Okla. High Court Upholds Employer Responsibility in Comp Claim

April 18, 2008

The Supreme Court of Oklahoma on April 15 upheld a finding by a previous three-judge panel that an employer is liable for an injury sustained by an employee of the company’s subcontractor because the principal employer had failed to verify proof of workers’ compensation coverage on the part of the subcontractor. The Supreme Court clarified that its opinion was subject to revision or withdrawal until published in the permanent law reports.

The decision was issued in Millard Smalygo, Jr., d/b/a Smalygo Homes v. David T. Green and The Workers’ Compensation Court.

In the written opinion, the Court noted that: “The issue is whether competent evidence was presented to support the determination by a three-judge panel of the Workers’ Compensation Court that a principal employer’s reliance on proof of workers’ compensation insurance did not meet the statutorily imposed standard of ‘good faith’ necessary to exempt the principal employer from secondary liability in workers’ compensation. This Court finds that there is competent evidence in the record to support that determination.”

According to court documents, construction worker David Green was injured on Oct. 10, 2002, while working for Mark Murphy d/b/a Mark Murphy Construction, an independent contractor and subcontractor of the principal employer Millard Smalygo d/b/a Smalygo Homes. After finding that Murphy Construction no workers’ compensation coverage, he amended his claim to add Smalygo as principal employer, the Court explained.

Although Murphy had presented Smalygo written proof of valid workers’ compensation coverage at the time he was contracted by Smalygo, neither party retained the original or a copy, and a document from Compsource Oklahoma was presented as evidence to the court showing that Murphy’s coverage expired April 1, 2002, six months before the date of the injury. Coverage lapsed “apparently due to Murphy’s failure to pay his premium. Murphy admitted that he did not notify Smalygo of the termination of insurance coverage,” the Court wrote in its opinion.

“Smalygo testified that coverage was in effect when he was presented with proof of insurance at the time he contracted with Murphy sometime between March and August of 2002. Therefore, for coverage to have been in effect during that time, the testimony indicates that the policy term stated on the proof of insurance shown to Smalygo was for one year with an expiration date of August 13, 2002,” the Court further explained.

Smalygo had argued in lower courts “that he was insulated from secondary liability based upon his compliance with section 11(B)(2) which provides that ‘if a principal employer relies in good faith on proof of a valid workers’ compensation insurance policy issued to an independent contractor of the employer or to a subcontractor of the independent contractor . . . then the principal employer shall not be liable for injuries of any employees of the independent contractor or subcontractor.'”

The three-judge panel subsequently determined that while Green was Murphy’s employer, Smalygo was secondarily liable for the workers’ compensation claim, and a later appeals court upheld that determination.

In sustaining the decision of the three-judge panel and the appeals court, the Supreme Court in its opinion wrote:

“The three-judge panel was presented with competent evidence from which it could conclude that Smalygo, as principal employer, had not exercised reasonable diligence and therefore had not met the statutory standard of good faith. Under the facts and circumstances of this matter, the exercise of reasonable diligence would have, at a minimum, required Smalygo to obtain a current certificate of insurance from Murphy’s insurer to demonstrate proof of current coverage. Good faith is not demonstrated when a principal employer accepts proof of his subcontractor’s workers’ compensation coverage but remains indifferent to the stated expiration date of that coverage.”

Source: Oklahoma Supreme Court, www.oscn.net

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