COURT OF APPEALS OF VIRGINIA
Present: Judges Benton, Coleman and Bumgardner
Argued at Richmond, Virginia
THE UNINSURED EMPLOYER'S FUND
OPINION BY
v. Record No. 1521-97-3 JUDGE JAMES W. BENTON, JR.
APRIL 21, 1998
ALFRED L. FLANARY, MOOSE COAL COMPANY
AND THE VIRGINIA PROPERTY AND
CASUALTY INSURANCE GUARANTY ASSOCIATION
FROM THE VIRGINIA WORKERS' COMPENSATION COMMISSION
John J. Beall, Jr., Senior Assistant Attorney
General (Richard Cullen, Attorney General;
James W. Osborne, Assistant Attorney General,
on brief), for appellant.
Michael F. Blair (Penn, Stuart, Eskridge &
Jones, on brief) for appellee The Virginia
Property and Casualty Insurance Guaranty
Association.
No brief or argument for appellees Alfred L.
Flanary and Moose Coal Company.
The Uninsured Employer's Fund appeals from a ruling of the
Workers' Compensation Commission requiring the Fund and Moose
Coal Company to pay an award of lifetime benefits to Albert L.
Flanary, a former employee of Moose Coal. The Fund contends the
commission erred in failing to apportion the award between the
Fund and the Virginia Property and Casualty Insurance Guaranty
Association, which was statutorily obligated to pay the "covered
claims" of one of Moose Coal's insolvent insurers. The Fund also
contends that because Moose Coal was insured when Flanary was
first awarded benefits, the commission erred in holding that the
Fund was liable for Moose Coal's other insurer's portion of the
award after that insurer also became insolvent. For the reasons
that follow, we affirm the award.
I.
Albert Flanary filed a claim with the Workers' Compensation
Commission on February 20, 1990, alleging an occupational
disease. The evidence at the hearing proved that Flanary worked
as a coal miner for Moose Coal Company until November 6, 1986.
During Flanary's final ninety work shifts, Moose Coal was insured
by Virginia Coal Producers Group Self-Insurance Association for
eighty-five of those work shifts and Rockwood Insurance Company
for the remaining five work shifts. On December 23, 1989,
Flanary was informed that he suffered from stage three
coal-workers' pneumoconiosis.
Following an evidentiary hearing, the deputy commissioner
found that Flanary had contracted stage three coal-workers'
pneumoconiosis as a consequence of exposure to coal dust while
employed by Moose Coal. The deputy commissioner awarded Flanary
weekly compensation disability benefits commencing December 23,
1989 and continuing for 300 weeks until September 22, 1995. The
deputy commissioner prorated the award, finding the Coal
Producers Group liable for 85/90ths of the award and Rockwood
Insurance liable for the other 5/90ths.
The Coal Producers Group, which was insolvent when the
commission made the award, did not pay any portion of the award.
Instead, by order of the commission, the Coal Producers Group's
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liability for 85/90ths of the award was paid by the Fund pursuant
to Code § 65.2-1203(A). Rockwood Insurance paid its portion of
the award as a lump sum. However, after Rockwood Insurance made
its payment, it too became insolvent. Although the Virginia
Property and Casualty Insurance Guaranty Association would have
been obligated to pay "covered claims" against Rockwood Insurance
pursuant to Code § 38.2-1606, the Guaranty Association made no
payments of weekly disability benefits to Flanary because
Rockwood Insurance had paid its portion of the award prior to its
insolvency.
On August 22, 1996, Flanary filed with the commission a
claim for benefits alleging a change in condition and seeking an
award of lifetime benefits. See Code § 65.2-504(A)(4). The
deputy commissioner found that Flanary had proved a change in
condition and awarded him lifetime benefits commencing on
September 23, 1995. The deputy commissioner also ruled that
liability for that award would not be apportioned between the
Fund and the Guaranty Association because the commission "cannot
enter any award against the Guaranty [Association] until all
benefits from this claim from the . . . Fund are exhausted."
Finding that Flanary had proved a change in condition and
that the award could not be prorated between the Fund and the
Guaranty Association, the commission affirmed the deputy
commissioner's award. The commission relied upon Code
§ 38.2-1610 to support its ruling that the Guaranty Association
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"becomes liable only in the event that the . . . Fund does not
fully satisfy the award." The Fund appeals this decision.
II.
The Guaranty Association was established to "provide prompt
payment of covered claims to reduce financial loss to claimants
or policyholders resulting from insolvency of an insurer," to
"assist in the detection and prevention of insurer insolvencies,"
and to "apportion the cost of this protection among insurers."
Code § 38.2-1600. The Supreme Court has noted that the statutes
limit the obligations of the Guaranty Association.
[T]he General Assembly did not intend that
the [Guaranty] Association merely "step into
the shoes" of the insolvent insurer.
Establishment of the [Guaranty] Association
affords a mechanism for the timely payment of
appropriate claims to avoid financial loss to
certain classes of people. But it is not
merely a solvent substitute for an insolvent
insurance company.
Virginia Property & Cas. Ins. Guaranty Ass'n v. International
Ins. Co., 238 Va. 702, 705, 385 S.E.2d 614, 616 (1989). Thus,
although the Guaranty Association was created as an "insurer of
last resort," its obligations are limited by, among other things,
the "exhaustion requirement and set-off provisions contained in
[Code § 38.2-1610]." Id. at 704-05, 385 S.E.2d at 616.
In pertinent part, Code § 38.2-1610 provides as follows:
A. Any person having a claim against an
insurer under any provision in an insurance
policy, other than a policy of an insolvent
insurer under which the claim is also
covered, shall be required to first seek
recovery under the policy covered by the
insurer which is not insolvent. Any amount
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payable on a covered claim under this chapter
shall be reduced by the amount of any
recovery under the insurance policy.
A1. Any person having a claim or legal right
of recovery under any governmental insurance
or guaranty program which is also a covered
claim, shall be required to exhaust first his
right under such program. Any amount payable
on a covered claim under this chapter shall
be reduced by the amount of any recovery
under such program.
B. Any person having a claim that may be
recovered under more than one insurance
guaranty association or its equivalent shall
seek recovery first from the association of
the state where the insured resides.
However, if it is a first party claim for
damage to property with a permanent location,
the insured shall seek recovery first from
the association of the state where the
property is located. For a workers'
compensation claim recovery shall first be
sought from the association of the state
where the claimant resides. Any recovery
under this chapter shall be reduced by the
amount of the recovery from any other
insurance guaranty association or its
equivalent.
The Fund argues that the language "governmental insurance or
guaranty program" in Code § 38.2-1610(A1) refers to guaranty
associations in other states or those governmental insurance
programs in other states that have been set up in lieu of a
guaranty association. We disagree. Nothing in Code
§ 38.2-1610(A1) requires such a limited reading. Indeed, the
statutory language refutes the Fund's contention. Code
§ 38.2-1610(B) establishes an exhaustion procedure whenever a
claim is covered by more than one insurance guaranty association,
including those in other states. The interpretation suggested by
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the Fund would render subsections (A1) and (B) redundant. "The
rules of statutory interpretation argue against [such a] reading
[of] any legislative enactment." Jones v. Cornwell, 227 Va. 176,
181, 314 S.E.2d 61, 64 (1984).
The Fund also argues that it is not a "governmental
insurance or guaranty program" as contemplated by Code
§ 38.2-1610(A1). We disagree. The Fund was created "[f]or the
purpose of providing funds for compensation benefits awarded
against any uninsured or self-insured employer under the
provisions of this chapter." Code § 65.2-1201. To finance the
program, the enabling legislation that created the Fund provides
that a tax shall be assessed, collected and paid into the state
treasury by "[e]very person, partnership, association,
corporation, . . . company, mutual company or association, the
parties to any interindemnity contract or reciprocal plan or
scheme, and every other insurance carrier, insuring employers in
this Commonwealth against liability for personal injuries to
their employees or death caused thereby." Code § 65.2-1000. The
commission is authorized to "order payment of any award of
compensation benefits . . . from the . . . Fund" when the
commission determines that an employer has failed to acquire the
requisite workers' compensation insurance or cannot satisfy a
compensable claim in whole or in part. Code § 65.2-1203(A).
This Court has held that the "purpose of the Fund is to insure
that injured employees will be paid their compensation benefits
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even though their employer has breached his duty to secure
compensation insurance." A.G. Van Metre, Jr., Inc. v. Gandy, 7
Va. App. 207, 213, 372 S.E.2d 198, 202 (1988).
The Fund, a statutorily created entity financed by taxes
levied upon insurers, functions as a workers' compensation
insurer of last resort under the limited circumstances described
in the statute, i.e., when an employer fails to be suitably
insured as required by Code § 65.2-801 or otherwise fails to
satisfy a compensable claim. See Code § 65.2-1203(A). See also
Gandy, 7 Va. App. at 213-14, 372 S.E.2d at 202 ("The purpose of
the Fund is to insure that injured employees will be paid their
compensation benefits even though their employer has breached
[its] duty to secure compensation insurance."). Upon payment of
a claim, the Fund is statutorily "subrogated to any right to
recover damages which the injured employee . . . or any other
person may have against . . . [the] employer or any other party."
Code § 65.2-1204. In addition, the statute permits the Attorney
General to "defend any claim against the . . . Fund." Code
§ 65.2-1202.
Under these statutorily defined circumstances, the Fund pays
an award to an injured employee much like a workers' compensation
insurer. Because the Fund characteristically exhibits indicia of
a "governmental insurance or guaranty program" of limited
purpose, Code § 38.2-1610(A1), the commission properly ruled that
the award of lifetime benefits to Flanary should not be prorated
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between the Guaranty Association and the Fund. The Fund falls
within the statutory purview of those entities from which
recovery must be exhausted before the Guaranty Association is
required to make payments. Thus, the commission did not err in
ruling that the Guaranty Association only becomes liable for
payment in the event the Fund is unable to fully satisfy the
award.
III.
The Fund also contends the commission erred when it ordered
the Fund to pay the portion of the award that was originally
assessed against Rockwood Insurance. The Fund argues that,
because Rockwood Insurance was solvent on the date Flanary was
first awarded weekly compensation benefits and became insolvent
only after that award was entered, Moose Coal met the
requirements of Code § 65.2-801.
Code § 65.2-801(A) provides, in relevant part, as follows:
Every employer subject to this title
shall secure his liability thereunder by one
of the following methods:
1. Insuring and keeping insured his
liability in an insurer authorized to
transact the business of workers'
compensation in this Commonwealth . . . .
Pertinent to this issue, Code § 65.2-1203(A) provides as follows:
Whenever, following due investigation of a
claim for compensation benefits, the
Commission determines that (i) the employer
of record has failed to comply with the
provisions of § 65.2-801 . . ., and (ii) the
claim is compensable, the Commission shall
. . . order payment of any award of
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compensation benefits pursuant to this
chapter from the Uninsured Employer's Fund.
The Fund concedes that this issue is governed by Uninsured
Employer's Fund v. Mounts, 24 Va. App. 552, 484 S.E.2d 140
(1997), aff'd, ___ Va. ___, ___ S.E.2d ___ (1998). In Mounts,
the employer was insured on the date of the employee's last
injurious exposure but not on the date when the diagnosis of the
disease was communicated to the employee. The Fund argued that
under those circumstances the employer was "insured" within the
meaning of Code § 65.2-801 and, therefore, the Fund could not be
held liable under Code § 65.2-1203(A). See Mounts, 24 Va. App.
at 556, 484 S.E.2d at 142-43. In affirming this Court's decision
and the commission's award, the Supreme Court ruled as follows:
The "keeping insured" language has been
a part of the workers' compensation statutes
since the Act was adopted in 1918. . . .
[T]he language under scrutiny here means that
an employer subject to the Act "must be and
remain insured."
* * * * * * *
An employer has potential liability for
a claim of coal miners' pneumoconiosis for
"three years after a diagnosis of the
disease" is first communicated to the
employee, or for "five years from the date of
the last injurious exposure in employment,
whichever first occurs. . . ." Therefore,
given the statutory mandate to insure and
keep insured its liability, an employer whose
employees are susceptible to pneumoconiosis
must anticipate that such claims will accrue
in the future and must secure its liability
for such potential claims as required by
§ 65.2-801, even when its insurer has been
declared insolvent. When, as here, there has
been a failure to do so, the Fund will be
liable because the employer has violated its
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statutory duty.
Mounts, ___ Va. at ___, ___ S.E.2d at ___ (citations omitted).
Accordingly, we affirm the commission's decision.
Affirmed.
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