When the Insurance Company Lies: Collateral Estoppel and SC Workers’ Compensation Law

When the insurance company lies and denies workers’ compensation coverage, sometimes the legal doctrine of collateral estoppel can be used to “keep them honest” and force them to pay.

When an insurance company says to a business, “You have coverage,” and the business relies on that statement to its detriment, the insurance company is “collaterally estopped” from later claiming the business does not have coverage.

Below, we will take a look at Felder v. Central Masonry, including:

• Why a company might reasonably believe they have workers’ compensation coverage when the insurance company says they do not,
• The law of collateral estoppel and how it applies to false representations made by an insurance company, and
• A brief look at the law of agency.

When the Insurance Company Lies

Insurance companies and the insurance industry have spent incalculable amounts of money and resources to get the public to trust them.

♫ “Like a good neighbor….” ♪♬

If you “heard” that tune in your head, you know what I’m talking about…

An insurance company is not “like a good neighbor,” and you are probably not “in good hands” if you trust your insurance company to do the right thing.

Insurance companies, whether they are selling workers’ compensation or auto insurance, are in business to make profits, not to take care of you. They make profits by 1) taking in premiums (and investing them) and 2) paying out the least amount possible.

Felder v. Central Masonry

For example, in Felder v. Central Masonry, Central called their insurance broker and requested that South Carolina coverage be added to their workers’ compensation coverage (which only included Georgia and North Carolina at the time).

The broker submitted the request for the insurance company (AmGuard) to add the SC coverage and issued a certificate for proof of coverage to Central.

Two weeks later, Amguard called the broker and 1) confirmed that SC coverage would be added to Central’s policy, 2) requested additional information, and 3) made several confusing statements including their belief that Central did not need coverage in SC and a statement that AmGuard would add a “waiver” to Central’s policy because an “excluded officer” would be overseeing the work on the SC jobs.

Although the insurance company’s statements were confusing even to the courts, it was clear that 1) Central was given a certificate of coverage and 2) AmGuard told the broker that they were adding something to Central’s policy.

When Mr. Felder, a Central employee, broke his wrist while working on a job site in South Carolina, AmGuard said that Central did not have coverage for South Carolina, despite AmGuard’s statement to the broker that they were adding SC to the policy and the certificate of coverage that was issued to Central.

AmGuard said that SC was never added to the policy because Central had told the broker, and the broker had told AmGuard, that there was no SC payroll on the jobs. The court found that this was not true – Central told the broker, and the broker told AmGuard, that there would be $10,000 of expected payroll in South Carolina.

So – Central believed there was coverage, and Central had a certificate of coverage. The broker apparently believed there was coverage, or something had been added to the policy that would protect the company in South Carolina. The insurance company later attempted to explain its denial of coverage with a demonstrably false statement.

Based on either a blatant misrepresentation (a lie) or an incredible misunderstanding, AmGuard 1) did not add SC coverage to the policy and then 2) refused to correct their mistake.

Collateral Estoppel and Workers’ Compensation Law

When an insurance company makes misleading representations about coverage (a very polite way to describe lies or extreme incompetence) and another party relies on those representations to their detriment, the court may find that the insurance company is “estopped” from denying coverage.

The elements of estoppel include:

• Ignorance of the truth by the party claiming estoppel,
• Misleading representations or conduct by the party to be estopped,
• Reliance by the party claiming estoppel, and
• A prejudicial change in position as the result of reliance.

See, Pitts v. New York Life Ins. Co., 247 S.C. 545, 552, 148 S.E.2d 369, 371 (1966). Estoppel applies when “an insurer has misled the insured into believing a particular risk is within an insurance policy’s coverage.” Standard Fire Co. v. Marine Contracting & Towing Co., 301 S.C. 418, 421, 392 S.E.2d 460, 462 (1990).

The Court of Appeals found that there was coverage in this case because AmGuard told the broker that they were going to change Central’s policy to cover their operations in South Carolina, Amguard did not make changes to Central’s policy, Central was unaware of the misrepresentation, Central relied on the misrepresentation by not acquiring coverage from another source, and, when an employee broke his wrist and filed a workers’ compensation claim, AmGuard denied coverage and refused to pay.

Agency Law

In some cases, the law of agency would prevent a finding that there was coverage. For example, the insurance company in Felder v. Central Masonry argued that the broker did not have the authority to issue the certificate of coverage because the broker was not AmGuard’s agent, and the broker did not have the authority to bind AmGuard with the broker’s statements.

However, the problem with AmGuard’s argument is that AmGuard made the statement to the broker that they would add SC coverage to Central’s policy – the broker did not simply make the statement on behalf of AmGuard.

Got Axelrod?

Your Myrtle Beach worker’s compensation lawyer on the Axelrod team will help you to file your claim, represent you before the workers’ compensation commission for any hearings and appeals, and litigate legal issues when the insurance company attempts to deny your valid claim.

Call now at 843-353-3449 or message us online to speak with a SC worker’s compensation lawyer today.