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The court of appeal ruled on a case between CIGA and the Travelers that upheld the endorsement on the Travelers policy limiting its coverage for special employees in a general special employment situation.

In the unpublished case of Travelers v WCAB, and CIGA, two employers agreed that the general employer, StaffChex, vwould obtain workers’ compensation insurance for employees it leased to the special employer Jessie Lord Bakery. Relying on this agreement, the special employer obtained workers’ compensation insurance from Travelers for its own employees with a “limiting endorsement” excluding coverage for special employees.

These agreements were in place for several years when a special employee, Jose Luis Mastache, was injured on the job while assigned to the special employer. The general employer’s insurer, Ullico Casualty Company, thereafter became insolvent and California Insurance Guarantee Association (CIGA) took over the administration of the claim.

Although there was a written endorsement attached to the Traveler’s policy excluding coverage for special employees, and the special employee’s carrier was informed the general employee had obtained the required workers’ compensation insurance, the Workers’ Compensation Appeals Board invalidated the Travelers limiting endorsement because the limiting endorsement had not been signed by the special employer. The written affirmation was required under WCAB Rules, section 2259(e) in effect at the time the Travelers policy was written.

Thus, Travelers, the insurer for the special employer was ordered to bear all liability for compensation to the injured worker when the general employer’s insurer became insolvent. This obligated Travelers to pay the entire claim since CIGA had shown there was “other” insurance in effect. Travelers appealed and the court of appeal reversed the WCAB in the unpublished case.

The question of whether Travelers is “other insurance,” relieving CIGA of liability, turns on whether the endorsement in the Travelers policy is valid.

The court of appeals made the observation that it was addressing a commercial relationship between two relatively sophisticated parties and a third sophisticated insurance company who embarked on a course of dealing that had been in place for a number of years before Mastache was injured.This entire structure was set aside by the appeals board, ostensibly over the absence of a signature by Jessie Lord on the endorsement to the contract with Travelers, even though this contractual structure had been functioning for three years when Mastache was injured.

The parties complied with the applicable regulatory requirements and it is undisputed that they complied with their contractual commitments to one another. They performed these contractual commitments for several years. The court of appeals concluded that the appeal board’s decision was thus unreasonable and inequitable.

“Nullifying a three-sided, sophisticated contractual structure, under which all three parties performed their obligations in good faith over the absence of a signature on an endorsement to a contract disregards reality and is inequitable.”