Jack doesn’t have insurance.  Jack gets an employee.  Jack wises up after having an employee for almost a year, and gets workers’ compensation insurance.  Jack’s employee files a claim for a cumulative trauma injury.  Jack’s insurer refers the file to its defense attorney, who notes that the date of injury, as per Labor Code section 5412, falls on the first day of the insurer’s coverage.

So, 364 days of the cumulative trauma period fall under the uninsured employer’s umbrella, and just one day falls under the insurer’s coverage.  Great right?  Yeah, not so much.

What generally happens when an employer is uninsured, is the Uninsured Employer Benefit Trust Fund gets involved.  UEBTF, after being joined, will pay out anything that the employer is ordered to but doesn’t, and then come after the employer.  Neither limited liability business formations nor bankruptcy protections provide absolute defenses to the UEBTF’s reach.

So why can’t the 1/365 insurer just seek contribution from the UEBTF, who can in turn collect it from the employer?  Because of Labor Code section 3716(b): “it is the intent of the Legislature that the [UEBTF] … is not created as a source of contribution to insurance carriers, or self-insured or legally insured employers.”  The UEBTF isn’t liable for a CT injury when there is anyone else in that CT period that is insured or self-insured.

If that sounds familiar, it should.  California Insurance Guarantee Association (CIGA) has a similar set-up, with a statutory defense to liability when there is any “other insurance” available.  In fact, my dedicated readers may recall the Crawford case, where One Beacon was forced to pay for an entire claim for just 10 days  covered out of a cumulative trauma period, because the other 355 were carried by a now-dead insurer, and CIGA put the target on One Beacon’s back.

So, if you’re faced with a situation like this, do not go forward expecting to recoup 99% of your costs through a petition for contribution.  Instead, focus on shifting the 5412 date of injury away from your coverage completely – you’re not going to get much from the illegally uninsured employer, who might not have any assets or might use its assets to finance its legal defense.

The other player to consider is the District Attorney.  If the DA takes an interest in prosecuting the failure to carry workers’ compensation insurance, the insurers left footing the bill can rightly be considered victims, and should be entitled to restitution, which usually finds its way into a plea bargain.  Talk to the DA, let him or her know what’s going on, and set up a payment plan – you might get some of that money back!