Imagine the effect on the privatization effort and the stability of the workers’ compensation insurance market in West Virginia if the standard workers’ compensation insurance policy1 was held to give an insured employer coverage for “deliberate intent” claims even though the insured employer did not inquire about, request, or pay for such coverage.2 Imagine the risk management implications and the effect on premiums for workers’ compensation insurers. Imagine the conversations insurers or their agents would have to have with insured employers. Imagine the exposure to workers’ compensation insurers to claims for bad faith and violations of the West Virginia Unfair Trade Practices Act3 for those claims the insurer denied where the insured employer did not purchase “deliberate intent” coverage.

Fortunately, thanks to the efforts of West Virginia Employers’ Mutual Insurance Company (BrickStreet) and the litigation team at Spilman Thomas & Battle, PLLC, workers’ compensation insurers in West Virginia will not have to face these issues. In West Virginia Employers’ Mutual Insurance Company v. Summit Point Raceway Associates, Inc., Slip Op. No. 101414 (W.Va. Nov. 18, 2011), the Supreme Court of Appeals of West Virginia addressed two key issues: 1) did BrickStreet have a duty to make an offer of “deliberate intent” coverage like automobile insurers must make for underinsured motorists’ coverage; and, 2) was the Part Two – Employers Liability Insurance provision in the workers’ compensation policy ambiguous, thereby leading to automatic coverage for “deliberate intent” claims?4 While the first issue affected BrickStreet only, the second issue was a much larger issue, and affected the entire West Virginia workers’ compensation insurance market. 

Until January 1, 2006, the West Virginia workers’ compensation fund was a state-operated system administered by the Workers’ Compensation Commission (“WCC”). In addition to workers’ compensation insurance, an employer could also voluntarily subscribe to the employers Excess Liability Fund (“EELF”) and obtain coverage from the WCC for “deliberate intent” actions against it. Other insurers also sold coverage for “deliberate intent” actions, otherwise known as “stop gap” insurance coverage.5

In 2005, the West Virginia Legislature determined that workers’ compensation insurance coverage should be made available by private insurers, similar to the workers’ compensation system that exists in more than forty other states.6 On January 1, 2006, BrickStreet was formed. From January 1, 2006, through June 30, 2008, BrickStreet was the sole insurer for workers’ compensation coverage in the State of West Virginia.7 However, BrickStreet was not the sole “deliberate intent” insurer during this time period. 

West Virginia employers did not become BrickStreet policyholders through the traditional application, offer and acceptance process surrounding most insurance purchases. Instead, on January 1, 2006, all policies issued by the WCC statutorily transferred to BrickStreet.8 BrickStreet provided the same coverage to each employer as had been provided under the WCC unless the employer chose other coverage than it had under the WCC. After June 30, 2008, other private insurers could also offer workers’ compensation coverage in West Virginia.  

The insurance policy approved for use in West Virginia by the OIC is a standard NCCI workers' compensation policy that is in use in over thirty (30) states. All workers’ compensation carriers in West Virginia must use this NCCI policy unless they receive a specific exemption from the OIC.9 Part One of the policy provides workers’ compensation insurance. Part Two – Employers Liability Insurance provides coverage for some injuries for which an employer becomes liable, but specifically excludes coverage for “deliberate intent” actions. Coverage for “deliberate intent” claims is sold through a special endorsement and for additional premium.

In the case before the Supreme Court of Appeals of West Virginia, a Summit Point Raceway Associates, Inc. (“Summit Point”) employee was injured on February 27, 2007, while doing work in the course and scope of his employment with Summit Point. The employee made a claim for workers’ compensation benefits and received benefits under Summit Point’s Workers’ Compensation and Employers Liability insurance policy with BrickStreet. The employee also filed a lawsuit against Summit Point asserting a “deliberate intent” claim.10 Summit Point sought a defense and indemnification from BrickStreet for the employee’s lawsuit against it. BrickStreet denied that it owed a duty to defend or indemnify Summit Point for the lawsuit against Summit Point. Summit Point had not participated in EELF under the WCC; therefore, when its coverage statutorily transferred to BrickStreet, there was no EELF coverage to transfer to BrickStreet. Additionally, Summit Point did not purchase “deliberate intent” coverage under the special endorsement, otherwise known as “Broadform” coverage. 

Summit Point sued BrickStreet asking the lower court to determine that coverage existed under its BrickStreet Workers’ Compensation and Employers Liability insurance policy. Summit Point asserted that BrickStreet had a statutory obligation to make an offer of “deliberate intent” insurance coverage in the same manner as automobile insurers had to offer underinsured motorists’ insurance coverage.11 The statutory provision establishing the transfer of obligations from the WCC to BrickStreet used the word “offer” in a sentence expressing the time period for which BrickStreet was the sole insurer for workers’ compensation insurance. Summit Point also asserted that it had a reasonable expectation of “deliberate intent” insurance coverage based on the title of the Part Two provision. BrickStreet argued that it was not required to make an offer of “deliberate intent” coverage. It was only required to make coverage for “deliberate intent” claims or lawsuits available for purchase. BrickStreet also argued that the policy language clearly and unambiguously excluded coverage for “deliberate intent” claims or lawsuits. The policy contained an exclusionary endorsement that specifically stated:

This insurance does not cover:

5.    Bodily injury caused by your intentional, malicious or deliberate act, whether or not the act was intended to cause injury to the employee injured, or whether or not you had actual knowledge that an injury was certain to occur, or any bodily injury for which you are liable arising out of West Virginia Annotated Code §23-4-2.12

The lower court held that BrickStreet had a duty to make a formal offer of “deliberate intent” coverage. The lower court also held that Part Two of the policy was ambiguous, meaning that it was unclear whether “deliberate intent” claims or lawsuits were covered under this portion of the policy. Therefore, the court held that Summit Point had a reasonable expectation of coverage for “deliberate intent” claims. Under West Virginia law, this meant that coverage would apply automatically for “deliberate intent” claims. 

BrickStreet appealed the lower court’s decision to the Supreme Court of Appeals of West Virginia. If the Supreme Court of Appeals of West Virginia agreed with the lower court’s decision, then BrickStreet would have to provide “deliberate intent” coverage to all employers during the two and a half years it was the sole workers’ compensation insurer. Additionally, after June 30, 2008, all workers’ compensation insurers in West Virginia would have been required to provide “deliberate intent” coverage under the NCCI policy approved by the OIC for use in West Virginia, even if an employer did not pay for the coverage or request the coverage.

However, the Supreme Court of Appeals of West Virginia did not agree with the lower court. West Virginia’s high Court held that BrickStreet did not have a duty to make “an express, commercially reasonable offer of coverage for deliberate intent actions, as set out in W.Va. Code §23-4C-1, et seq., or to obtain a voluntary waiver of such coverage. Instead, the Legislature merely required that such coverage be made available to insureds upon their voluntary request.”13  The Court held that, if the West Virginia Legislature required that an offer of “deliberate intent” coverage be made, then it knew how to set forth specific steps for an offer of insurance coverage via statute, because it had done so in the context of other insurance coverage.14 The Legislature did not set out any steps for an offer of “deliberate intent” coverage; therefore, the Court held that BrickStreet did not have any such duty.

More important to the overall insurance market, however, was the high Court’s decision regarding the second issue: was the policy language ambiguous such that an insured employer had a reasonable expectation of “deliberate intent” insurance coverage, and thus, coverage applied for “deliberate intent” claims? The Supreme Court of Appeals of West Virginia held that the Part Two – Employers Liability Insurance portion of the policy clearly did not include “deliberate intent” claims or actions as covered losses in its explanation of benefits in the insuring agreement.15 Furthermore, the Court held that the policy also specifically excluded insurance coverage for “deliberate intent” claims where it referenced the “deliberate intent” statute in the exclusionary language.16

The Court’s decision in the Summit Point case holds great importance for all workers’ compensation insurance carriers operating in West Virginia. Absent this ruling by the Court, workers’ compensation insurance carriers could have been expected to provide “deliberate intent” coverage to any employer they insured – regardless of whether or not the employer actually purchased such coverage. Allowing such a loophole to exist would have been a serious setback to the workers’ compensation insurance privatization measures enacted by the state several years ago and to the risk management efforts of insurers. Additionally, workers’ compensation insurers would be exposed to other damages for claims brought by employers asserting bad faith and violations of the West Virginia Unfair Trade Practices Act for wrongfully denying coverage for “deliberate intent” claims. On a final note, the Court’s decision protects the business climate in West Virginia by providing workers’ compensation carriers the assurance that, when combined with the proper endorsements dealing with “deliberate intent” coverage, use of the NCCI form policy will not result in unexpected liability for the carrier.