement from the administrator. Because administrators may reasonably anticipate ultimate responsibility for the penalty, section 5814, contrary to the Dill court’s assertion, deters them from unreasonably delaying or refusing payments despite the fact that the section may not make them directly liable to the aggrieved employee.

Finally, the Dill court incorrectly equated private investigators and independent claims administrators. (178 Cal.App.3d at pp. 1188-89.) Section 1759 of the Insurance Code defines an administrator as “any person who collects any charge or premium from, or who adjusts or settles claims on, residents of this state in connection with life or health insurance coverage or annuities . . . .”⁹ Self-insured employers such as the Agency, lacking the expertise to themselves handle the workers’ compensation claims of their employees, contract with claims administrators to undertake all of their worker compensation related tasks—e.g., reviewing claims, processing forms and disbursing payments. The role of a private investigator is much narrower.¹⁰ In addition, recent amendments to the Act evidence a broad legislative intent to place the activities of administrators under the purview of the workers’ compensation system. Administrators must now obtain certification from the Director of Industrial Relations (§ 3702.1, subd. (a)) and are subject to fines or revocation of their certificates at any time for good cause (§ 3702.7). (Added by Stats. 1984, ch. 1521, §§ 2, 4, p. 5366.) They must also file annual reports with the director. (§ 3702.2, added by Stats. 1986, ch. 1128, §8, p. 4055.)

Several Court of Appeal decisions conflict with the holding of Dill: Marsh & McLennan relies primarily on Denning, supra, 139 Cal.App.3d 946, and Santiago v. Employee Benefits Services (1985) 168 Cal.App.3d 898 [214 Cal.Rptr. 679]. In Denning, an employee of Garrett Airesearch, a self-insured corporation, brought an action against Esis, Garrett’s independent claims administrator, seeking damages for breach of the covenant of good faith and fair dealing, intentional infliction of emotional distress, and violation of Insurance Code section 790.03, subdivision (h). Agreeing with the trial court that any failure to provide workers’ compensation benefits to an injured employee “ ‘is squarely cognizable by the WCAB,’ ” the court found it “unnecessary to belabor the matter” and affirmed the judgment of dismissal. (139 Cal.App.3d at pp. 948-949.)

Likewise, the court in Santiago, supra, 168 Cal.App.3d 898, disallowed causes of action against Employee Benefits Services, a claims administrator, for emotional distress, wrongful refusal to pay, loss of consortium and violation of Insurance Code section 790.03, subdivision (h). The Court of Appeal’s analysis applies with equal strength to the case at bench: “The crux of the cause of action below, as in Denning, was the alleged failure to pay compensation benefits. Such conduct is clearly within the exclusive jurisdiction of the Appeals Board. [Citation.]” (Id. at p. 904.) The court thus rejected Santiago’s argument that his alleged causes of action against the claims administrators were regulated by the Insurance Code (ibid.), as well as his assertion that the claims administrator’s delay in payments was actionable under Unruh. (Id. at p. 905.)

Courts of Appeal have increasingly relied on the logic of Denning and Santiago and rejected the conclusion of Dill. In Phillips v. Crawford (1988) 202 Cal.App.3d 383 [248 Cal.Rptr. 371], for instance, an employee of a subsidiary of Sears, Roebuck and Co., filed a complaint against Crawford, Sears’s independent claims administrator, alleging that Crawford unreasonably refused to pay his workers’ compensation benefits. The trial court sustained Crawford’s demurrer, based on the exclusive remedy provisions of the Act. Like Mrs. Silvestri in the case at bench, Phillips relied on Dill to argue that the Act does not preclude his lawsuit against Crawford, and on Unruh to argue that claims administrators are subject to suit as third parties. (Id. at p. 386.) Crawford, like Marsh & McLennan, cited Santiago and Denning for the proposition that the exclusive remedy provisions of the Act bar Phillips’s action. (Id. at p. 387.) The Phillips court affirmed the sustaining of the demurrer. It distinguished Dill on the grounds that the Dill court incorrectly focused on the status of the defendant to determine whether the defendant could invoke the immunity of the Act, while the Santiago and Denning cases focused correctly on the nature of the defendant’s actions. In effect, the Phillips court found that the Act covers all disputes over the payment of compensation to injured employees, regardless of what type of entity refused or delayed those payments. (Id. at pp. 387-388; see also Hernandez v. General Adjustment Bureau (1988) 199 Cal.App.3d 999, 1004 [245 Cal.Rptr. 288].)

Mottola v. R.L. Kautz & Co. (1988) 199 Cal.App.3d 98 [244 Cal.Rptr. 737] presents a similar scenario. An injured employee of Compton Unified School District sued Kautz, the school district’s claims adjuster, for violation of Insurance Code section 790.03 and intentional and negligent infliction of emotional distress, after Kautz refused to pay workers’ compensation benefits. The trial court sustained Kautz’s demurrer, based on the exclusive remedy provisions of the Act. In affirming the trial court’s decision, the Mottola court reached the correct result, though it placed too much emphasis on Kautz’s status rather than on its actions. (Id. at p. 108.) The WCAB is an employee’s exclusive forum for relief when any entity unreasonably delays or refuses to pay his compensation benefits. (See also Schlick v. Comco Management, Inc. (1987) 196 Cal.App.3d 974, 980 [242 Cal.Rptr. 241].) Only when the entity commits tortious acts independent of its role as a provider of workers’ compensation benefits may an employee maintain a private cause of action under Unruh.

Conclusion

In sum, we hold that sections 3602, 5300 and 5814 create a statutory scheme that preempts private causes of action by injured employees against the independent insurance claims administrators and adjusters hired by their self-insured employers that unreasonably delay or refuse to pay compensation benefits. We thus accept the reasoning of the Denning (supra, 139 Cal.App.3d 946), Santiago (supra, 168 Cal.App.3d 898) and more recent cases, and reject the holding of Dill (supra, 178 Cal.App.3d 1184).¹¹

In addition, we conclude that Mrs. Silvestri cannot maintain a cause of action under Unruh, supra, 7 Cal.3d 616. Marsh & McLennan’s actions were not in any way so extreme and outrageous that it in effect stepped out of its role as a claims administrator as required by Unruh. Contrary to the dissent’s assertion (dis. opn., post, at p. 13), a claims administrator, like an insurer, may be liable under Unruh; however, Marsh & McLennan’s alleged misconduct, if any, stemmed from the discontinuance of payments to Mrs. Silvestri and is properly addressed by the WCAB. The Act thus provides Mrs. Silvestri’s exclusive remedy for Marsh & McLennan’s acts of alleged misconduct.

Disposition

Let a peremptory writ of mandate issue directing the Orange County Superior Court to vacate its order denying Marsh & McLennan’s demurrer and to enter a new order consistent with this opinion.

Lucas, C. J., Broussard, J., Eagleson, J., Kaufman, J., and Kennard, J., concurred.

1 The record does not reveal why Mrs. Silvestri failed to seek review of the discontinuance of payments with the Workers’ Compensation Appeals Board (WCAB). The complaint states that “On or about June 14, 1984, [Marsh & McLennan] agreed with plaintiff that her husband’s death was work related and represented to her that they felt she was entitled to workers’ compensation benefits.” It then states that Marsh & McLennan “made the representation with the intent to deceive and defraud plaintiff in order to lull plaintiff into a false sense of security and forego filing a claim while the applicable statute of limitations ran.” These statements do not explain, however, why she did not file a claim with the WCAB after Marsh & McLennan discontinued her payments in September 1985. Although subdivision (a) of section 5406 of the Labor Code requires that the dependents of deceased employees file a claim with the WCAB within one year from the date of the employee’s death, the payment of benefits tolls the limitations period. (Lab. Code, § 5405, subd. (c).) In any event, the proper forum for resolving issues regarding the limitations period is the WCAB.

2 Section 3602 provides in pertinent part: “(a) Where the conditions of compensation set forth in Section 3600 concur, the right to recover such compensation is . . . the sole and exclusive remedy of the employee or his or her dependents against the employer . . . .” All further statutory references are to the Labor Code unless otherwise indicated.

3 Section 5300 provides in pertinent part: “All the following proceedings shall be instituted before the appeals board and not elsewhere .... (a) For the recovery of compensation, or concerning any right or liability arising out of or incidental thereto, (b) For the enforcement against the employer or an insurer of any liability for compensation imposed upon him by this division in favor of the injured employee, his dependents, or any third person.”

4 Section 3850 provides in pertinent part: “As used in this chapter: ...(b) ‘Employer’ includes insurer. . . .”

5 Section 3852 provides in pertinent part: “The claim of an employee, including, but not limited to, any peace officer or firefighter, for compensation does not affect his or her claim or right of action for all damages proximately resulting from the injury or death against any person other than the employer.”

6 Section 5814 provides in pertinent part: “When payment of compensation has been unreasonably delayed or refused, either prior to or subsequent to the issuance of an award, the full amount of the order, decision or award shall be increased by 10 percent.”

7 The court sustained CAS’s demurrer to Dill’s cause of action for violation of Insurance Code section 790.03, subdivision (h), holding that independent claims administrators of self-insured companies are not “engaged in the business of insurance [as defined in Insurance Code section 790.01].” (Dill, supra, 178 Cal.App.3d at pp. 1189-90.) The trial court in the instant case similarly sustained Marsh & McLennan’s demurrer to Mrs. Silvestri’s cause of action under section 790.03. Since Mrs. Silvestri does not seek relief from that ruling, the issue is not now before us.

8 Hence, our unwillingness to allow Mrs. Silvestri to bring “an action at common law” against Marsh & McLennan is not, as the dissent suggests, “a bootstrap argument” (dis. opn., post, at p. 12), but rather a conclusion drawn from the language and intent of the Workers’ Compensation Act.

9 Although Marsh & McLennan and the defendants in other cases (see, e.g., Dill, supra, 178 Cal.App.3d 1184; Denning v. Esis (1983) 139 Cal.App.3d 946 [189 Cal.Rptr. 118]) describe themselves as “independently retained claims administrators,” the definition of an administrator includes reference to adjusting. We note that firms often use the appellations “administrator” and “adjuster” interchangeably and that the activities of the two types of businesses often overlap.

Moreover, section 14021 of the Insurance Code specifically differentiates between adjusters and investigators: “An insurance adjuster within the meaning of this chapter is a person other than a private investigator as defined in Section 7521 of the Business and Professions Code . . . .” (Italics added.) Similarly, section 7521 of the Business and Professions Code states that “A private investigator within the meaning of this chapter is a person, other than an insurance adjuster . . . .” (Italics added.) The Act therefore retains exclusive jurisdiction over actions against claims adjusters, as well as claims administrators.

10 Moreover, administrators have legal responsibilities that investigators do not. (See, e.g., Ins. Code, § 1759.1 [contract between the insurer and administrator must be in writing]; Ins. Code, § 1759.9 [insured individuals must be notified of the administrator’s identity]; Ins. Code, § 1759.10 [administrators must be certified by the insurance commissioner].)

11 The dissent stands alone in its acceptance of the reasoning of the Dill court: Every Court of Appeal that has addressed the issue since the Dill decision has rejected that court’s holding. In fact, the same division of the same district of the Court of Appeal (Fourth Dist., Div. Three) that denied Marsh & McLennan’s petition for writ relief reversed its position 10 months later in Schlick, supra, 196 Cal.App.3d 974.