Does the insured breach the policy by waiving the insurer's right to a credit for workers' compensation? In Travelers Prop. Cas. Co. of Am. v. Conoco Phillips Co., No. 06-15664, 2008 U.S. App. 21871 (9th Cir. Oct. 20, 2008), the Court held the policy was not breached by the insured's waiver.

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During a fire at the insured's refinery, several workers were killed and many others injured. As a result, various actions were filed against the insured, including civil lawsuits and claims with the California Workers' Compensation Board (WCAB). Travelers provided workers compensation for the insured.

As part of the settlement of the civil lawsuit, the insured agreed, without the express consent of Travelers, to waive the right to statutory credit against future workers compensations benefits. The WCAB subsequently awarded workers' compensation benefits to the injured workers.

Travelers petitioned the WCAB for a credit of the settlement amount against any future benefits that Travelers would have to pay the workers based on a California statute that provided once the employee received compensation provided by the Board and secured a judgment or settlement of civil damages, the employer would be relieved from paying further compensation to the employee. The WCAB denied the petition, finding that the insured had waived Traveler's right to a credit under the statute.

Traveler's sued for declaratory relief arguing the policy had been breached, but the district court granted summary judgment to the insured.

The Ninth Circuit affirmed. The Excess Payments portion of the policy stated the insured was responsible for any payments in excess of the benefits regularly provided by the workers compensation law. Travelers argued the insured breached this provision because the "benefits regularly provided" included the right to a credit under the California statute. Further, because the workers' compensation benefits that Travelers was paying would have been less had the insured not waived the credit, Travelers was forced to make "excess" payments when the credit was waived. The Ninth Circuit disagreed. The fact that the amount of workers' compensation benefits might have been reduced because of other money paid to the workers in the civil lawsuits did not increase the workers' compensation benefits paid to the workers beyond the "regularly provided" amount required by the workers' compensation law.

Elsewhere, the policy instructed the insured not to voluntarily make payments, assume obligations, or incur expenses, except at the insured's own cost. The Ninth Circuit determined this provision only pertained to voluntarily making payments or incurring expenses and not to a non-monetary requirement simply to refrain from doing something. The insured did not voluntarily make payments, assume obligations, or incur expenses when it waived the right to the statutory credit.

[Editor’s Note: Please extend another warm welcome to Tred Eyerly. Tred comes to the Insurance Law Center all the way from Honolulu, Hawaii. He and his assistant Tracey use expressions like “aloha” and “surf’s up” in their emails, and he submitted a guest blog last year on a case about pineapples.Tred and his colleague Robert D. Harris are attorneys at the Hawaii firm of Damon Key Leong Kupchak Hastert and co-author the popular blog Insurance Law Hawaii. Their blog offers a commentary on insurance coverage issues in Hawaii and was named by LexisNexis as one of the Top 50 Blogs for Insurance in 2008.]