The Erosion of Employer Immunity in Tort Litigation

The present workman’s compensation system in the United States has serious flaws. Scheduled awards are inadequate in some states, and their inadequacy fosters specious litigation against remote third parties who are not able to control the workplace use of hazardous materials. In many states, premiums are set on an industry-wide basis, and thus careless employers are not handed incentives to improve workplace hygiene. With awards low, and without the need to rate individual employers, compensation insurers do not adequately inspect and control individual employers’ conduct. Workman’s compensation statutes provide a lien against any third-party recovery, which means that employers (and their insurers) will be rewarded for their negligence if injured employees can frame liability suits against third-parties, such as suppliers of raw materials to the employers.

For the most part, organized labor and management reached their great compromise over occupational injury litigation back from about 1911 through the early 1930s. Before the passage of the various compensation acts, employees had common law negligence actions against employers for deviations from reasonable care. In some part of the country, juries were extremely sympathetic to injured workers, and equally hostile to employers. At the same time, employers had powerful defenses in the form of contributory negligence, which barred claims by workers who were the least bit careless for their own safety. The fellow-worker rule, assumption of risk, and statutes of limitations further diminished workers’ likelihood of success in pursuing tort claims. One option that was not on the table in the negotiations was to open up liability of remote vendors to employers as a way to mitigate the hardships of the common law tort system. Remote suppliers had even more potent defenses in the form of privity of contract, intervening and superseding negligence of the employers and employees, and all the other defenses that employers enjoyed. More important, however, the interlocutors realized that employers controlled the workplace, and had the greatest opportunity to prevent industrial injuries and occupational disease. When the workman’s compensation bargain was struck, labor knew that the scheduled awards would be workers’ sole or main source of compensation.

Worker’s compensation statutes made recovery for most injuries a certainty, with schedules of damages that were deeply discounted from what might be had in a jury trial. In return for well-nigh absolute liability, employers gained certainty of outcome, reduction of administrative costs, and immunity to tort liability for all but intentional harms. The remedial compensation statutes gave employers immunity, but they did not eradicate the basic common law bases for suits against employers. But for the worker’s compensation statutes, employees would have rights of action against employers. Gaps in the compensation acts translated into gaps in immunity, and reversion to the common law of negligence.

The predicate for the “deal” began to disintegrate after World War II. For one thing, changes in tort law diminished the defenses that employers had exercised so effectively before the deal. Contributory negligence gave way to comparative negligence.  Assumption of risk defenses were curtailed, and the fellow-servant rule was severely modified or abandoned.

Just when Labor might have been feeling consumed by buyer’s remorse over its deal, strict liability principles began to replace privity doctrines. In 1965, the American Law Institute adopted § 402A which provided for “Special Liability of Seller of Product for Physical Harm to User or Consumer,” based upon concerns of unequal knowledge of defects and latent hazards of products sold to consumers. Liability followed for harm caused by a product irrespective of privity of contract or warranty, and even if “the seller has exercised all possible care in the preparation and sale of his product.” Restatement (Second), Torts § 402A (2)(a),(b) (1965).

Section 402 became the vehicle for injured workers to ditch their capped damages in worker’s compensation court, and to put their cases back in front of juries, with the prospect of unlimited awards for non-economic damages. Although instigated by the perceived imbalance of knowledge between manufacturers and buyers with respect to design and manufacturing defects, strict liability doctrine quickly became a vehicle for redressing inadequacies in the workman’s compensation systems. What was problematic, however, was that there was often no inequality of knowledge between seller and purchaser, or hidden or latent hazard in the product or material.

There are exceptions to the exclusivity of workman’s compensation remedies against employers. One exception, available in most states, is for intentional torts committed by employers. The scienter requirement for intentional torts allowed only very few cases to proceed against employers in tort. A bigger gap in immunity, however, was opened in Pennsylvania, where workers regained their common law right to sue employers for negligence and other torts, for occupational diseases that manifest more than 300 weeks after last employment. Section 301(c)(2) of the Pennsylvania’s Workman’s Compensation Act, 77 P.S. § 411(2) removes these delayed manifested occupational disease claims from the scope of Pennsylvania’s Act. The Pennsylvania Supreme Court filled in the obvious logical gap: if the Act did not apply, then the employer had no immunity against a common law cause of action, which was never abolished, and was unavailable only when there was a statutory remedy under the Act. Tooey v. AK Steel Corp., 81 A.3d 851 (2013); “Pennsylvania Workers Regain Their Right of Action in Tort against Employers for Latent Occupational Diseases” (Feb. 14, 2014). See also Gidley v. W.R. Grace Co., 717 P.2d 21(Mont. 1986)).

The Tooey decision has the potential to open an important door for plaintiffs and defendants alike. With employer immunity erased, the employer’s duty of reasonable care to protect the health and safety of its employees can once again be harnessed to improve the lot of workers, without concocting Rube-Goldberg theories of liability against remote suppliers and premise owners. Juries will see the entire evidentiary case, including the actions and omissions of employers, which will tend to exculpate remote suppliers. Employers will be given incentives to train employees in workplace safety, and to document their efforts. Employers will assert comparative negligence and assumption of risk defenses, which will give the lie to the plaintiffs’ claims of inadequate warnings from the remote suppliers.  Tooey, and the prospect of employer liability, has the potential to improve the truth finding ability of juries in tort cases.

Folta v. Ferro Engineering, 2014 IL App (1st) 123219.

In June of last year, the Illinois intermediate appellate court followed the Pennsylvania Supreme Court’s lead in Tooey, and decided to allow a direct action against an employer when the employee’s claim was not within the scope of the Illinois workers’ compensation act. Folta v. Ferro Eng’g , 14 N.E.3d 717, 729 (Ill. App. Ct.), appeal allowed (Ill. S. Ct. Sept. 24, 2014). See Steven Sellers, “Workers’ Compensation System Threatened By Illinois Asbestos Decision, Companies Say,” 43 Product Safety & Liability Reporter (Jan. 8, 2015).

James Folta developed mesothelioma 41 years after leaving his employment with Ferro Engineering, a latency that put his claim outside the Illinois Workers’ Compensation Act and Workers’ Occupational Diseases Act. The panel of the intermediate appellate court held that the same latency that denied Mr. Folta coverage, also worked to deny the employer immunity from common law suit. Mr. Folta’s asbestos exposure occurred at his Ferro workplace, from 1966 to 1970, during which time raw asbestos and many finished asbestos product suppliers provided warnings about the dangers of asbestos inhalation.

The BNA reporter, Mr. Sellers, quoted Mark Behrens, of Shook, Hardy & Bacon, as stating that:

“This case is part of an emerging national attack on state workers’ compensation systems by the personal injury bar.”

Id. Perhaps true, but the systems have been under critical attack from the public health community, legal reformers, labor, and industry, for some time. No one seems very happy with the system except employers in the specific moment and circumstance of asserting their immunity in tort actions. The regime of worker compensation immunity for employers has failed to foster worker safety and health, and it has worked to shift liability unfairly to remote suppliers who are generally not in a position to redress communication lapses in the workplace.

The Illinois Supreme Court has allowed Ferro Engineering to appeal the Folta case. Not surprisingly, the American Insurance Association, the Property Casualty Insurers Association of America and the Travelers Indemnity Company have filed an amicus brief in support of Ferro. Various companies — Caterpillar, Inc., Aurora Pump Co., Innophos, Inc., Rockwell Automation, Inc., United States Steel Corp., F.H. Leinweber Co., Inc., Driv-Lok, Inc., Ford Motor Co., and ExxonMobil Oil Corp. — have also banded together to file an amicus brief in support of Ferro. Ironically, many of these companies would benefit from abandoning employer immunity in occupational disease litigation. Taking the short view, the defense amicus brief argues that the Illinois Appellate Court’s decision distorts the “delicate balancing of competing interests,” and will lead to a flood of asbestos litigation in Illinois. The defense amicus further argues that the intermediate appellate court’s decision is “the first step towards unraveling the quid pro quo embodied in the acts.”

The problem with the defense position is that there already a flood of asbestos litigation in Illinois and elsewhere, and the problem lies not in damming the flood, but ensuring its equitable resolution. Divining what a legislature intended is always a risky business, but it seems unlikely it had any clear understanding of diseases with latencies in excess of 25 years. And while the Ferro decision has the potential to unravel the defense’s understanding of employer immunity in long-latency occupational disease cases, the real issue is whether bringing the employer to the table in civil litigation over occupational diseases will result in more equitable allocation of responsibility for the harms alleged. Even a “wrong” decision by the Illinois Supreme Court will have the advantage of inciting the Illinois legislature to clarify what it meant, and perhaps to recalibrate tort law to acknowledge the primary role of employers in providing safe workplaces.

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