The California Court of Appeal, Third Appellate District, ruled that a liability stipulation entered into between Fireman's Fund Insurance Company ("FFIC") and the California Insurance Guarantee Association ("CIGA") at a time when CIGA's liability was unsettled in law, should not have been set aside simply because the issue was subsequently addressed by appellate courts. The Court of Appeal, therefore, annulled the Workers' Compensation Appeals Board's ("WCAB") order denying reconsideration of the workers' compensation judge's ("WCJ") decision invalidating the stipulation.
Darla Allen ("Allen") was injured during the course of her employment. She filed workers' compensation claims, claiming both specific and cumulative injuries. In 1999, the WCJ found Allen permanently disabled and assessed that one half of the total disability was due to the initial specific injury while the other half was due to the cumulative injury. The WCJ awarded Allen compensation in her two specific injury cases against California Compensation Insurance Company ("CCIC") and awarded Allen compensation in the cumulative injury case against CCIC and FFIC.
CCIC became insolvent in 2000 and CIGA assumed liability for CCIC's covered claims pursuant to Insurance Code section 1063.1. At this time, there was no appellate or WCAB decision addressing CIGA's liability in a successive injuries case such as Allen's, rendering CIGA's liability unclear.
In 2001, CIGA and FFIC stipulated that: (1) FFIC was solely liable for the cumulative trauma claim and CIGA was solely liable for the specific injuries; (2) both were liable for 50% of the medical award; and (3) CIGA would administer the medical award ("2001 Stipulations"). The 2001 Stipulations were entered as an Order of the WCAB by the WCJ.
Subsequent appellate case law addressed successive injuries cases like Allen's and CIGA's liability. In California Ins. Guarantee Assn. v. Workers' Comp. Appeals Bd. (2007) 153 Cal.App.4th 524 (Hernandez), the appellate court held that in a case involving successive injuries, the jointly and severally liable insurer had to reimburse CIGA for all of the workers' compensation benefits CIGA paid. Relying on Hernandez, in 2008 CIGA petitioned the WCAB for a change of decision. The WCJ granted CIGA's petition, finding Allen's case fell squarely within the rule set forth in Hernandez. The WCJ held the 2001 Stipulations were illegal and against public policy, CIGA had no authority to enter into them, and the WCAB had no authority to enforce them.
FFIC petitioned the WCAB for reconsideration. The WCAB denied reconsideration and adopted the reasoning of the WCJ. FFIC appealed. Reviewing the WCAB's denial de novo, the Court of Appeal addressed three issues: (1) whether CIGA had statutory authority to enter into the 2001 Stipulations; (2) whether the WCAB had jurisdiction to enter an order based on the 2001 Stipulations; and (3) whether the WCAB had statutory authority to set aside the order enforcing the 2001 Stipulations seven years later.
Regarding the first issue, the more precise question was whether CIGA has authority to stipulate and enter a binding settlement where its liability is uncertain. The Court of Appeal evaluated this issue under Insurance Code section 1063.2(b), which grants CIGA the same rights as an insolvent insurer including, but not limited to, the right to investigate and settle a claim. A private insurer has a duty to settle in an appropriate case. And CIGA's statutory duties encompass a duty to accept a reasonable settlement offer in appropriate cases. As a result of these duties, the Court of Appeal concluded CIGA has the authority to assess its potential liability, factually and legally, and to accept a settlement offer it determines is reasonable. Accordingly, the Court of Appeal held CIGA had statutory authority to enter into the 2001 Stipulations.
Regarding the second issue, the Court of Appeal found no dispute the WCAB had personal jurisdiction over the parties and general subject matter jurisdiction over Allen's claims to workers' compensation benefits. Further, the WCAB has express statutory authority to enter orders based on parties' factual stipulations. Given this, the Court of Appeal held the WCAB had jurisdictional authority to enter the order based on the 2001 Stipulations.
Regarding the third issue, the Court of Appeal held the WCAB improperly exercised its discretion under Labor Code section 5803 to set aside the order entered on the 2001 Stipulations. Section 5803 permits the WCAB continuing jurisdiction to rescind or revise its awards upon good cause shown. While good cause may consist of a change in the law, good cause is not shown when parties knowingly take the risk of unsettled law and their settlement agreement reflects such basis for their settlement.
The Court of Appeal determined that CIGA and FFIC entered into the 2001 Stipulations knowing the law regarding CIGA's liability was unsettled. Further, the Court of Appeal found the 2001 Stipulations were neither illegal nor against public policy. In fact, the public policy favoring the expeditious determination of benefits and settlement of a workers' compensation cases, among other public policy concerns, supported the execution of the 2001 Stipulations.
Accordingly, the Court of Appeal concluded the WCAB improperly exercised its discretion under section 5803 to set aside the order entered on the 2001 Stipulations.
The Court of Appeal annulled the WCAB's order denying reconsideration and remanded the matter to the WCAB for further proceedings.
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