A commercial auto policy’s “employee” exclusion did not relieve an insurer of a duty to defend its insured when there was factual dispute as to whether the injured claimant was an “employee” or an “independent contractor” of the insured. ( Global Hawk Ins. Co. v. Le (2014) 2014 WL 1478514)
Facts
V&H Transport (V&H) operated a commercial trucking business. V&H hired Jerry Le and another individual, Quyen Cao, to haul goods on a single cross-country trip. V&H representatives allegedly told Le that V&H would pay Le a lump sum of $1,100 for the trip; that V&H would not withhold any taxes or social security from the amount it would pay Le; and that V&H would provide Le with “a 1099” at the end of the year.
During the cross-country trip, while Cao was driving the truck and Le was sleeping in the sleeper berth, the truck was involved in a single-vehicle accident. Le was ejected from the cab and suffered serious injuries.
After the accident, V&H representatives allegedly told Le that because he had not finished the trip, V&H would not pay him the $1,100. In addition, V&H representatives allegedly told Le that he was ” not an employee” and would ” not be entitled to worker’s compensation.”
Le subsequently filed a personal injury action against various defendants, including V&H. V&H tendered the defense of the personal injury action to V&H’s commercial auto insurer, Global Hawk Insurance Company (Global Hawk). Apparently, the Global Hawk policy did not contain the federally-mandated MCS-90 endorsement. Global Hawk denied V&H’s tender, asserting that Le was an “employee” of V&H, and that Le’s claim against V&H therefore fell within the “employee” exclusion in the Global Hawk commercial auto policy.
Later, Global Hawk filed a declaratory relief action against its named insured, V&H, and the injured party, Le. Global Hawk moved for summary judgment, asserting that the Federal Motor Carrier Safety Administration Act defines an “employee” as ” a driver of a commercial motor vehicle (including an independent contractor while personally operating a commercial vehicle ) .” Global Hawk thus argued that irrespective of whether Le was an “employee” or an “independent contractor” of V&H, Le’s claim against V&H was barred from coverage by the “employee” exclusion in the Global Hawk policy. The trial court agreed with Global Hawk and entered summary judgment in favor of Global Hawk. Le appealed.
Holding
The Court of Appeal reversed, concluding that there was a triable issue of fact as to whether Le was an “employee” or an “independent contractor” of V&H, and hence an issue as to whether the “employee” exclusion in the Global Hawk policy applied.
According to the appellate court, the issue of whether Le was an “employee” or an “independent contractor” should be governed by California common law and insurance principles , not federal laws governing the trucking industry . This is especially true because the federal laws broadly defined an “employee” to include an”independent contractor” in order to protect the public from trucking companies who try to avoid liability for accidents by claiming that their drivers are not “employees” but rather are “independent contractors.”
The appellate court then observed that under California law, “employee” and “independent contractor” are mutually exclusive categories, and that whether a person is an employee or independent contractor will often present a factual question. In determining whether a worker was an “employee” or an “independent contractor,” California courts consider numerous factors, including the method of payment and whether or not the parties believed they were creating the relationship of employer-employee.
Here, there was evidence that Le was to be paid a lump sum; that he was to be paid without any withholding for taxes; and that at the end of the year he would receive a 1099 tax form that is for independent contractors. Further, V&H representatives allegedly had told Le that he was “not an employee” and would “not be entitled to worker’s compensation.” According to the appellate court, this evidence indicated that Le was an “independent contractor,” not an “employee.” Thus, there was a triable issue of fact as to whether Global Hawk’s “employee” exclusion barred coverage for V&H’s alleged liability to Le in the underlying action.
Comment
Because the appellate court found that there was a factual dispute as to whether Le was an “employee” or an “independent contractor” of V&H, it presumably means that Global Hawk breached its duty to defend V&H in the underlying personal injury suit brought by Le. This is because if coverage depends on an unresolved factual dispute, the very existence of that factual dispute establishes a “possibility” of coverage and hence a duty to defend.