Fonseca v. Pacific Construction Co., Ltd. , 54 Haw. 578 ( 1973 )

OPINION OF THE COURT BY

LEVINSON, J.

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:

Whenever an independent contractor undertakes to perform work for another person pursuant to contract, express or implied, oral or written, the independent contractor shall be deemed the employer of all employees performing work in the execution of the contract, including employees of his subcontractors and their subcontractors. However, the liability of the direct employer of an employee who suffers a work injury shall be primary and that of the others secondary in their order. An employer secondarily liable who satisfies a liability under this chapter shall be entitled to indemnity against loss from the employer primarily liable.

Also relevant is § 386-5:

The rights and remedies herein granted to an employee or his dependents on account of a work injury suffered by him shall exclude all other liability of the employer to the employee, his legal representative, spouse, dependents, next of kin, or any one else entitled to recover damages from the employer, at common law or otherwise, on account of the injury.

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 thé 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:

Workmen’s compensation laws were enacted as a humanitarian measure, to create legal liability without relation to fault. Silva v. Kaiwihi Mill Co., 24 Haw. 324, 330 (1918). They represent a socially enforced bargain: the employee giving up his right to recover common law damages from the employer in exchange for the certainty of a statutory award for all work-connected injuries. Since liability is made dependent on a nexus to the job, the essential prerequisite for coverage under workmen’s compensation acts is the existence of an employer-employee relationship.

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) :

Retention of a cause of action in favor of the injured worker against the third party is supported by the following arguments: a basic premise of tort law is to give adequate protection to persons injured through the unreasonable conduct of others, although as has been pointed out before the use of objective standards of conduct has removed much of the “moral” aspect of liability based on fault. The compensation acts were not intended to and never have granted complete protection to injured workers, although they provide more protection than the common law in the form of certainty of compensation and payment of medical and hospital expenses independent of the existence of “fault.” The compensation acts refer primarily to the relations between an employer and his employees and should not be treated as destroying or affecting the rights or liabilities of other parties not within this relationship, so long as these rights and liabilities are not inconsistent with the principal objective of protection of the worker. The third person, not having contributed to the protection of the worker through payment of compensation or the provision of insurance coverage, will not share any of the burden of loss which his acts have caused unless some common law liability is permitted.

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).

Gene Bridges (Shim, Sigal, Ono & Huddy of counsel) for Plaintiffs-Appellants. James Kawashima (Kobayashi, Koshiba & Watanabe of counsel) for Defendants and Third-Party Plaintiffs- Appellees. Anthony Y. K. Kim (Conroy, Hamilton, Gibson, Nickelsen ir Rush) for Third-Party Defendant-Appellee.

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.

1 The House Standing Committee Report No. 889 on Senate Bill No. 853, 1963 House Journal at pp. 821-24, reveals that the House changes in the Senate version were ultimately enacted into law. It is, however, unrevealing as to legislative intent, merely repeating the statutory language itself.

The Report does state that the language of the bill is “based in large measure, though not exclusively, on the recodification . . . recommended by Dr. Stefan A. Riesenfeld, Professor of Law.” These recommendations can be found in the “Study of the Workmen’s Compensation Law in Hawaii", prepared by the Legislative Reference Bureau (Report No. 1: 1963).

Though urged by the appellants to adopt the view proposed in the Riesenfeld study, we decline to do so for two reasons. As we said in Twentieth Century Furniture v. Labor and Indus. Relations Appeal Bd., 52 Haw. 577, 580, 482 P.2d 151, 153 (1971) with regard to this same problem:

First, we think that studies made by non-members of the legislature are not the most persuasive evidence of legislative intent. Certainly studies do not have the probative value of committee reports or debates. Professor Riesenfeld was an expert on matters of workmen’s compensation, yet we cannot be sure that his ideas on the subject can be equated with the will of the legislature. Certainly, the legislature has the power to pick and choose from the ideas presented to it.

Second, § 386-1 as amended was apparently part of that which was not exclusively based on Riesenfeld’s recommendations, since its language differs considerably from the proposed recodification. Compare “Study”, supra, p. 121, with the statute as enacted.

2 While acknowledging that the majority of jurisdictions have declined to confer immunity on general contractors under such circumstances, Larson is critical of these results and argues that the trend is to the contrary. His view is that statutes purporting to grant third-party immunity to general contractors give them incentive to require subcontractors to insure because of the potential liability for compensation in the absence of insurance. He concludes, of course, that immunity should be conferred in view of this burden.

Larson's position has little, if any, relevance for Hawaii, since the inevitability of compensation benefits to employees, as pointed out above, does not hinge on the secondary liability of general contractors, but rather on the existence of the special compensation fund. The direct connection between the general contractor and the subcontractor’s employee simply does not exist, with the statutory purpose directed toward avoiding depletion of the fund instead of immunity. Therefore, the Hawaii Legislature cannot be said to have agreed with Larson's view that the burden of contingent liability justifies the grant of full third-party immunity.

Moreover, the trend of which Larson speaks has recently been directly contradicted by Colon Nunez v. Horn-Linie, 423 F.2d 952 (1st Cir. 1970) , discussed elsewhere in this opinion.