Essentials: The Selective Tender Rule Rejected in the Workers’ Compensation Context

In the liability insurance context, the issue of allocating defense costs and indemnity payments arises between insurers on a regular basis. In the insurance context, equitable contribution permits the allocation of costs and indemnity where there is more than one potentially responsible insurance company.

The doctrine of equitable contribution applies if an insurer undertakes a common obligation of another insurer and the doctrine presupposes the existence of two or more contracts of insurance that render the respective insurers equally liable for the discharge for a common obligation. See Steven Plitt & Jordan R. Plitt, Practical Tools for Handling Insurance Cases, (Thomson Reuters 2011).

Equitable contribution permits reimbursement to the insurer that paid on the loss for the excess it paid over its proportionate share of the obligation so as to accomplish substantial justice by equalizing the common burden shared by coinsurers and to prevent one insurer from profiting at the expense of others. The doctrine of equitable subrogation applies only in those situations where coinsurers cover the same insured for the same particular risk at the same level of coverage.

Equitable contribution is not allowed in the minority of jurisdictions which have adopted the targeted tender doctrine. The states of Illinois and Washington have generally adopted the targeted tender doctrine. See, e.g., John Burns Const. Co. v. Indemnity Ins. Co., (2000) (holding that the insured “had the right to choose which insurer would be required to defend and indemnify” and refusing to give effect to the “other insurance” clauses in the insurance contracts); Mutual of Enumclaw Ins. Co. v. U.S.F. Ins. Co., (2008) (finding that because an insured “chose not to tender to” one insurer, that insurer “had no legal obligation to defend or indemnify” the insured).

However, a majority of courts have rejected the targeted tender doctrine. See, e.g., American States Ins. Co. v. National Fire Ins. Co. of Hartford. In this case, the court found the right to equitable contribution existed independently of the rights of the insured and was applicable.

The targeted tender doctrine has never been applied in the context of workers’ compensation. Even in the states of Illinois and Washington which have adopted the targeted tender doctrine generally, neither state has applied the doctrine to its workers’ comp insurance.

Tender Doctrine and Workers’ Comp

The question of whether the targeted tender doctrine should be applied in the workers’ compensation context was recently addressed by the Utah Supreme Court in Workers’ Compensation Fund v. Utah Business Ins. Co. (Utah 2013).

In this case, Utah’s Workers’ Compensation Fund (WCF) brought a contribution action against a private workers’ compensation insurer, asserting that the private insurer was solely or jointly liable for benefits paid by the WCF in connection with a catastrophic injury that occurred while both the WCF policy and a separate private insurance policy were in effect. The private insurance company, Utah Business Insurance Co. (Utah Business) argued that contribution was not appropriate because the injured worker tendered the workers’ comp claim to the WCF and that under the targeted tender doctrine, Utah Business could not be responsible for equitable contribution. The Utah Supreme Court held that the targeted tender doctrine was inconsistent with Utah’s workers’ compensation law.

The court in Workers’ Compensation Fund began its analysis by recognizing that workers’ compensation in Utah was a matter of “clear and substantial public policy” and was of “overarching importance to the public,” citing Touchard v. La-Z-Boy Inc. (2006).

Under Utah’s statutory scheme, an insurer becomes liable on a claim as soon as the employee informs the employer of the accident for which the claim is being made. In that regard, the Utah court found that an insurer is liable for accidents occurring during the coverage period whether or not the employer formally tenders a claim to the insurer.

Describing Utah’s workers’ comp statutes, the court observed that the central purpose of the workers’ comp statutes was to ensure that employees were covered in the event of an accident.

To accomplish that goal, the statutes created a highly regulated workers’ compensation scheme with bright-line rules:

The targeted tender doctrine is premised on the right of the insured to choose whether and to whom to tender a claim.

Under Utah’s workers’ compensation regime, no such right existed. Under the workers’ compensation scheme, all insurers on record with the Division were automatically liable for claims reported to employers.

Therefore, the workers’ compensation regime foreclosed the adoption of a targeted tender doctrine in the context of workers’ compensation.

The Utah Supreme Court concluded that in cases involving dual workers’ compensation coverage, the only equitable and fair way to apportion the loss is to divide it equally.

“Where multiple [workers’ compensation] insurance carriers insure the same insured and cover the same risk, each insurer has independent standing to assert a cause of action against its coinsurers for equitable contribution when it has undertaken the defense or indemnification of the common insured,” citing American States Ins. Co. v. National Fire Ins. Co. of Hartford (2011).