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AIG/AIU Insurance Co. v. South Akers Mining Co.11/24/2004
AFFIRMING
Ronnie Charles, an underground miner, was killed in a tragic roof fall accident while employed by South Akers Mining Company. The Mine Safety and Review Commission found that South Akers failed to follow its roof plan, endangered its miners, and violated several mine-safety statutes and regulations. An Administrative Law Judge awarded Charles's wife, Tammy, and his son, Cody, benefits, including a 15 percent increase in compensation, based on South Akers's failure to follow safety regulations. The ALJ also held AIG/AIU Insurance Company, the workers' compensation carrier for South Akers, responsible for payment of the increase in compensation benefits. AIG appealed and the Workers Compensation Board affirmed the ALJ's decision.
The questions we are asked to review are whether the insurance policy between AIG and South Akers shields AIG from liability for the increase in compensation, and whether the statutory scheme of workers' compensation necessarily places responsibility for payment of the increase on AIG. Because we believe that the insurance contract cannot trump the statutory requirements, and because we believe the statute holds AIG responsible for the payment, we affirm the decision of the Board.
The facts of this case are not in dispute. Therefore, we need only address the legal arguments.
AIG first argues it should not be held liable for the 15 percent increase in compensation because its insurance policy with South Akers shields AIG from liability when there has been a violation of the law or safety regulations. The pertinent portion of the insurance policy reads:
F. Payments You Must Make
You are responsible for any payment in excess of the benefits regularly provided by the workers compensation law including those required because:
1. of your serious and willful misconduct;
2. you knowingly employ an employee in violation of law;
3. you fail to comply with a health or safety law or regulation; or
4. you discharge, coerce or otherwise discriminate against any employee in violation of the workers compensation law.
If we make any payments in excess of the benefits regularly provided by the workers compensation law on your behalf, you will reimburse us promptly.
AIG argues that since "contracts voluntarily made between competent persons are not to be set aside lightly," the contract, rather than the statute, in this case, is controlling. We disagree.
In Beacon Ins. Co. of America v. State Farm Mutual Ins. Co., the Kentucky Supreme Court recognized that "while the right to contract is one of the most basic rights possessed by the citizenry, this right must however yield to the public policy of the state as declared by our General Assembly." Our courts have interpreted the purpose of the "penalty" provision of KRS 342.165 to be the promotion of "workplace safety by encouraging workers and employers to follow safety rules and regulations."
AIG argues that since the applicable provision in the insurance policy does not expressly offend the public policy underneath KRS 342.165, the contract should control. In support of this argument, AIG posits that since the goal of the statute is to promote workplace safety, then the 15 percent increase is a "penalty" imposed on the employer to deter blameworthy conduct. Thus, AIG asserts the 15 percent increase is not "compensation" and, therefore, is not covered by South Akers's workers' compensation insurance.
We agree that the purpose behind KRS 342.165 is to promote safety. But we also believe that the whole of the Workers' Compensation
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