When you drink and drive,
death is no accident, court rules

Late one night, a driver in West Virginia lost control of hisvehicle and crashed into the back of a tractor trailer that wasparked eight feet off the edge of the highway. The driver was notwearing a seatbelt, and the impact of the crash threw him from hisvehicle. He died of multiple traumatic injuries. The driver'sblood-alcohol level was 0.15%, which was 50% higher than thestate's legal limit of 0.1%.
The driver's widow filed for $86,000 of benefits under the driver'semployer-provided accidental death and dismemberment plan, whichwas subject to the provisions of the federal Employee RetirementIncome Security Act of 1974. The insurer that issued the AD&Dpolicy also acted as the plan's claims administrator. The plan paidbenefits to insureds who die “due to an accident.” The plan defined“accident” as “an unexpected and sudden event which the insureddoes not foresee.” The plan also provided that the carrier hadfinal authority to determine all questions of eligibility and tointerpret the terms of the policy.
After analyzing the incident, the insurer's claims handler deniedthe claim. He said since the driver's blood-alcohol level was 50%higher than the legal limit, his injuries were not “unexpected,” asrequired by the plan's definition of an accident. The insurer'sappeals committee affirmed, finding the driver had “put himself ina position in which he should have known serious injury or deathcould occur.”
The driver's widow sued the insurer in state court for wrongfullydenying her benefits. Under the provisions of ERISA, the case wasmoved to a U.S. district court, which found in favor of the widow.It said the insurer's interpretation of the term “accident” wasunreasonable and ran afoul of the clear language of the policy, thefederal common law definition of accident and the goals of theemployer's AD&D plan.
The insurer appealed the ruling to the 4th U.S. Circuit Court ofAppeals. Citing a number of precedents, the appeals court notedthat where an ERISA plan vests the administrator with discretionaryauthority to determine eligibility for benefits or to construe theterms of the plan, courts review an administrator's decision forabuse of discretion. When reviewing a decision, they will notdisturb any reasonable interpretation. Where the administrator hasa potential conflict of interest, however, a court's deference tothe plan administrator is lessened. Since the insurer in this casealso acted as the plan administrator, the appeals court said itwould review the case “under this modified abuse of discretionstandard.”
The plan defined “accident” as “an unexpected and sudden eventwhich the insured does not foresee.” It did not, however, define“unexpected” or “foreseeable.” The appeals court noted that becausethose terms, as well as “accident,” are not always susceptible toeasy application, many federal courts have adopted the frameworklaid out in Wickman v. Northwestern National Insurance Co., 908F.2d 1077 (1st Cir. 1990). Initially, a court asks whether aninsured expected his actions to result in injury or death. If theinsured did not expect an injury, the fact-finder must examinewhether that expectation was reasonable, doing so from theinsured's perspective. If the fact-finder finds the evidenceinsufficient to accurately determine the insured's subjectiveexpectation, the fact-finder should undertake an objective analysisof it. This analysis should consider whether a reasonable person,with background and characteristics similar to the insured's, wouldhave viewed the injury as highly likely to occur as a result of theinsured's intentional conduct. The appeals court noted that in aprevious case, it suggested that it would apply Wickman's test todrunk-driving collisions. Since there was no evidence from whichthe deceased driver's subjective expectation could be accuratelydetermined, the court said it would proceed with an objectiveanalysis.
In denying benefits to the insured's widow, the insurer said theinsured's death was not unexpected because he “put himself in aposition in which he should have known serious injury or deathcould occur.” The widow countered that drunk-driving injuries arenot “highly likely” to occur and that the insurer's interpretationof “accident” would “frustrate the purpose of AD&Dinsurance.”
The appeals court disagreed. It said that whether the test is oneof high likelihood or reasonable foreseeability, federal courtshave found with near universal accord that alcohol-related injuriesand deaths are not “accidental” under insurance contracts governedby ERISA. These courts, it continued, have applied the objectiveforeseeability test set forth in Wickman and reasoned that sincethe hazards of drinking and driving are widely known and widelypublicized, those who drive while intoxicated should know that suchaction is highly likely to result in death or bodily harm.
The simple fact that drunk driving occurred did not mean there wasno accident under the policy, the court said. If the insurer didnot intend to cover any injury to a drunk driver, then it couldhave specifically excluded coverage for such injuries. Rather, theappeals court appeared to agree with the insurer's emphasis onexpectation. It said that in the case at hand, the evidence gaveconsiderable support to the insurer's determination that thedriver's death was not unexpected because he put himself in aposition in which he should have known serious injury or deathcould occur.
The court noted that the local sheriff's accident report made itclear that the crash was “perfectly consistent” with the insured'sinebriated state. Most critically, the driver's blood-alcoholconcentration was 50% higher than the legal limit. According to themedical examiner's toxicology report, the typical effects of ablood-alcohol concentration of 0.15% include “blurred vision, lossof motor coordination and impaired judgment.”
Every state criminalizes drunk-driving, the appeals court noted,with West Virginia's statutes imposing increasingly stiff chargesand jail sentences to repeat offenders. These graduated penalties,the court said, reflect a recognition of the seriousness of drunkdriving, which is far beyond that of most other drivinginfractions.
The court said that even if the insured did not intend to crash hiscar into a parked semi-truck, that lack of intention alone does notrender a result “accidental.” To put it simply, the court said,unjustifiable optimism about one's odds (or failure even tocalculate them) does not relieve conduct such as the insured's offoreseeable results.
The court said the insurer's denial of benefits was reasonable andthat to characterize harm flowing from the insured's behavior asmerely accidental diminishes the personal responsibility that statelaws and the rules of the road require.
The widow also argued that the insurer's interpretation of“accident” was contrary to the goals of the plan because it wouldfrustrate the purpose of AD&D insurance. The appeals courtdisagreed: “While we are not unsympathetic to the fact that theclaimant in this case may be denied recovery, an ERISA fiduciarymust also provide for future applicants. Indeed, where a planadministrator denies an unmeritorious claim, the financial healthof pooled plan assets is protected, not frustrated…. We cannotcharacterize as incompatible with the Plan, therefore, (theinsurer's) determination that the Plan's best interests are servedby limiting the Plan's definition of 'accident' to 'unexpected'events that are not highly likely to occur. Nor can we say that itis unreasonable for plan administrators to acknowledge thedifference between ultra-hazardous drunk-driving deaths and othertragedies which do not 'involve such a significant assumption of aknown risk by the insured.'”
The court emphasized the boundaries of this holding. “We do notsuggest that plan administrators can routinely deny coverage toinsureds who engage in purely negligent conduct or, for example, toanyone that speeds. In fact, accident insurance is often purchasedto cover negligence at its most typical: Insureds seek 'protectionfrom their own miscalculations and misjudgments (Wickman, 908F.2d at 1088 (citations omitted).'”
The federal district court that previously ruled in favor of thewidow compared those who drive drunk to those who apply lipstick,fiddle with the radio dial or restrain children while driving. Butthe appeals court said such comparisons are inapt. “While theseactions are hardly commendable driving habits, they do notgenerally rise to the level of crimes,” the circuit court said.“Indeed, even though acts like speeding and (in some jurisdictions)driving while talking on a cellular phone are illegal, none compareto driving while drunk,” which the court observed has been widelyknown and widely publicized to be both illegal and highlydangerous.
The court concluded the insured put himself in a position in whichhe should have known serious injury or death could occur;therefore, his death was not “unexpected.” Therefore, it was no“accident.” Accordingly, the lower court's decision wasreversed.
Eckelberry v. Reliastar Life Insurance Co., No. 06-1020 (4thCir. 11/17/2006) 2006.C04.0003094 (www.versuslaw.com)

Failure to document insurance status
of workers leads to audit premium
(Those readers who deal with small contractors who usesubcontractors will find the issues in this Tennessee casefamiliar. Readers should keep in mind, however, that the outcome ofsuch a case might be different in another state.)
A general contractor hired a subcontractor to install roofs in asubdivision. Before allowing him to work, however, he required theroofer to provide evidence of insurance. The roofer, who had beenrefused coverage by two insurance companies in the previous 60days, contacted an insurance agent in July 2001. Based on theroofer's answers to a series of questions, the agent filled out anapplication. The signed application stated that the roofer had noemployees, did not use subcontractors and did not sublet workwithout obtaining certificates of insurance. The roofer paid the$750 minimum premium. The agent forwarded the application toTennessee's assigned risk program. A few weeks later, the rooferreceived a policy from an issuing carrier.
The policy explained that the $750 premium was an estimate and thatthe final premium would be determined after the policy expired.That premium would be based on “the actual, not the estimated,premium basis and the proper classification and rates that lawfullyapply to the business and work covered by this policy.” The policyfurther explained that the most common basis is remuneration paidto officers and employees engaged in work covered by the policy,and also to “all other persons engaged in work that could make usliable under Part One (Workers Compensation Insurance) of thispolicy.”
The policy went on to explain that in the absence of payrollrecords, “the contract price for the services and materialsfurnished by such 'other persons' can be used as the premiumbasis.” It added that this section “will not apply if you give usproof that the employers of these persons lawfully secured theirworkers compensation obligation.” The policy set out the insurer'sright to examine and audit all the records relating to the policyin order to determine the final premium. The policy's premium ratewas $32.77 for each $100 of remuneration.
On July 31, 2001, the insurer sent the roofer a questionnaire aboutthe roofer's use of any subcontractors. The letter underscored theaforementioned policy provisions: “Please note that the payroll foruninsured subcontractors will be included in your premium basis ataudit unless you can provide evidence that the subcontractor is notsubject to the state workers compensation statutes and that allappropriate forms have been completed and filed with the state andwith our office.”
On Nov. 20, the insurer informed the roofer that his policy hadbeen cancelled because “requested underwriting information has notbeen provided.” The roofer apparently had failed to include anyspecific information about subcontractors in the questionnaire thathe returned.
Following a subsequent audit of the roofer's records, the insurerassessed him for $14,790 in additional premium. The roofer refusedto pay, and the insurer filed a collection suit. The matter went totrial three years later. Among those testifying were the auditorwho had examined the roofer's records and a second roofer whoworked for the insured.
The auditor testified that his examination showed that the insuredcontractor had two employees during the audit period. They had notsigned workers compensation waivers used by subcontractors and hadbeen paid $10,000.
The aforementioned second roofer had been paid $40,488. He hadfilled out an I-18 form, but the amount he had been paid suggestedto the auditor that the second roofer possibly was using some of itto pay other workers. This turned out to be true. (The title of theI-18 form is “Election of Non-Coverage by Sub-Contractor.” It mustbe signed by both the subcontractor and the general contractor.Although the form provides a mechanism whereby a subcontractor canwaive his right to be covered by the state's workers compensationlaw, it specifies that the subcontractor cannot waive the rights ofhis employees.)
The second roofer explained that he had a continuing businessrelationship with the insured roofer. Rather than pay him an hourlywage, the insured paid him for each square of roofing he completed.The second roofer had helpers, whom he paid per completed square aswell. Under questioning, the second roofer identified four personswho worked for him during the policy period; none had signed anI-18 form.
The second roofer testified that the insured told him that he didnot provide workers compensation insurance and that in his paymentshe did not withhold for income taxes or Social Security. The secondroofer, in turn, told his helpers the same thing. He apparently didreport their pay to the IRS, however. Part of the evidenceintroduced at the trial was five IRS 1099 forms, amounting to$84,500, on which the second roofer was named as the payer. Therecipients included some of the people that the second rooferidentified as his helpers on his job for the insured.
When the insured was called to the stand, his testimony wasconsistent with that of the second roofer. His responses toquestioning set out the basis for his argument that the insurer wasnot entitled to any additional premium from him:
Q: You use laborers to do the work, the actualroofing work, correct?
A: I use independent contractors.
Q: And it's your position that everyone who doeswork for you is a subcontractor, correct?
A: Yes. Everybody that does work for me is anindependent contractor.
The insured was closely questioned about his involvement with theworkers who actually did the roofing. He testified that he did notset their work hours, did not provide tools and did not tell themhow to do their jobs. He did ask the workers to use safetyequipment but did not require them to. Asked how often he visitedthe job site while the work was going on, he answered, “Almostnever.”
When the insured was shown his workers compensation insuranceapplication, he admitted that the negative responses to thequestions about the use of subcontractors and whether any work hadbeen sublet without certificates of insurance were untrue.
The trial court found that the insured's workers were independentcontractors. The court added, however, that the issue was notclear-cut. It said that it would have taken a lawsuit to confirmthe status of the workers, that the carrier would have beenrequired to defend such a suit and that the suit could have goneeither way.
The court observed that the insured had not taken any steps todocument his laborers' workers compensation status. Consequently,the insurer was left exposed to the risks involved in coveringthose workers, the court said. Accordingly, it granted the insurera judgment for the $14,790 in additional premium, as well asprejudgment interest. The insured appealed.
The appeals court explained that under the state's workerscompensation law, a principal or intermediate contractor, or asubcontractor is liable for compensation to any employee injured onthe job. Furthermore, any of those parties can be held liable tothe same extent as the immediate employer. Quoting other cases, thecourt noted that the statute's purpose is “to protect employees ofirresponsible and uninsured subcontractors by imposing ultimateliability on the presumably responsible principal contractor, whohas it within his power, in choosing subcontractors, to pass upontheir responsibility and insist upon appropriate compensation fortheir workers.”
The insured's policy stated that the final premium amount would notbe determined until the end of the policy period. The court notedthat the reason for this provision, which is a standard feature ofworkers compensation policies, is that any number of employees maybe hired or terminated while the policy is in effect, thusincreasing or decreasing the amount of risk to which the insurer isexposed. Thus, the insured's payment of the minimum premium and hisdeclaration that he had no employees did not cut off the insurer'sright to assess a retrospective premium, the court said, based onthe true degree of risk it faced.
The policy stated that the premium was based on remuneration to theinsured's employees and to “all other persons engaged in work thatcould make (the insurer) liable” under the policy. The insuredcontended his workers were independent contractors and that theirstatus rendered him exempt from any responsibility to insure them.In other words, he argued that they could not trigger a liabilityfor the insurer.
But the appeals court pointed out that when an injured worker filesa claim for a workplace injury, the burden of proving the worker isan independent contractor, rather than an employee, rests on theemployer. Where there is any doubt as to whether the worker is anemployee or an independent contractor, the doubt must be resolvedin favor of the former.
The appeals court said it appeared that the insured wanted to avoidthe expense of buying workers compensation insurance for rooferswho worked on his jobs but that the contractor for which he wasworking required him to purchase it. To keep his premiums as low aspossible, he stated on the app that he had no employees, did notuse subcontractors and did not sublet without proof of insurance.He also tried to establish informal agreements with his ownsubcontractors that would give the appearance of a hands-offapproach. The appeals court said it did not approve of such tacticsfor avoiding liability under the workers compensation law becausethey run contrary to the law's purpose: to see to it that injuredworkers receive benefits.
If any of the workers had been injured on the job, the appealscourt said, they could have submitted a claim for workerscompensation that the insured would have had to answer as thearguable employer or statutory employer of those workers.
The court noted there were several ways in which the insured couldhave reduced his premiums. The policy itself allowed him to avoidpaying a premium for subcontractors' payroll or payment forservices to workers “if you give us proof that the employers ofthese persons lawfully secured their workers compensationobligation.” He could have required that his subcontractors carryworkers compensation insurance. He also could have asked everyonewho worked for him or his subcontractors to execute I-18 forms,thereby strengthening the argument that no workers compensationinsurance was required of them.
Since he took none of these actions, the court said, the insurerwas obligated to defend any claim against the insured arising frominjury to those working for him or his subcontractors and paybenefits for those injuries, if such was required. The insurerbased its audit premium on the potential magnitude of thatobligation, which the appeals court found reasonable. It upheld thetrial court's ruling in favor of the insurer.
CNA v. King, No. M2004-02911-COA-R3-CV (Tenn.App. 09/28/2006)2006.TN.0001363 (www.versuslaw.com)

Don Renau is a retired agent and practicing attorney inLouisville, Ky. As an attorney, he consults on a variety of issues,including business formation and estate planning, for agencies andbusinesses in Kentucky. He can be reached at [email protected]or, by fax, at (502) 805-0702.