Georgia Appeals Court Questions Insolvency Pool’s Subrogation in Comp Cases

Georgia employers and their workers’ compensation insurers can rest a little easier after an appeals court this week narrowed the circumstances in which a state guaranty association can seek reimbursement on claims paid after staffing firms’ insurance carriers become insolvent.

“The mere fact that Zep’s insurer remains solvent does not transform Ward’s claim into a covered claim, and we find no error in the Appellate Division’s interpretation of the Pool Act in this regard,” a panel of the Georgia Court of Appeals wrote this week in a decision that could have implications for other states.

The appeal combined two similar cases. The decision in one of those could be seen as a limit on the Georgia guaranty association, known as the Georgia Insurers Insolvency Pool, despite state law that allows the pool to seek subrogation from employers’ solvent insurers for covered claims.

The ruling also helps nail down when a temporary worker can be considered a “borrowed servant” in insolvency claims, one attorney said.

“It’s a big deal. There are a lot of guaranty associations around the country that are wrestling with this same issue,” said Michael Gorby, the lawyer who has represented the Georgia insolvency pool in these and other significant cases.

Most states have similarly worded statutes, based on model laws developed by national guaranty fund associations, he said.

The Georgia Court of Appeals has spoken on aspects of these issues in other decisions in recent years. In Palmer v. Georgia Insurers Insolvency Pool, in 2021, the court effectively limited the pool’s right to seek reimbursement from an injured motorist. In 2019, the court handed down Georgia Insurers Insolvency Pool v. Dubose, which essentially held that, if any other coverage is available from solvent insurers, that must be exhausted before the insolvency pool pays the covered claim, Gorby said.

But questions remained about what a covered claim is, and who is considered the actual employer. In one part of the opinion this week, the insolvency pool had argued that an administrative law judge, the state Workers’ Compensation Appellate Division and a trial court had erred in disallowing subrogation. The appeals court partly agreed with the pool that the Workers’ Compensation Board ALJ had applied the wrong test in determining if the worker was considered a borrowed servant. The court remanded that case to the ALJ for further consideration in keeping with arguments outlined by the appeals court judges.

In another of the two cases, the appeals court disagreed with the pool’s attorneys and concluded that the employer and the temporary staffing company were not co-employers and that the worker was not a borrowed servant.

The pool now plans to petition the Georgia Supreme Court to review that section of the opinion.

Gorby said that even if the appeals court decisions had not gone exactly as he had hoped, “It’s helpful for guaranty associations because it’s the first decision that actually cements” what determines a borrowed servant in insolvency cases.

One of the cases began in 2017, after forklift operator Jeffrey Ward was injured while working at a warehouse of Zep Inc., a maker and distributor of commercial cleaning and maintenance products. Ward had been employed through North Georgia Staffing Inc. (NGS), a temporary staffing company.

After the injury, NGS’s comp insurer, Guarantee Insurance Co., began paying on the claim. But Guarantee was soon declared insolvent, forcing the state insolvency pool to continue paying medical and wage-loss benefits to Ward, the court explained. The pool later sought reimbursement from Zep’s own comp insurer, New Hampshire Insurance Co. An ALJ denied the request. The appellate judges found that the insolvency pool did not establish the third prong in the borrowed-servant test — that the borrowing employer must have the exclusive right to terminate the worker.

The other case in the combined appeal was similar. In Insolvency Pool v. Carpet Cycle, temporary worker Jay Hall had sustained an injury at the carpet company in 2010. The staffing firm’s insurer, Lumbermen’s Underwriting Alliance, was liquidated in 2016. The workers’ comp Appellate Division and the state appeals court denied subrogation, noting that no employment relationship existed between Hall and Carpet Cycle.

“Carpet Cycle was merely a third-party business using the services of a temporary help contracting firm,” the court wrote. The claim was not covered by Carpet Cycle and its insurer. That case was remanded.

The Appellate Division made a similar distinction in the Zep case. Unlike professional employer organizations or employee leasing companies — which under state law are considered co-employers — temporary help firms “are in the business of employing individuals and, for compensation from a third party, providing those individuals to perform work for the third party…” the court explained.

The borrowed servant doctrine and co-employment questions have been part of workers’ comp statutes and case law in most states for more than a century. But only recently have they been raised in light of the insolvency pool statutory requirements, Gorby said.

“When dealing with guaranty associations, we have our own statute,” he said. “We have the Pool Act. So you have to coordinate what the comp act says versus what the Pool Act says.”

The appeals court did not address one argument raised by Carpet Cycle – that the subrogation action by the pool was unconstitutional and a violation of the employer’s due process rights. The lower court did not find it necessary to decide on that issue, so the appellate judges declined to opine on it.

Attorneys for the employers and solvent insurers could not be reached Wednesday. The July 16 appeals court opinion can be seen here.

Topics Georgia