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Kentucky Uninsured Employers' Fund v. Hoskins

Supreme Court of Kentucky

October 9, 2014

KENTUCKY UNINSURED EMPLOYERS' FUND, APPELLANT
v.
JULIAN HOSKINS; KENTUCKY EMPLOYERS' MUTUAL INSURANCE COMPANY; BEACON ENTERPRISES, INC.; FOUR STAR TRANSPORTATION, INC.; BETTER INTEGRATED SYSTEMS, INC.; WORKERS COMPENSATION BOARD; AND HONORABLE R. SCOTT BORDERS, ADMINISTRATIVE LAW JUDGE, APPELLEES

Released for Publication October 9, 2014.

Page 754

ON REVIEW FROM COURT OF APPEALS. CASE NO. 2011-CA-001322-WC. WORKERS' COMPENSATION NO. 08-WC-96697.

FOR APPELLANT: Dennis Stutsman, Assistant Attorney General, Uninsured Employers' Fund.

FOR APPELLEE JULIAN HOSKINS: Alan Steven Rubin.

FOR APPELLEE KENTUCKY EMPLOYERS' MUTUAL INSURANCE COMPANY: Barry Lewis, Lewis and Lewis Law Offices.

FOR APPELLEE BEACON ENTERPRISES, INC. AND BETTER INTEGRATED SYSTEMS, INC.: Terrance J. Janes.

FOR APPELLEE FOUR STAR TRANSPORTATION, INC.: Not Represented By Counsel.

FOR APPELLEE WORKERS COMPENSATION BOARD: Dwight Taylor Lovan, Executive Director, Office Of Workers' Claims.

OPINION

Page 755

VENTERS, JUSTICE.

This is a workers' compensation appeal in which we address for the first time the relationship between the common law loaned servant doctrine and the employee leasing arrangements that are the subject of KRS 342.615. Appellant, Uninsured Employers' Fund (UEF), appeals from a decision of the Court of Appeals which, consistent with the Workers' Compensation Board (the Board), held that Appellee, Kentucky Employers' Mutual Insurance (KEMI), was not the insurance carrier at risk for injuries sustained by Julian Hoskins in the course of his employment with Four Star Transportation, Inc. (Four Star). KEMI was the workers' compensation carrier for Beacon Enterprises, Inc., (Beacon Enterprises) at the time Hoskins was injured. Beacon Enterprises is an employee leasing company. The UEF contends that Hoskins was covered by Beacon Enterprises' policy with KEMI; KEMI argues that he was not.

The Board and the Court of Appeals concluded that Hoskins was not covered by the KEMI policy upon application of the " loaned servant doctrine," a well-established common law master-servant concept holding, inter alia, that a servant cannot be deemed to be an employee of a master of whom he has no knowledge. Hoskins believed that his employer was Four Star. He was unaware that, by virtue of an employee leasing agreement between Four Star and Beacon Enterprises, he was for some purposes a Beacon Enterprises employee. The Court of Appeals and the Board reasoned that under the loaned servant doctrine Hoskins could not be an employee of Beacon Enterprises for workers' compensation purposes, and thus they concluded that the KEMI policy did not provide coverage for his injury. Consequently, that liability was shifted to the UEF. In contrast with that conclusion, the Administrative Law Judge (ALJ) had determined that Hoskins was a properly constituted " leased employee" pursuant to KRS 342.615 who was validly covered under the KEMI policy issued to " employee leasing company" Beacon Enterprises, thereby absolving the UEF from coverage.

As grounds for relief, the UEF argues that the ALJ correctly ruled that Hoskins's unawareness of the Four Star-Beacon Enterprises relationship did not destroy the employee-employer relationship created as a result of the employee leasing agreement, and thus his lack of knowledge of it did not relieve KEMI of its obligation for his workers' compensation protection. The question thus presented is one of first impression. For the reasons set forth below, we now conclude that an " employee leasing arrangement" as defined by KRS 342.615 differs substantially from a loaned servant situation, and therefore the common law principle of the loaned servant doctrine that a servant may not be considered an employee of an employer of whom he has no knowledge does not apply in the context of an " employee leasing arrangement." [1]

Having reached its decision by focusing upon the common law loaned servant doctrine, the Court of Appeals did not reach other arguments raised by the parties in

Page 756

support of, and in objection to, the Board's decision. We therefore remand this case to the Court of Appeals for its further consideration of the remaining issues which, in light of our determination, are now essential to the resolution of this matter.

I. FACTUAL AND PROCEDURAL BACKGROUND

The controversy in this case arose after Hoskins, a long-distance truck driver, suffered a work-related injury on January 31, 2008. According to the evidence, Four Star, a trucking company, hired Hoskins to work as a truck driver out if its Louisville, Kentucky depot. Unbeknownst to Hoskins, however, Four Star had configured its workforce pursuant to an employee leasing arrangement with Better Integrated Systems, Inc. (Better Integrated), a company affiliated with Beacon Enterprises by some degree of common ownership and management.[2] Beacon Enterprises and Better Integrated are both employee leasing companies servicing clients, primarily in the trucking industry.

Under the leasing arrangement, Hoskins and other members of Four Star's workforce were, for purposes of managing pertinent payroll responsibilities, such as tax withholdings and obtaining workers' compensation insurance, deemed to be employees of Better Integrated. Consequently, as noted in the evidence, although the only employer he knew was Four Star, Hoskins's paycheck was issued by Better Integrated.

The arrangement then became more complex. Better Integrated " leased" Hoskins's employment responsibilities to its affiliated company, Beacon Enterprises.[3] It appears that the principal reasons for this transaction were that Beacon Enterprises had other employee leasing clients in Kentucky and could, through its KEMI policy, satisfy the workers' compensation requirements of Four Star's workforce, and also because Better Integrated was not authorized to operate as an employee leasing company in Kentucky pursuant to KRS 342.615. Unraveling the details of the matter has been made far more difficult because the parties either failed to maintain written documents evidencing the inter-corporate transactions or they failed to introduce them into the record.

Under this complex arrangement, Four Star, as the " lessee" of its own workforce, continued to direct and oversee Hoskins's work activities, just as any master in a conventional employer-employee relationship. Hoskins remained unaware that his employment with Four Star was subject to the assignments and employee leasing agreements between Four Star, Better Integrated, and Beacon Enterprises (and perhaps Beacon Industrial). Four Star did not maintain its own workers' compensation policy covering Hoskins because its employee leasing contract shifted the primary responsibility ...


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