Insurer Can’t Rescind Workers’ Comp Policy, Even With Misrep, MS High Court Says

An insurer cannot rescind a workers’ compensation policy, even in the case of a material misrepresentation that could led to millions of dollars in benefits payments, the Mississippi Supreme Court decided last week.

The Mississippi Workers’ Compensation Act governs all workers’ comp matters and it simply does not provide for rescinding or voiding policies as it does cancellations and nonrenewals.

“We conclude that the legislature, by not expressly providing for the remedy of rescission based on an employer’s material misrepresentation, did not intend to permit insurers to void a policy ab initio and thus cut off an injured employee’s legitimate right to benefits,” Justice James Maxwell wrote for the majority of the court in American Compensation Insurance Co. (ACIC) vs. Hector Ruiz, Jesco et al. The opinion was handed down June 27.

Ruiz and his Los Primoz Construction firm was a subcontractor for Jesco Inc. on a project in northeast Mississippi in 2018. His employee, Raul Arpacio, fell 15 feet and was severely injured. A claim was filed with Ruiz’ workers’ comp insurer, ACIC, and the insurer quickly began paying benefits, the court explained.

But with Arpacio needing extensive, frequent care, ACIC soon found that it had paid more than $250,000 in medical and indemnity benefits and was on track to pay much more, the court noted. That’s when the insurer investigated a little deeper and decided that Ruiz, the employer, had not properly disclosed in his insurance application that employees would be working so high off the ground. ACIC representatives said the company would not have issued the policy had they known.

The Supreme Court noted there was some question about that, and a previous policy had covered work at heights. The employer contended that his insurance agent was the one who made the misrepresentation and had obtained the comp policy without his consent.

ACIC, a subsidiary of RTW Inc., moved to rescind the policy altogether. But Jesco, a large industrial construction firm and stadium builder based in Mississippi – and the general contractor on the 2018 project – objected. It would have been stuck with covering Arpacio’s benefits and would have seen a much higher experience modification for future compensation coverage.

Jesco asked the federal court for the Northern District of Mississippi to declare that ACIC was not entitled to voiding the policy.

The district court agreed with Jesco that the state workers’ comp law does not provide for rescission of policies, a retroactive move that would leave the worker unprotected. ACIC appealed to the U.S. 5^th Circuit Court of Appeals. The insurer argued that, precisely because the comp statute does not mention rescinding of policies, common law must prevail. Other types of insurance disputes have been guided by common law and rescission of policies has been allowed in some cases, the insurer posited.

The 5^th Circuit judges, instead of making an educated guess about what a state court would decide, as the lower federal court had done, formally asked the Mississippi Supreme Court to give a definitive answer.

The high court agreed with Jesco.

The Mississippi Workers’ Compensation Act (MWCA) “represents a wide departure from common law,'” the justices wrote, quoting from a 1979 Mississippi court decision.

The opinion also underscores the fundamental principles of the U.S. workers’ compensation system.

“As the Fifth Circuit has rightly observed, under the MWCA, ‘the duty of the carrier to pay benefits is owed by the carrier to the injured employee’—not simply the employer,” the Supreme Court opinion reads.

The justices noted that this particular circumstance had never been addressed by Mississippi courts. But they cited New York and New Jersey court decisions that have held that similar rescissions were not allowed. And American Compensation’s argument about common law and other types of insurance does not apply.

“Section 71-3-77(1) makes clear that workers’ compensation insurance policies differ from other insurance policies in an important way—namely, workers’ compensation insurance policies are governed by the MWCA and cannot provide for any remedy inconsistent” with the compensation act, the justices wrote.

The sole question is whether the MWCA permits the remedy of voiding a policy based on an employer’s material misrepresentation. “And to this question, we answer no, it does not,” Justice Maxwell concluded.

The decision does not mean that ACIC cannot seek other remedies to address the misrepresentation, the court pointed out.

Justice Josiah Coleman dissented. He wrote that Mississippi has long recognized “a robust common-law of contracts,” predating the workers’ comp act. And because the workers’ compensation statute lacks clarity on this matter, common law should govern, he argued.

Topics Carriers Workers' Compensation Mississippi