By: Lynn Patton Thompson
On appeal by the subcontractor’s carrier, the Fifth Circuit certified this question to the Mississippi Supreme Court: Does the Mississippi Workers’ Compensation Act (MWCA) allow an insurer to void ab initio a workers’ compensation policy based on a material misrepresentation? On June 27, 2024, the Mississippi Supreme Court answered that it does not. See the entire opinion in American Compensation Insurance Company v. Hector Ruiz, Doing Business As Los Primoz Construction, et al., in the Supreme Court of Mississippi, No. 2023-FC-01160-SCT.
In Mississippi, a prime contractor that hires subcontractors without workers compensation insurance in place is deemed the “statutory” employer, such that injured subcontract employees receive workers compensation coverage through the prime. Thus, when a subcontractor’s employee was severely injured by a fall from a height above 15 feet, the subcontractor’s insurer sought a declaratory judgment in federal district court that its policy was void ab initio (which would make the prime contractor’s carrier liable). Why? Because after the injury occurred, the subcontractor’s insurer found that it had renewed the policy on the basis of the material misrepresentation (allegedly made by the subcontractor’s insurance agent to the carrier) that the subcontractor did not perform work at heights above 15 feet.
Mississippi’s workers’ compensation statute states how a carrier can cancel or refuse to renew an insurance policy, but it is silent on whether a carrier can void or rescind a policy entirely. The district judge, making an Erie guess, held that the misrepresentation did not render the subcontractor’s policy void ab initio, reasoning that Mississippi’s Workers’ Compensation statute was meant to govern exclusively Mississippi’s law on workers’ compensation and that the vital public policy of ensuring protection of workers would be frustrated if insurers were permitted to rescind these policies.
The decision recognizes that material misrepresentations in the procurement of other insurance policies voids them (which was the point of the single dissent), but it refused the subcontractor’s carrier’s argument that the same common law right to rescission applies in the context of the MWCA because the MWCA did not prohibit rescission. Recognizing the purpose and policy of the MWCA and its exclusive governance of workers’ compensation, the Court sided with the prime contractor’s argument that rescission of policies is not permitted under the MWCA.
Therefore, a carrier’s policy issued to a lower-tier contract employer is enforceable to protect an injured worker of that contractor, even if procured on the basis of material misrepresentations; it will thus shield the prime contractor’s carrier from paying out as the statutory employer. The carrier’s recourse is against the person and/or entity making the material misrepresentation resulting in issuance of the policy.
By: Lynn Patton Thompson
On appeal by the subcontractor’s carrier, the Fifth Circuit certified this question to the Mississippi Supreme Court: Does the Mississippi Workers’ Compensation Act (MWCA) allow an insurer to void ab initio a workers’ compensation policy based on a material misrepresentation? On June 27, 2024, the Mississippi Supreme Court answered that it does not. See the entire opinion in American Compensation Insurance Company v. Hector Ruiz, Doing Business As Los Primoz Construction, et al., in the Supreme Court of Mississippi, No. 2023-FC-01160-SCT.
In Mississippi, a prime contractor that hires subcontractors without workers compensation insurance in place is deemed the “statutory” employer, such that injured subcontract employees receive workers compensation coverage through the prime. Thus, when a subcontractor’s employee was severely injured by a fall from a height above 15 feet, the subcontractor’s insurer sought a declaratory judgment in federal district court that its policy was void ab initio (which would make the prime contractor’s carrier liable). Why? Because after the injury occurred, the subcontractor’s insurer found that it had renewed the policy on the basis of the material misrepresentation (allegedly made by the subcontractor’s insurance agent to the carrier) that the subcontractor did not perform work at heights above 15 feet.
Mississippi’s workers’ compensation statute states how a carrier can cancel or refuse to renew an insurance policy, but it is silent on whether a carrier can void or rescind a policy entirely. The district judge, making an Erie guess, held that the misrepresentation did not render the subcontractor’s policy void ab initio, reasoning that Mississippi’s Workers’ Compensation statute was meant to govern exclusively Mississippi’s law on workers’ compensation and that the vital public policy of ensuring protection of workers would be frustrated if insurers were permitted to rescind these policies.
The decision recognizes that material misrepresentations in the procurement of other insurance policies voids them (which was the point of the single dissent), but it refused the subcontractor’s carrier’s argument that the same common law right to rescission applies in the context of the MWCA because the MWCA did not prohibit rescission. Recognizing the purpose and policy of the MWCA and its exclusive governance of workers’ compensation, the Court sided with the prime contractor’s argument that rescission of policies is not permitted under the MWCA.
Therefore, a carrier’s policy issued to a lower-tier contract employer is enforceable to protect an injured worker of that contractor, even if procured on the basis of material misrepresentations; it will thus shield the prime contractor’s carrier from paying out as the statutory employer. The carrier’s recourse is against the person and/or entity making the material misrepresentation resulting in issuance of the policy.
