Kansas General Contractor Found Liable for Benefits Owed to Uninsured Subcontractor’s Injured Worker

In a complex case that saw the Court opine on the distinction between “judicial dictum” and “obiter dictum,” the Kansas Supreme Court held that a general contractor could be liable to the state’s Workers’ Compensation Fund as an “employer,” pursuant to K.S.A. 2020 Supp. 44-532a, where an ALJ made a finding that the injured worker’s direct employer was insolvent or uninsured, but where no such finding was made as to the general contractor [Schmidt v. Trademark, Inc., 2022 Kan. LEXIS 32 (Mar. 18, 2022)]. The court affirmed the decision of a panel of the state Court of Appeals. Although the Court did not speak to the issue, those following the case should recognize that the general contractor could have protected itself—at least to a large degree—by requiring its subcontractor to present a valid certificate of insurance covering its employees.

Background

Medina suffered a work-related injury and sought workers’ compensation benefits from Ballin, his direct employer under the Kansas Workers’ Compensation Act. Because Ballin carried no workers’ compensation insurance, Medina impleaded the Kansas Workers Compensation Fund to obtain benefits. After an ALJ awarded compensation to Medina and the Fund had paid Medina benefits, the Fund sued Trademark, Inc., the general contractor for whom Ballin was acting as a subcontractor at the time of Medina’s injury, pursuant to K.S.A. 2020 Supp. 44-532a, contending it was an “employer” liable under the statute.

After the district court granted summary judgment to the Fund, Trademark appealed. The Fund also cross-appealed the district court’s denial of attorney fees. A panel of the Kansas Court of Appeals first heard the appeal. The panel phrased the core question of Trademark’s appeal this way: “Can the Fund only sue the employers mentioned in K.S.A. 2020 Supp. 44-532a(a)—that is, only the uninsured, insolvent, or vanished employers?” The panel said, “No,” and affirmed the district court, holding that the Fund could pursue an action against Trademark but that it could not recover attorney fees under K.S.A. 2020 Supp. 44-532a [see Schmidt v. Trademark, Inc., 60 Kan. App. 2d 206, 493 P.3d 958 (2021)]. Trademark petitioned for review and the Supreme Court granted such review.

Trademark’s Arguments on Appeal

The Supreme Court noted that Trademark had essentially two arguments:

1. That the plain language of K.S.A. 2020 Supp. 44-532a did not grant the Fund a cause of action against principals for the recovery of workers’ compensation benefits paid for the employees of subcontractors when the principals were not a party to the underlying workers’ compensation action.
2. That even if K.S.A. 2020 Supp. 44-532a was interpreted to allow such a recovery, Trademark itself could not be liable because the ALJ made no finding that Trademark was uninsured and insolvent.

According to Trademark, K.S.A. 2020 Supp. 44-532a(a) and (b), read together, granted the Fund a cause of action to recoup amounts paid only against the “employer” that either lacked adequate workers’ compensation insurance or was otherwise unable to pay benefits to an injured worker under the KWCA—in this case, Ballin.

Was Language in Earlier Case “Dicta?”

Trademark acknowledged that the Kansas Supreme Court previously reached the opposite conclusion in Workers Comp. Fund v. Silicone Distrib., Inc., 248 Kan. 551, 809 P.2d 1199 (1991) (Silicone), but Trademark also asserted that this was dicta and should be disregarded based on the plain language of K.S.A. 44-503 and K.S.A. 2020 Supp. 44-532a.

The Supreme Court stressed that when it looked to the definition of “employer,” as defined elsewhere in the KWCA and in caselaw, it was apparent that “employer” might refer to more than one entity when viewed within the context of a contractor/subcontractor relationship [emphasis added].

Ambiguity for Present Case

The Court found the term “employer” in K.S.A. 2020 Supp. 44-532a was ambiguous as applied to the facts of the present case. To ascertain the Legislature’s meaning, the court was required to apply its canons of construction to assess whether “employer” in K.S.A. 2020 Supp. 44-532a(a) necessarily carried the same meaning as in subsection (b), as Trademark had argued.

Was Silicone Statement Dicta?

The Court noted that the Silicone court had also “questioned” the argument that “employer” in K.S.A. 2020 Supp. 44-532a(a) and (b) must refer to the same entity. There, an injured worker attempted to obtain workers’ compensation benefits from her immediate employer, a subcontractor, but also named the subcontractor’s principal and—believing the subcontractor to be insolvent or uninsured—impleaded the Fund. The principal was later dismissed “on the grounds that a claimant may not proceed against both the claimant’s immediate employer and the claimant’s statutory employer. Later, an ALJ found that attempts to recover benefits from the subcontractor were unsuccessful; it had no insurance. The ALJ dismissed the Fund and indicated that the worker should pursue the principal under K.S.A. 44-503.

On review, the Director concluded the Fund was liable for the benefits to the worker under K.S.A. 44-532a. 248 Kan. at 554. The district court affirmed the Director’s order following a petition for judicial review, concluding that an injured worker was not required to pursue a claim against a principal as a prerequisite to the Fund’s liability under K.S.A. 44-532a.

Before the Kansas Supreme Court, the Court emphasized that “principal” could be substituted for “employer” in K.S.A. 44-532a by virtue of K.S.A. 44-503(a). But the court disagreed with the Fund’s then-stated position—which mirrored Trademark’s current argument—that the term “employer” referred to the same entity in both subsection (a) and (b) of K.S.A. 44-532a when multiple potential employers were involved. The Silicone court reasoned that if the Fund was liable as a result of an immediate employer’s failure to pay, it could assert a cause of action against the principal in a separate action under K.S.A. 44-532a(b). The Supreme Court in the instant decision said that the Silicone Court even emphasized the point in its Silicone syllabus [see 248 Kan. at 551, Syl. ¶ 3].

Back to the instant case, Trademark suggested that Silicones commentary was dicta and should be disregarded on the basis of more recent caselaw that placed greater focus on the plain language of the KWCA. After a discussion about the differences between judicial dictum and obiter dictum, noting that the former was entitled to greater weight than the latter, and should not be lightly disregarded, the Court chose to affirm Silicone’s dicta.

The Court found that “employer” in K.S.A. 44-532a(a) need not necessarily refer to the same “employer” in K.S.A. 44-532a(b) when multiple potential employers—specifically, a principal and a subcontractor, as set out in K.S.A. 44-503(a)—are involved. Thus, the fact that the ALJ made no finding that Trademark was insolvent or uninsured under K.S.A. 2016 Supp. 44-532a(a) was immaterial to the Fund’s ability to seek recompense from Trademark under K.S.A. 2016 Supp. 44-532a(b), so long as the ALJ made those findings as to Ballin, Trademark’s subcontractor—which it did. In other words, when the district court applied K.S.A. 2016 Supp. 44-532a(a) as to Ballin, it did not err in applying K.S.A. 2016 Supp. 44-532a(b) to Trademark. Accordingly, the Court affirmed both the district court and the Court of Appeals panel on this issue.

It also affirmed the district court and Court of Appeals panel on the attorney fees issue.