Workers' Compensation: What is a project owner?
Lovely v. Baker Hughes, Inc. (This case was decided in the Supreme Court of Alaska on March 20, 2020 and has been published in the Pacific Reporter at 459 P.3d 1162)
Navigating workers’ compensation claims can be a confusing and delicate process. Issues especially arise when the injured workers are seeking to file a lawsuit in tort in addition to their recovery under workers’ compensation. In Lovely v. Baker Hughes, the Alaska Supreme Court clarified the controlling statutes regarding liability in such cases. Specifically, the Court addresses AS § 23.30.055, exclusiveness of liability, and AS § 23.30.045(f), regarding how the legislature defines “contractor” and “project owner.” Five injured workers from UIC Construction (“UIC”) were the plaintiffs and appellants in this suit, and three corporations were brought in as defendants, Baker Hughes, Inc. (“Baker Hughes”), the parent corporation, and Baker Hughes Oilfield Operations Inc. (“Oilfield”) and Baker Petrolite Corporation (“Petrolite”) (collectively, the “Corporations”).
On May 8, 2014, several workers for UIC sought medical care after breathing fumes with a strong odor while constructing a new chemical transfer facility for Petrolite. The fumes and odor issued from a corrosion inhibitor, which was moved by a Petrolite employee to the area the five construction workers were working. The corrosion inhibitor fumes are considered hazardous when inhaled and can cause both acute and chronic adverse health effects. The five workers alleged that they had suffered chronic health problems as a result of their exposure. They subsequently successfully filed a workers’ compensation claim against UIC, their employer, and later sued the Corporations, alleging causes of action relating to negligence.
The issues of interest to the Supreme Court in this case are: 1) how the definition of AS 23.30.045(a) impacts liability in the chain of a contract in a worker’s compensation claim, and 2) who is a ‘contract owner’ for purposes of that statute.
If the employer is a contractor, as UIC is, and fails to secure the payment of compensation to its employees, the project owner is liable for and shall secure the payment of the compensation to employees of the contractor. Section (f) defines a contractor as “a person who undertakes by contract performance of certain work for another…” A project owner is defined as “a person who, in the course of the person’s business, engages the services of a contractor and who enjoys the beneficial use of the work.” The parties had differing interpretations of “project owner” because this status determined if the workers could bring a negligence claim against the Corporations.
The superior court granted summary judgment in favor of the Corporations, because the superior court found that each Corporation was a “project owner,” and, therefore, exempt from liability under the exclusive liability provision of the Alaska Workers’ Compensation Act as provided in AS § 23.30.055. This statute “provides that workers’ compensation is an injured employee’s exclusive remedy against an employer and other persons who, by statute, are ‘liable for or potentially liable for securing payment of compensation.’” (459 P.3d 1162, 1166 n.6). Persons who are liable for such compensations are identified and defined in AS § 23.30.045. Under section (a), the employer is liable for securing payment to employees for compensation payable to the employees. In short, whoever is considered the project owner is subject to workers’ compensation claims but immune from separate additional lawsuits.
Because a project owner is exempt from liability as mentioned above, the Corporations argued that each of them was a project owner. Oilfield claimed it was a project owner because it was tasked with initiating Baker Hughes construction projects and developing new facilities. Oilfield was also the corporation that entered into the contract with UIC to construct the new Petrolite facility. Petrolite claimed it was a project owner because Oilfield had allegedly assigned all of its rights of the contract with UIC to Petrolite, and because Petrolite operated the site and enjoyed the intended use of UIC’s construction. Baker Hughes claimed to be a project owner because, as a parent company to Petrolite and Oilfield, it received a number of benefits from its successful subsidiary companies.
The workers, on the other hand, contended that the only corporation that might qualify as a project owner was Oilfield, because Oilfield owned the land where UIC was constructing the facility and entered into the construction contract as “the Owner.” They also contended that the contract had never been properly assigned to Petrolite.
However, the superior court found the Corporations’ arguments convincing and granted summary judgment in favor of all three Corporations. The superior court began with the statutory definition of “project owner” and found that there was “no dispute” that all three Corporations enjoyed the beneficial use of UIC’s work and that all three Corporations had engaged the UIC’s services. Further, the superior court concluded that all three Corporations were potentially liable for workers’ compensation covering UIC’s employees, meaning that they were exempt from additional liability under AS § 23.30.055 as project owners.
On appeal, the Supreme Court concluded that a “project owner is someone who engages the services of – that is, contracts with – a person to perform specific work and enjoys the beneficial use of that work.” The Court found that the legislative history of AS § 23.30.045(f) implied that “parties that are upstream in the chain of contracts from the employer of the injured employee . . . implies linked contractual relationships.” In the legislative history, the Alaska legislature expressed their intent that the Alaska Workers’ Compensation Act provide predictability for injured workers to recover, and without some kind of contractual relationship between employers and project owners, that predictability is lost.
The Supreme Court found that there were at least two issues of material fact, making a grant of summary judgment improper. Therefore, the Supreme Court reversed the superior court’s grant of summary judgment and remanded the case for further proceedings.
The Supreme Court disagreed with the superior court that “any entity who is potentially liable for workers’ compensation benefit payments to employees, regardless of whether the entity was engaged in contract negotiations, cannot be liable in tort.” The Court reasoned that a “’project owner’ remains a statutorily-defined term; an entity does not become a project owner simply because of an agreement between two other parties that the entity will be indemnified if sued.” In other words, “being a ‘project owner,’ as defined by statute, makes someone ‘liable for or potentially liable for securing payment of compensation,’” but the converse is not always true. Whether or not an entity satisfies the statutory definition of a ‘project owner’ will determine if they are protected from third-party liability for a tort claim arising out of the same injury as a workers’ compensation claim.
Further, on remand, the superior court was instructed by the Supreme Court to consider “whether the evidence shows that each of the three Baker Hughes corporations was a party” to the original construction contract with UIC.
The superior court will hear this matter again, interpret arguments from the same parties, but apply the newly clarified interpretation regarding project owners.
By Jenna Sutton