Okla. High Court Says Primary Employer Responsible for Comp Coverage

The Supreme Court of Oklahoma on April 15, 2008, upheld a finding by a previous three-judge panel that an employer is liable for an injury sustained by an employee of the company’s subcontractor because the principal employer had failed to verify proof of the subcontractor’s workers’ compensation coverage. The Court clarified that its opinion was subject to revision or withdrawal until published in the permanent law reports.

The Court issued the decision in Millard Smalygo, Jr., d/b/a Smalygo Homes v. David T. Green and The Workers’ Compensation Court, Case Number: 102950.

In the opinion written by Justice Colbert, the Court said at issue was whether competent evidence was presented to support the Workers’ Compensation Court panel’s conclusion “that a principal employer’s reliance on proof of workers’ compensation insurance did not meet the statutorily imposed standard of ‘good faith’ necessary to exempt the principal employer from secondary liability in workers’ compensation. This Court finds that there is competent evidence in the record to support that determination.”

Construction worker David Green was injured on Oct. 10, 2002, while working for Mark Murphy d/b/a Mark Murphy Construction, an independent contractor and subcontractor of the principal employer Millard Smalygo d/b/a Smalygo Homes. After finding that Murphy Construction had no workers’ comp coverage, Green added Smalygo to his claim.

Murphy had given Smalygo written proof of valid workers’ comp coverage at the time he was contracted by Smalygo, but neither party retained the original or a copy. A document from Compsource Oklahoma presented to the court showed that Murphy’s coverage expired April 1, 2002, six months before the injury date. The Court said Murphy’s failure to pay his premium was the apparent reason for lapse of coverage and that “Murphy admitted that he did not notify Smalygo of the termination of insurance coverage.”

“Smalygo testified that coverage was in effect when he was presented with proof of insurance at the time he contracted with Murphy sometime between March and August of 2002. There-fore, for coverage to have been in effect during that time, the testimony indicates that the policy term stated on the proof of insurance shown to Smalygo was for one year with an expiration date of August 13, 2002,” the Court explained.

Smalygo had argued in lower courts “that he was insulated from secondary liability based upon his compliance with section 11(B)(2) which provides that ‘if a principal employer relies in good faith on proof of a valid workers’ compensation insurance policy issued to an independent contractor of the employer or to a subcontractor of the independent contractor … then the principal employer shall not be liable for injuries of any employees of the independent contractor or subcontractor.'”

The three-judge panel later found that while Green was Murphy’s employer, Smalygo was secondarily liable for the claim, and an appeals court up-held the decision.

In sustaining the panel and appeals court rulings, the high court wrote: “The exercise of reasonable diligence would have, at a minimum, required Smalygo to obtain a current certificate of insurance from Murphy’s insurer to demonstrate proof of current coverage. Good faith is not demonstrated when a principal employer accepts proof of his subcontractor’s workers’ compensation coverage but remains indifferent to the stated expiration date of that coverage.”