Zenith Insurance Company v. VNE, d/b/a TGI Fridays, Jerry D. Gardner, Sierra Hotel Corporation

ZENITH INSURANCE COMPANY v. VNE, INC., d/b/a
TGI Fridays, Jerry D. Gardner, and Sierra
Hotel Corporation

CA 97-994                                          ___ S.W.2d ___

                  Court of Appeals of Arkansas
                           Division II
                 Opinion delivered April 1, 1998


1.   Workers' compensation -- rights and remedies under Workers'
     Compensation Law within exclusive jurisdiction of Commission -
     - covered employees cannot sue employer in tort for injury or
     death arising out of employment. -- In accordance with Ark.
     Code Ann.  11-9-105(a), the rights and remedies granted to
     employees under the Arkansas Workers' Compensation Law are
     within the exclusive jurisdiction of the Arkansas Workers'
     Compensation Commission; an employer that has secured to its
     employees the benefits of workers' compensation cannot be sued
     in tort by its employees for injury or death arising out of
     their employment; only when the employer fails to secure the
     payment of compensation for the benefit of an employee who is
     injured or killed in the course of his employment can the
     employee or his legal representative elect to maintain a legal
     action in court for damages. 

2.   Workers' compensation -- action may be maintained against
     third party responsible for employee's injury or death --
     rights under Ark. Code Ann.  11-9-410. -- An injured employee
     or the legal representative of a deceased employee may, in
     addition to pursuing a claim for workers' compensation
     benefits, maintain an action in court against any third party
     who may be responsible for such injury or death; Ark. Code
     Ann.  11-9-410(a)(Repl. 1996) states that the employer or its
     workers' compensation insurance carrier has the right to
     receive notice of the employee's third-party action and to
     join in that action if it wishes; under Ark. Code Ann.  11-9-
     410(b), the employer or its carrier that is liable for the
     payment of workers' compensation benefits may be subrogated to
     the employee's claim and assert an action against a third
     party, but it must notify the employee in writing that he has
     the right to pursue any benefits to which he may be entitled
     in addition to the subrogation interest.

3.   Workers' compensation -- third party -- Ark. Code Ann.  11-9-
     410(b) discussed. -- A third party has been defined under
     section 11-9-410 as some person or entity other than the first
     and second parties involved, and the first and second parties
     can only mean the injured employee and the employer or one
     liable under the compensation act; thus, under section 410,
     neither a workers' compensation carrier nor an employer can be
     a third party. 


4.   Workers' compensation -- appellant's claim existed only as
     subrogee of injured party -- both appellant and injured party
     prohibited from suing employer. -- The first party was the
     injured employee, and the second party was the employer, or
     its workers' compensation insurance carrier, which was the
     appellant, and since appellant's claim against third parties
     existed only by virtue of Ark. Code Ann.  11-9-410(b), as a
     subrogee of the injured employee, appellant stood in the same
     position as that employee, who was prohibited by Ark. Code
     Ann.  11-9-105(a) from suing his employer.

5.   Workers' compensation -- appellee was persona of employer
     corporation -- no third party existed -- Ark. Code Ann.  11-
     9-410(b) inapplicable. -- Where appellee could not be a third
     party because he was the sole owner and an officer (and
     therefore a "persona") of the injured man's employer
     corporation, which corporation was protected by the exclusive-
     remedy provisions of Ark. Code Ann.  11-9-105(a), no third
     party existed and section 11-9-410(b) was inapplicable. 

6.   Workers' compensation -- appellant's argument without merit --
     Commission had jurisdiction. -- Appellant's argument that the
     appellee hotel corporation qualified as a third party within
     the meaning of Ark. Code Ann.  11-9-410(b), was without
     merit; its complaint alleged no acts of negligence on the
     appellee corporation's part that would subject it to liability
     as a result of the plane crash; even if the owner's negligence
     could be imputed to the appellee corporation, jurisdiction
     still remained in the Workers' Compensation Commission
     pursuant to Ark. Code Ann.  11-9-105(a). 

7.   Workers' compensation -- appellant argued that appellee-owner
     and appellee-corporation were two distinct legal entities --
     corporation was persona of owner -- jurisdiction remained
     before Commission. -- Appellant's argument that appellee-owner
     and appellee-hotel corporation were two distinct legal
     entities without merit; the corporation was a persona of
     appellee-owner in that he was acting as owner, agent, and
     employee of the corporation at the time of the airplane crash
     that resulted in the employee's injuries; therefore, section
     11-9-105(a) placed jurisdiction before the Workers'
     Compensation Commission.

8.   Workers' compensation -- carrier's right to pursue tort claim
     against third parties arises solely by virtue of Ark. Code
     Ann.  11-9-410(b) -- carriers's claim as subrogee stood on
     same footing as employee's claim -- both employee and
     appellant precluded from pursuing claim against employer. --
     Appellant's argument that the exclusive-remedy provision of
     Ark. Code Ann.  11-9-105(a) applied only to the claims of
     employees against their employers and not to claims of
     insurance carriers against employers was without merit; a
     workers' compensation insurance carrier's right to pursue a
     tort claim against third parties arises solely by virtue of
     Ark. Code Ann.  11-9-410(b), which grants to the carrier a
     right of subrogation only; as a subrogee, appellant's claim
     stands on the same footing as the claim of the employee, to
     whose claim appellant was subrogated; since the employee was
     precluded by Ark. Code Ann.  11-9-105(a) from pursuing a
     claim against his employer, so was appellant.

9.   Workers' compensation -- compensable injury defined --
     Commission must make determination whether injury occurred
     within scope of employment. -- Arkansas Code Annotated section
     11-9-102(5)(A) (Repl. 1996) defines a compensable injury as an
     accidental injury arising out of and in the course of
     employment; thus, whether an injury is compensable for
     purposes of workers' compensation depends, in part, on whether
     the injury occurred within the course and scope of the injured
     employee's employment; this is an issue to be determined by
     the Commission in deciding whether to award benefits;
     therefore, appellant's contention that the injured employee
     was not acting within the course and scope of his employment
     when his injury occurred was one that should be made before
     the Workers' Compensation Commission because of the exclusive-
     remedy provisions of Ark. Code Ann.  11-9-105(a).

10.  Workers' compensation -- injured employee may not be entitled
     to receive disability compensation while also receiving full
     salary from employer -- defense should be asserted before
     Commission. -- Appellant's assertion that since the injured
     employee was being paid a full salary by his employer while he
     was disabled, appellant should not have been required to pay
     temporary total disability to him at the same time, was not
     reached; while under Ark. Code Ann.  11-9-807(b) (Repl. 1996)
     the injured employee may not be entitled to receive disability
     compensation while also receiving a full salary from his
     employer, this is a defense that should be asserted before the
     Workers' Compensation Commission.


     Appeal from Sebastian Circuit Court, Ft. Smith District; Don
R. Langston, Judge; affirmed.
     Brazil, Adlong, Murphy & Osment, by:  William Clay Brazil, for
appellant.
     Thompson & Llewellyn, P.A., by:  James M. Llewellyn, Jr., for
appellees.

     Sam Bird, Judge.
     This is an appeal from an order of the Sebastian County
Circuit Court, which granted the appelleeþs motion to dismiss
appellantþs complaint for lack of subject-matter jurisdiction
pursuant to Ark. R. Civ. P. 12(b)(1).  The court held that
jurisdiction for appellantþs claims lies in the Workersþ
Compensation Commission.  We agree and affirm.
     Appellee VNE, Inc. (hereinafter VNE), obtained a policy of
workersþ compensation insurance from appellant, Zenith Insurance
Company, covering the period of October 1, 1994, through October 1,
1995.  Appellant contends that in its application for that
insurance, VNE misrepresented to appellant that it did not own,
lease, or use an airplane.  On October 24, 1994, Jerry D. Gardner
(hereinafter Gardner), who, with his wife, owned both VNE and
Sierra Hotel Corporation (hereinafter Sierra), was piloting an
airplane owned by Sierra and occupied by Michael Coats, an employee
of VNE, when the airplane crashed.  As a result of the crash, Coats
sustained injuries.  The appellant investigated the airplane
accident and paid Coats temporary total disability benefits and
medical expenses.
     Appellant later filed a complaint against VNE, Gardner, and
Sierra seeking to recover the amount of workersþ compensation
benefits it had paid to Coats.  In its complaint and amended
complaints, appellant asserted four reasons it should be entitled
to recover.  First, it alleged that Gardner had misrepresented that
VNE did not own, lease, or use an airplane, that appellant had
relied upon those misrepresentations when it issued its workersþ
compensation policy, and that it would not have issued the policy
had Gardner not made such misrepresentations.  Second, appellant
alleged that Gardner had been negligent in operating the airplane
in which Coats was injured and that Gardnerþs negligence was the
proximate cause of Coatsþs injuries.  Third, appellant alleged that
it had paid Coatsþs workersþ compensation claims in reliance upon
representations by Coats that he was on an employment-related trip
for VNE at the time of the airplane crash, but that during his
deposition Coats admitted that he and Gardner were on a
recreational trip at the time of the crash and that he had earlier
lied about the purpose of the trip at Gardnerþs insistence.  And
finally, appellant alleged that Coats should not have been entitled
to workersþ compensation benefits because VNE continued to pay his
salary during the time he was receiving temporary total disability
payments from appellant.
     In response to appellantþs complaint, appellee filed a motion
contending that appellantþs cause of action for misrepresentation
about VNEþs ownership, lease, or use of an airplane should be
dismissed under Ark. R. Civ. P. 12(b)(6) for failure to state a
claim upon which relief could be granted, and that the other three
claims should be dismissed under Ark. R. Civ. P. 12(b)(1) because,
pursuant to Ark. Code Ann.  11-9-105(a) (Repl. 1996), these claims
were within the exclusive jurisdiction of the Workersþ Compensation
Commission.  The court granted appelleesþ motion.
      Appellant does not appeal the courtþs dismissal of the claim
of misrepresentation about the ownership, lease, or use of an
airplane.  Appellant appeals only that part of the trial courtþs
order that dismissed its second, third, and fourth claims.  We
affirm the circuit courtþs order because jurisdiction of
appellantþs second, third, and fourth claims properly lies in the
Workersþ Compensation Commission. 
           Negligence Claim Against Gardner and Sierra
     In accordance with Ark. Code Ann.  11-9-105(a), the rights
and remedies granted to employees under the Arkansas Workersþ
Compensation Law (Ark. Code Ann.  11-9-101 through Ark. Code Ann.
 11-9-1001 (Repl. 1996)) are within the exclusive jurisdiction of
the Arkansas Workersþ Compensation Commission.  Simply stated, an
employer that has secured to its employees the benefits of workersþ
compensation cannot be sued in tort by its employees for injury or
death arising out of their employment.  Only when the employer
fails to secure the payment of compensation for the benefit of an
employee who is injured or killed in the course of his employment
can the employee or his legal representative elect to maintain a
legal action in court for damages.  Ark. Code Ann.  11-9-
105(b)(1).
     However, an injured employee or the legal representative of a
deceased employee may, in addition to pursuing a claim for workersþ
compensation benefits, maintain an action in court against any
þthird partyþ who may be responsible for such injury or death.  
Ark. Code Ann.  11-9-410(a)(Repl. 1996); Wilson v. Rebsamen Ins.,
330 Ark. 687, 957 S.W.2d 678 (1997).  Arkansas Code Annotated
section 11-9-410(a) states that the employer or its workersþ
compensation insurance carrier has the right to receive notice of
the employeeþs third-party action and to join in that action if it
wishes.  Under Ark. Code Ann.  11-9-410(b), the employer or its
carrier that is liable for the payment of workersþ compensation
benefits may be subrogated to the employeeþs claim and assert an
action against a third party, but it must notify the employee in
writing that he has the right to pursue any benefits to which he
may be entitled in addition to the subrogation interest.
     In the case at bar, appellant contends that Gardner and Sierra
are third parties within the meaning of Ark. Code Ann.  11-9-
410(b) and claims that Coatsþs injuries resulted from Gardnerþs
negligence in the operation of Sierraþs airplane.  We do not agree
that Gardner is a third party within the meaning of Ark. Code Ann.
 11-9-401(b).  The Arkansas Supreme Court has defined a third
party under section 11-9-410 as þsome person or entity other than
the first and second parties involved, and the first and second
parties can only mean the injured employee and the employer or one
liable under the compensation act.þ  Wilson v. Rebsamen Ins., supra
(citing Neal v. Oliver, 246 Ark. 377, 438 S.W.2d 313 (1969)). 
Thus, under section 410, neither a workersþ compensation carrier
nor an employer can be a third party.  Wilson v. Rebsamen Ins.,
supra.
     In this case, the first party is the injured employee, Coats;
and the second party is the employer, VNE, or its workersþ
compensation insurance carrier, which is the appellant.  Since
appellantþs claim against third parties exists only by virtue of
Ark. Code Ann.  11-9-410(b), as a subrogee of Coats, appellant
stands in the same position as Coats, who is prohibited by Ark.
Code Ann.  11-9-105(a) from suing VNE.  Also, Gardner cannot be a
third party in this case because he is the sole owner and an
officer (and therefore a þpersonaþ) of VNE, Coatsþs employer, that
is protected by the exclusive remedy provisions of Ark. Code Ann.
 11-9-105(a).  Since no third party exists in the case at bar,
section 11-9-410(b) is simply not applicable. 
     Appellant argues that Sierra qualifies as a third party within
the meaning of Ark. Code Ann.  11-9-410(b), but its complaint
alleges no acts of negligence on Sierraþs part that would subject
it to liability as a result of the plane crash.  The complaint
filed by appellant states:
     That in the alternative, the plaintiff is entitled to
     reimbursement for sums paid to and to be paid to Coats
     based on the Workersþ Compensation claim from defendants
     Gardner and Sierra, jointly and severally. That on the
     23rd day of October, 1994, Gardner, acting as an owner,
     agent and employee of Sierra, failed to exercise
     reasonable case (sic) in the operation of the 703SR
     SeaRey amphibian airplane, owned by Sierra, in that when
     piloting the plane on said date, Gardner attempted to
     land on the Arkansas River on pontoons but negligently
     failed to cause the wheels to be raised, thereby causing
     the airplane to crash nose-first into the river where it
     first touched down, all of which was the proximate cause
     of Coatsþ injuries.
     Even if this court could construe the above-quoted portion of
appellantþs complaint to mean that Gardnerþs negligence should be
imputed to Sierra, jurisdiction still remains in the Workersþ
Compensation Commission pursuant to Ark. Code Ann.  11-9-105(a),
which clearly states,
     No role, capacity, or persona of any employer, principal,
     officer, director, or stockholder other than that
     existing in the role of employer of the employee shall be
     relevant for consideration for purposes of this chapter,
     and the remedies and rights provided by this chapter
     shall in fact be exclusive regardless of the multiple
     roles, capacities, or personas the employer may be deemed
     to have.
     
     Appellant argues that Gardner and Sierra are two distinct
legal entities.  However, Sierra is a persona of Gardner in that,
as the complaint states, Gardner was acting as owner, agent, and
employee of Sierra at the time of the airplane crash that resulted
in Coatsþs injuries.  Therefore, section 11-9-105(a) places
jurisdiction before the Workersþ Compensation Commission.
     Appellant also argues that the exclusive remedy provision of
Ark. Code Ann.  11-9-105(a) applies only to the claims of
employees against their employers and not to claims of insurance
carriers against employers.  However, this argument overlooks the
fact that a workersþ compensation insurance carrierþs right to
pursue a tort claim against third parties arises solely by virtue
of Ark. Code Ann.  11-9-410(b), which grants to the carrier a
right of subrogation only.  As a subrogee, appellantþs claim stands
on the same footing as the claim of Coats, to whose claim appellant
is subrogated.  Since Coats is precluded by Ark. Code Ann.  11-9-
105(a) from pursuing a claim against his employer, so is appellant.
                 Course and Scope of Employment
     The trial court also found that it did not have jurisdiction
because the appellant alleged in its complaint that appellee was
not working in the course and scope of his employment in that the
airplane trip was not related to Coatsþs employment with VNE. 
Appellant argues that it originally paid Coatsþs claims because it
relied upon representations by Coats that he was on an employment-
related trip at the time of the accident.  However, during a
deposition, Coats admitted that he and Gardner were on a
recreational trip.  The appellant originally paid compensation
benefits to Coats and is now seeking to recover the amount it paid
from Coatsþs employer by claiming that Coats was not working in the
course and scope of his employment when his injury occurred. 
Arkansas Code Annotated section 11-9-102(5)(A) (Repl. 1996) defines
a compensable injury as þ[a]n accidental injury ... arising out of
and in the course of employment ....þ  Thus, whether an injury is
compensable for purposes of workersþ compensation depends, in part,
on whether the injury occurred within the course and scope of the
injured employeeþs employment.  This is necessarily an issue to be
determined by the Commission in deciding whether to award benefits. 
Therefore, appellantþs contention in this action that Coats was not
acting within the course and scope of his employment when his
injury occurred is one that should be made before the Workersþ
Compensation Commission because of the exclusive remedy provisions
of Ark. Code Ann.  11-9-105(a).
  Salary Payment in Addition to Workers' Compensation Benefits
     In its second amended complaint, appellant asserts that it
learned that while it was paying benefits to Coats, Coats was in
turn receiving a salary from VNE.  The appellant contends that
since Coats was being paid a full salary by VNE while he was
disabled, appellant should not have been required to pay temporary
total disability to Coats at the same time.  Appellant seeks to
recover from VNE the amounts of disability compensation it alleges
that it erroneously paid to Coats.  While under Ark. Code Ann. 
11-9-807(b) (Repl. 1996) Coats may not be entitled to receive
disability compensation while also receiving a full salary from his
employer, this is a defense that should be asserted before the
Workersþ Compensation Commission.
     Affirmed.
     Meads and Roaf, JJ., agree.