FONSECA v. PACIFIC CONSTRUCTION CO., LTD.

LEVINSON, Justice.

This case involves a dispute over the immunity of third parties to common law tort actions under our workmen's compensation scheme.

The facts are simple: The plaintiffs-appellants are the dependents, widow, parents and estate of John Fonseca, Jr. Fonseca was an employee of Sperry Construction Co., Inc., a subcontractor of either or both Pacific Construction Co., Ltd., and The Hawaii Corporation, hereafter referred to as the general contractors or Pacific-Hawaii. The complaint alleged that Fonseca died on February 17, 1970 in the course and scope of his employment, and that his death was the result of the negligence of the general contractors which were named as defendants and which, together with Sperry, the third party defendant, are appellees. The general contractors moved under H.R.C.P., 12(b)(6) to dismiss on the ground that they were immune under various provisions of our workmen's compensation statute, HRS Chapter 386. Prior to the hearing on the motion, the parties stipulated that Pacific-Hawaii had never listed Fonseca as an employee or paid workmen's compensation premiums for his benefit; that no workmen's compensation claim was ever made against Pacific-Hawaii; and that Sperry's insurance carrier was paying workmen's compensation benefits to the widow and children of John Fonseca, Jr. After a hearing, the judge below ordered the complaint dismissed. We reverse.

The issue before us on appeal is whether our workmen's compensation system removes all common law rights of action on the part of a worker who has received a compensable injury against a third person other than his direct employer whose misconduct has caused such injury. More specifically, in the present case, the question is whether claims under the survival and wrongful death statutes are barred under HRS Ch. 386.

The most pertinent statutory language, part of HRS § 386-1, reads as follows:

Also relevant is § 386-5:

Pacific-Hawaii takes the position that § 386-1 statutorily defines general contractors (also known as independent contractors in workmen's compensation jargon) as employers for purposes of the workmen's compensation system; that because of § 386-5, the exclusivity section, remedies for work-related injuries are limited to those specified under the system; and that general contractors are therefore immune to common law tort actions by employees of their subcontractors or by the dependents, relatives or estates of such employees brought under the survival and wrongful death statutes.

The appellants, of course, read the statute quite differently. They argue that the second sentence in the above-quoted section of 386-1 is decisive in that it distinguishes between primary and secondary liability, with the former burden on the direct employer of the injured workman. The appellants urge, as a consequence, that general contractors are to be regarded as statutory employers only when actually required to provide workmen's compensation benefits.

Our determination of the legislature's meaning in making the primary-secondary distinction is obviously essential to the disposition of this case. Unfortunately, neither legislative history nor other supplemental sources offer interpretive aid.1 We are therefore compelled to analyze this distinction within the context of the workmen's compensation scheme as a whole to determine the intent of the legislature.

The appellants argue that the underlying purpose of providing for the contingent liability of general contractors was to protect the special compensation fund feature of the workmen's compensation system, rather than to enable a general contractor to escape third-party liability for its own negligence. We agree. This special compensation fund, as provided in HRS § 386-56 and §§ 386-151 through 155 (Supp. 1972), is financed by assessment of insurance carriers and self-insured employers and pays benefits in the event of default by an employer or an employer's insurance carrier. Employees and their dependents are thereby assured of compensation regardless of insurance, so § 386-1 cannot be for their benefit.

We do not agree with the argument of the appellees, which is (1) that the legislative intent in enacting § 386-1 was to immunize general contractors from third-party liability by making them statutory employers of their subcontractors' employees in all situations, and (2) that the section is therefore only tangentially related to the special compensation fund. While the first sentence of the section initially appears to confer blanket immunity on general contractors, further consideration leads us to the conclusion that the primary-secondary distinction contained in the second sentence of the section indicates that the legislature was not concerned with third-party tort liability, but rather with making each general contractor the guarantor of compensation for the employees of its subcontractors. Inserting general contractors between defaulting subcontractors and the special compensation fund effectively prevents unscrupulous subcontractors from using all self-insured employers and carriers to pay their workmen's compensation premiums, because prior to the enactment of § 386-1, the latter two groups were required to replenish the depleted fund. Thus, as we interpret this section, its second sentence, by providing for secondary liability on the part of general contractors, confers the statutory employer status referred to in the first sentence only at those times when this contingent liability becomes actual.

Our view that the legislative intent of § 386-1 was to protect the fund rather than grant third-party immunity is reinforced by the fact that its definition of general contractors as employers provides for none of the incidents of the employer-employee relationship; this relationship lies at the heart of the theory of workmen's compensation. In Evanson v. University of Hawaii, 52 Haw. 595, 598, 483 P.2d 187, 190 (1971), we said:

Once the employer and employee are deemed to be within the confines of the workmen's compensation system, the exact nature of the work relationship, particularly with regard to control over the work being performed, is unimportant insofar as the payment of benefits is concerned; the system is truly no-fault in this sense, since the employee collects benefits owed to him under any circumstances. The employer-employee relationship does, however, bear heavily upon whether the respective rights and responsibilities which workmen's compensation imposes are to be assumed by participation in the first instance.

On the facts presented by this case, the necessary work relationship for third-party immunity is absent or, put another way, there is no quid pro quo. Under the statute as we have construed it, the relationship comes into existence only when a subcontractor fails to provide benefits. The appellees neither listed Fonseca as an employee nor paid insurance premiums for his benefit. Moreover, they apparently kept no records of injuries received by Fonseca, as HRS § 386-95 requires of all employers.

In short, Fonseca's compensation rights as an employee of a subcontractor in no way depended upon the labeling of the general contractor as his employer. Therefore the appellees, having given nothing, cannot expect complete immunity. The policy considerations involved have been well summarized by Professor Allan H. McCoid in his comprehensive article, The Third Person in the Compensation Picture: A Study of the Liabilities and Rights of Non-Employers, 37 Texas L.Rev. 389, 445 (1959):

There is no evidence that the legislature ever intended to make workmen's compensation benefits representative of full monetary recovery in the absence of essential prerequisites for coverage. Likewise, the maxim that statutes abrogating common law rights must be strictly construed continues to be applicable. Cf., Whitlow v. Jennings, 40 Haw. 523, 527 (1954). We therefore conclude that, under workmen's compensation statute, third-party general contractors are not immune to common law negligence actions on the part of employees of their subcontractors, absent the incidents of a true employer-employee relationship.

Other jurisdictions with statutory schemes similar to our own, in which the general contractor's liability is contingent upon the subcontractor's failure to pay benefits to its employee, have likewise held that there is no third-party immunity in tort when no actual workmen's compensation liability has been imposed. In his treatise on the subject, Professor Larson states that these jurisdictions have been a "comfortable majority". 2 Larson, The Law of Workmen's Compensation § 72.31, at 190.2 See such leading cases as Probst v. Southern Stevedoring Co., 379 F.2d 763 (5th Cir.1967); Thomas v. Farnsworth Chambers Co., 286 F.2d 270 (10th Cir.1960); Anderson v. Sanderson & Porter, 146 F.2d 58 (8th Cir.1945); Clark v. Monarch Engineering Co., 248 N.Y. 107, 161 N.E. 436 (1928).

Of particular relevance is the recent decision in Colon Nunez v. Horn-Linie, 423 F.2d 952 (1st Cir.1970). That case, involving the workmen's compensation law of Puerto Rico, was decided on considerations substantially identical to those presented in the case before us. In holding that third-party general contractors are not immune as employers, the court relied upon contingent liability and the absence of other incidents of an employer-employee relationship, including the failure of quid pro quo obligations.

While our analysis leads to the conclusion that some common law liability on the part of negligent third parties may properly be retained alongside workmen's compensation liability, it does not follow that every person other than the immediate employer should be subject to tort actions. Each liability question will always turn on both statutory language and the nexus between the third party and the activities of the individual employee.

Reversed.

BENJAMIN MENOR, Circuit Judge, sat in place of KOBAYASHI, J., disqualified.

MARUMOTO, Justice (dissenting).

I dissent. In issue here is the effect of the provision of HRS § 386-1, quoted below, on the right of an employee of a subcontractor, who has suffered work injury caused by general contractor's negligence, to recover damages for the injury from the general contractor in a tort action.

The provision in question reads as follows:

That provision is a part of the definition of "employee" in a comprehensive revision of the workmen's compensation law of this State, embodied in Senate Bill No. 853, Senate Draft 5, of the Second State Legislature, and enacted into law as S.L.H. 1963, c. 116, by that legislature at its regular session of 1963. Senate Bill No. 853, as originally drafted and submitted to the legislature contained the recommendations of Professor Stefan Riesenfeld of the University of California Law School.

The literal meaning of the provision in question is clear. It is as follows:

Thus, under the clear language of the provision in question, an employee of a subcontractor, in addition to being such, is an employee of the general contractor under whom the subcontractor has his subcontract, although such employee has no contractual relationship with the general contractor as his employee. In the parlance of workmen's compensation law, in that situation, the general contractor and the subcontractor's employee are statutory employer and statutory employee in their relationship with each other.

A relationship of statutory employer and statutory employee, in which persons who have no contractual relationship as employer and employee are nevertheless treated as employer and employee, is a well-established concept in workmen's compensation law.

Under the second sentence of the provision in question, the liability of the direct employer to his injured employee is primary and the liability of a statutory employer to the direct employer's injured employee is secondary. That merely establishes a priority, as between the direct employer and a statutory employer, in discharging the employer's liability to the injured employee. It does not affect the right which the injured employee has against the employer, which is the same against a statutory employer as against the direct employer.

HRS § 386-5 limits the remedy of an employee against his employer for work injury to the relief provided in the workmen's compensation law. A statutory employee, being an employee of a statutory employer under the provision in question, is subject to that limitation in obtaining relief for work injury from the statutory employer.

Consequently, the issue in this case should be decided against the injured employee.

In resolving the issue here, the function of this court is to give effect to the legislative intent in enacting the provision in question. Any view which this court may have regarding the desirability of a particular result as a matter of social policy is immaterial to the decision.

The legislative intent with regard to the provision in question is manifested in the plain and unambiguous language of the provision. If there should be any doubt despite such manifestation of intent, a review of the actions taken by the legislature which resulted in the incorporation of the provision in question in Senate Bill No. 853, Senate Draft 5, and its enactment in S.L.H. 1963, c. 116, should dispel such doubt.

I think that the reasoning in the opinion of the court in this case is an unwarranted exercise in judicial legislation. This court may judicially legislate, but it may do so only interstitially to fill some gap in the statutory language. Hayes v. Gill, 52 Haw. 251, 254, 473 P.2d 872, 875 (1970). Here, there is no gap to be filled in the statutory language.

The draft of Senate Bill No. 853, as originally presented to the legislature, did not contain the provision in question. The provision in the original draft read as follows:

That provision was intended as a substitute for the pre-existing statutory employer provision, which was enacted in S.L.H. 1915, c. 221, § 60, compiled in RLH 1955, § 97-1, and reading:

In ascertaining the intent of the legislature with regard to the present provision from a review of the legislative history relating thereto, it is pertinent that the legislature had before it the recommendation of Professor Riesenfeld that the pre-existing provision "be qualified so as to place either the exclusive or the primary liability on the direct employer, if he has taken out compensation insurance and the wages of the employee figure in the premium base," and his statement regarding the difference in legal consequences between making the direct employer exclusively liable and making him primarily liable.

Professor Riesenfeld's statement regarding the difference in legal consequences which would follow from making the direct employer exclusively liable and making him primarily liable was as follows:

The word "owner," as used in the foregoing statement referred to a person who came within the category mentioned in the pre-existing provision as "the owner or lessee of premises, or other person who is virtually the proprietor, or operator of the business there carried on, but who, by reason of there being an independent contractor, or for any other reason, is not the direct employer of the workmen there employed."3

The pre-existing provision simply defined an employer, and included the owner within the definition as an employer, thereby making the owner a statutory employer, but did not establish an order of liability, as primary and secondary, between a direct employer and a statutory employer.

The draft provision differed fom the pre-existing provision in that it was a part of the definition of employee, instead of being a definition of employer, and in containing the clause: "unless the direct employer has secured compensation to them as provided in section 97-120."

The placement of the provision as a part of the definition of employee, rather than as a definition of employer, made no significant difference.

However, the quoted clause effected a material change. It imposed exclusive liability upon an insured direct employer. The imposition of exclusive liability upon an insured direct employer had the effect of denying the status of statutory employer to an owner, and rendering HRS § 386-5 inapplicable to him, in his relationship with the employees of such direct employer.

The clause did not affect the status of an owner as a statutory employer of the employees of an uninsured direct employer.

Thus, under the draft provision, an owner would have been a statutory employer only in his relationship to the employees of an uninsured direct employer.

If the legislature intended to eliminate an owner as a statutory employer of the employees of an insured direct employer, it is reasonable to assume that the legislature would have enacted the draft provision into law. That is so particularly in view of the fact that it had the statement of Professor Riesenfeld that "if it desired to give the victim in cases of negligence an action at law * * * against the owner * * *, the direct employer must be exclusively liable."

The legislature did not enact the draft provision into law. The Senate originally passed Senate Bill No. 853 with the draft provision intact. When the bill was transmitted to the House of Representatives, the House deleted the draft provision and inserted the present provision in its place. Upon the bill being returned to the Senate, the Senate agreed to the change made by the House, and incorporated the present provision in Senate Draft 5 of the bill, which was eventually enacted into law.

The present provision differs from the draft provision, first, in according the status of statutory employer to a person who comes within a category consisting of an independent contractor under whom a direct employer has a subcontract and other independent contractors up the line, without regard to whether the direct employer is insured or uninsured, and, second, in making the liability of the direct employer primary and the liability of a statutory employer secondary.

The conclusion to be drawn from the first difference is that, in enacting the present provision, the legislature intended to accord the status of statutory employer to persons within the category of independent contractors described above, without regard to the insured status of the direct employer, and to deny that status only to owners who are not within the mentioned category of independent contractors, even in a situation in which the direct employer is uninsured.

With regard to the second difference, there can be no question that the legislature made the change with full awareness of the legal implication of such change, as set forth in Professor Riesenfeld's statement.

The decision of the court in this case is based on the reasoning that the object of the present provision is to protect the special compensation fund mentioned in HRS § 386-56 and §§ 386-151 through 155, and not with granting third-party immunity to independent contractors other than the direct employer. I see nothing in the language of the present provision, its legislative history, or other provisions of the workmen's compensation law to support that reasoning.