Cherry, H. Wendell

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University of Kentucky

Kentucky Law JournalVolume 47 | Issue 2 Article 131958Workmen's Compensation--Insurance--"FullCoverage"H. Wendell CherryUniversity of KentuckyFollow this and additional works at: https://uknowledge.uky.edu/kljPart of the Workers' Compensation Law CommonsRight click to open a feedback form in a new tab to let us know how this document benefitsyou.This Comment is brought to you for free and open access by the Law Journals at UKnowledge. It has been accepted for inclusion in Kentucky LawJournal by an authorized editor of UKnowledge. For more information, please contact UKnowledge@lsv.uky.edu.Recommended CitationCherry, H. Wendell (1958) "Workmen's Compensation--Insurance--"Full Coverage"," Kentucky Law Journal: Vol. 47 : Iss. 2 , Article 13.Available at: https://uknowledge.uky.edu/klj/vol47/iss2/13RECENT CASESreason why a party should not be able to dispose of his money in sucha manner if he so desires. Generally, unequivocal acts are given moreweight than verbal expressions in going to prove the intent of theactor. One who intentionally does an act will not be heard to say thathe did not intend the legal consequences of that act. The same shouldapply here. The act of Mrs. Hays, in creating the account, was notambiguous.21 She clearly intended to sign the signature card, and inthe absence of a showing of fraud or duress, her administrator shouldbe bound thereby. The legal results necessarily flowing from an in-tentional act should in no way be affected by verbal protestations thatthese results were not intended.The Kentucky Court seems to have promulgated an undesirabledoctrine. Whether it has done so depends upon its future constructionof this case. There is no valid reason why such an account as in theprincipal case should not be given the effect which is normally in-tended by the depositor. In the absence of fraud or duress, such anaccount can have but one purpose-to permit both parties to drawupon the account during their joint lives, with the balance to go to thesurvivor upon the death of either party. It is hoped in the future, thatthe court, if faced with a similar case, will not permit a survivor's claimto the balance of an account to be defeated so easily.Unless fraud or duress is shown, a bank paying an account to asurvivor should be protected against claims such as the administratorin this case asserted. If the court will not protect the bank, and thusgive effect to such an account, the General Assembly should takecognizance of the problem and enact appropriate legislation.22Carl R. ClontzWOKMIEN's COMPENsATiN-INsuRANCE-"FuL CovxiAcE"-The em-ployee was killed while driving a taxicab for his employer whooperated a theater, garage and taxi service in connection with thegarage. The deceased did general work around the garage, was car-ried on the garage payroll, and customarily operated his employer'sone-car taxi service when a fare called. The "risk classifications" in theemployer's insurance policy related to automobile salesmen and garagechauffeurs. Since the activity of the deceased at the time of the21 If the account was merely a joint account, it might be argued that it wascreated for business convenience only. But this argument is of no avail whensurvivorship is added, since the addition could in no way facilitate any businesspurpose.22 Many states have to protected their banks. Brown, Personal Property sec.65 (2d ed. 1955).1959]KENTucKY LAw JoaNA.[l4accident did not fall within either of these classifications, the courtheld that the insurer was not liable on this claim. In so holding thecourt affirmed a previous line of cases which held that the Workmen'sCompensation Act does not require "full coverage" of the employer'sliability under the act by the insurer, but rather, "full coverage" ofthose employees falling within the risk classifications set out in thepolicy. Old Republic Insurance Co. v. Begley, 314 S.W. 2d 552 (Ky.1958).The general problem presented is whether an insurer, under aWorkmen's Compensation Act, must insure the entire liability of theemployer under the act, or whether the insurer may limit its ownliability by the provisions of its policy. Though the cases may differin some degree because of the language in the particular act inquestion, there are two fairly distinct bodies of opinion on this prob-lem. There is a group of cases upholding the right of the insurer tolimit its liability or risk by the provisions of its policy, while anotherline of cases takes the view that liability cannot be limited, due to theprovisions of the act in question or to a decision based on a positivepublic policy against such limitation of liability.'In the present case the Kentucky Court affirmed its previous posi-tion that under the Kentucky act the insurer could by the provisionsof its policy limit its liability to the risk classifications in the policy.2This result is reached by a construction of Kentucky Revised Statutessec. 342.375 which provides that:Every policy or contract of workmen's compensation insurance ...shall cover the entire liability of the employer for compensation underthis chapter to everyone of his employees covered by such policy...regardless of whatever other contingencies may be insured or pro-vided for by riders attached thereto or endorsements made thereon.On the face of every such policy shall be printed conspicuously thewords, 'Insurance under this policy is in class (designating theclass) of the company's workmen's compensation classification manual.'... If more than one class of risk is covered by the same policy, theseparate risks and their corresponding manual classifications shall bestated in the same manner. (Emphasis added).In effect, the court has held that the last part of this section modifiesthe first, resulting in "full coverage" only for employees falling withinthe particular classifications set out in the policy. Professor Larson, aleading authority in this field, calls this a "most remarkable piece ofstatutory demolition",3 with which view the writer is inclined to agree.1 See cases collected in Annot., 45 A.L.R. 1329 (1926); Annot., 108 A.L.R.812 (1937).2 Aetna Life Ins. Co. v. City of Henderson, 228 Ky. 1, 14 S.W. 2d 211 (1928);Kelly v. Nussbaum, 218 Ky. 330, 291 S.W. 754 (1926). See also, Rhymer v.Federal Life Ins. Co., 13 F. Supp. 181 (E.D. Ky. 1936).3 2 Larson, Workmen's Compensation, sec. 93.20, at 461 (1952).[Vol. 4"7,RECENT CASESThere seems to be no possible reason to assume that since riskclassifications must be set out in the policy the conclusion must followthat the insurer may limit its liability by the classifications in the policy.This does not seem to follow from the requirement that the contract ofinsurance "shall cover the entire liability of the employer". Otherjurisdictions with similar statutory language have interpreted this torequire coverage of all employees of the assured in all occupationsand all businesses. 4 The main purpose of the classifications is to de-termine premium rates to be charged rather than to provide a meansby which the insurer may limit its liability under the act.5The real solution to the problem lies in considering the policy con-siderations involved in interpreting this section of the act. The ques-tion is: What is the best rule to adopt in determining how broad theinsurer's liability should be under the act? The court has recognizedthat the provisions of the act form a definite part of the insurancecontract, and that the liability of the insurer must depend on the con-struction of the statute.The policy reasons for a "full coverage" interpretation of the statuteare obvious. If insurers were allowed to select some risks and notothers, they would naturally select the better risks and exclude theworst. If the insurer must insure the employer's entire liability underthe act, it is convenient to the employee, since one suit can settle theliability of both the insurer and the employer. Otherwise, it may taketwo suits to settle the matter, the first to determine the employer'sliability, and the second to see if the insurer's policy covered thatliability.Under the Kentucky act the employer must insure his risk throughan authorized insurer or, in case he refuses to elect, he must place anacceptable security, indemnity, or bond with the Board.6 This shows aclear intent on the part of the legislature that the employees must atall times be adequately secured so that the employer's obligation andduty under the law will be satisfied. In this case, the employer was notinsured so far as the deceased was concerned nor had he posted ade-quate bond, so far as the facts indicate, to cover his liability to this.particular employee. Technically, he was in violation of the act. Ifthe employer is judgment proof the employee would be deprived ofthe protection intended by the legislature.4 Skuey v. Bjerkan, 173 Mium. 354, 217 N.W. 358 (1928); Fidelity &Casualty Co. v. Hill Const. Co., 11 N.J. Mis. R. 58, 164 Aft. 16 (D.C. N.J.1938); Werner v. Industrial Commission, 212 Wis. 76, 248 N.W. 793 (1938).5 Fidelity & Casualty Co. v. Hill Const. Co., 11 N.J. Mis. R. 58, 164 AtI. 16,19 (D.C. N.J. 1933).6Ky. Rev. Stat. sees. 342.016, .340 (1959). See also, K.R.S., sees. 342.345,355 (1959).1959]KENTucKy LAw JouRNALThis points up the major problem involved in giving the statute a"partial coverage" interpretation. Such a construction leaves a "no-man's land" in determining whether the employer's liability under theact is secured, as required by the legislature, either by insurance orposting of adequate bond. Employees could never be quite surewhether they were protected and employers would likewise be indoubt whether common-law liability and even penalties might attachif the court finds that the policy does not cover the employer'sliability in a particular case. This situation will result in employees insome employment activities being uninsured without the employer'sknowledge contrary to the intendment of the act. Many instanceswould arise where it would be impossible for the injured employeeor his dependents to recover the compensation which the spirit of thelaw plainly intends should be secured. Also there would be endlesscontroversey over the question of whether the provisions of the policycovered the injury in question.The insurer voluntarily enters into the contract to assume the riskof the employer under the act, and since he is to be paid a justpremium for the risks it does not seem unreasonable to require thatthe insurer be held for the employer's liability under the act. Theburden of ascertaining just what risks are involved should be placedon the insurer. If it later turns out that certain employees in theassured's business are in higher risk classifications, proper adjustmentsin premiums could be made, the burden being on the insurer to as-certain what risks he is carrying. In the present case, the court notedthat the premiums for taxi drivers are higher than garage employeesgenerally, but it should not follow that the insurer cannot be heldliable if his premiums to date have not taken into consideration therisk classifications of particular employees.The practical criticism of such an approach is that some employersmay have diverse and far-flung businesses making it very difficult forinsurers to ascertain the various risks. The New York statute providesthat the policy shall cover all employees employed at or in connectionwith the business of the employer carried on, maintained or operatedat the location set forth in the contract.7 This statute meets thecriticism by restricting "full coverage" to those employees operating atthe locations named in the policy. Other states have by decision ap-proved allowing the insurer to limit his liability to those employeesoperating at named locations in the policy." If such were the rule in7 N.Y. Workmen's Compensation Law sec. 54 (1952).8 American Mut. Liability Ins. Co. of Boston v. Tuscaloosa Veneer Co., 237Ala. 187, 186 So. 133 (1939); Miller Bros. Const. Co. v. Maryland Casualty Co.,113 Conn. 504, 155 Ad. 709 (1931).[Vol. 47,RECENT CASESKentucky, the insurer would have been liable in the present case sincethe deceased would have fallen within that class of employees workingat the location of business named in the contract.In the light of the policy considerations just discussed, it appearsthat the true spirit of the act demands that the entire liability of theemployer under the act be insured so that his obligations under theact will at all times be met. The language of the act clearly justifiessuch a construction. However, since the present case has affirmed theprevious holdings of the court on this matter, the chance for re-examination and reversal appears slim. In such case, the General As-sembly may find it wise to amend this section of the act by providingthat insurance policies covering liability under the act shall be deemedto cover all employees of all businesses of the insured employer.9 Oran alternate approach would be to follow the New York statute, whichprovides that the policy shall cover all employees employed at or inconnection with the business of the employer carried on, maintainedor operated at the locations set forth in the policy.H. Wendell Cherry9 Mich. Comp. Laws sec. 414.1 (1956).1959]

Workmen\u27s Compensation--Insurance-- Full Coverage

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Workmen\u27s Compensation--Insurance-- Full Coverage

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