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Efrain Nevarez filed an Application for Adjudication of Claim alleging that he sustained an industrial injury as a result of a cumulative trauma through August 30, 2015, while employed by American Choice Van Lines and/or Go East Movers.

Coverage was denied by American Casualty Insurance Company based on “limited endorsements” contained in the policies. Coverage disputes are subject to mandatory arbitration under Labor Code section 5275(a), thus the issue was submitted for arbitration.

The arbitrator found that Go East Movers was insured by American Casualty Insurance during the alleged cumulative trauma period.

The arbitrator found that “[n]one of the limiting endorsements” complied with the statutory and regulatory requirements. The arbitrator also found that there was insufficient evidence that the employer engaged in fraudulent misrepresentation during the application process and there is evidence that American and its agents did not do their due diligence regarding the nature of the business of the insured prior to issuing the policy.

The arbitrator issued orders that the insurers shall be liable for the workers’ compensation benefits that may be awarded to the applicant and that the order does not limit defendant’s right to dispute the date of injury or the period of coverage for the injury. The arbitrator also dismissed the Uninsured Employers Benefit Trust Fund as a party defendant.

American Casualty Insurance Company petitioned for reconsideration of the Findings and Order. A WCAB panel essentially affirmed the arbitrator in the case of Efrain Nevarez v American Choice Van Lines et. al. (AD10407856 – March 2021)

American contends, in essence, that it was not required to exclude non-clerical employees because the policy only covered clerical employees.

Workers’ compensation policies provide coverage to all employees of an employer unless employees are explicitly excluded in the insurance contract with a limiting and restricting endorsement in accordance with regulations adopted by the Insurance Commissioner. (citations omitted)

American could not enter into a workers’ compensation insurance contract covering only some of an insured’s employees without complying with the Insurance Commissioner’s regulations. If an insurer contends that it has issued a limited policy, the insurer must provide evidence in the form of policy documents.

Therefore, American is incorrect that the policy could be construed to only cover clerical employees without an endorsement explicitly limiting the policy to those employees.

With respect to American’s contention that the arbitrator erred in failing to admit and consider evidence of employer misrepresentation and insurer due diligence, the evidence would only be relevant if rescission of the insurance contract was at issue and it was not at issue.

A workers’ compensation policy may be rescinded based on a material misrepresentation by the insured. (Southern Ins. Co. v. Workers’ Comp. Appeals Bd. (Berrios) (2017) 11 Cal.App.5th 961.) Rescission is a contract remedy that requires the rescinding party to give notice and restore or offer to restore everything of value obtained under the contract in accordance with a statutory procedure set forth in Civil Code section 1691.

However, in this case, American did not raise rescission as an issue and does not allege that it rescinded the insurance policy.