Common Law Right Eliminated by Statute

No Right to Rescind Workers’ Compensation in Mississippi

Barry Zalma

Jul 11, 2024

Transcript

THE WORKERS’ COMPENSATION STATUTE

The MWCA is silent with regard to the equitable remedy of rescission as are most statutes that have no reason for a statute to deal with equitable remedies.

The statutory contractor (who will be on the hook if the subcontractor’s insurer is permitted to void the policy) argued that, because the MWCA does not provide for rescission-only cancellation and nonrenewal – then rescission is not an available remedy. The insurer (who will be on the hook for millions of dollars if not permitted to void the policy) argued that, because the legislature opted not to address rescission in the MWCA, reasonably argued that the common law remedy of voiding the policy ab initio is available.

The Mississippi Supreme Court noted that a workers’ compensation policy is different. Not only is it governed exclusively by statute, but also it exists to pay benefits to the injured worker.

Because the MWCA makes no provision for an insurer to void a workers’ compensation policy based on a material misrepresentation and because the MWCA exists to ensure injured workers are compensated, the Supreme Court concluded that the MWCA does not allow insurers to void ab initio a workers’ compensation policy based on an employer’s material misrepresentation.

BACKGROUND FACTS

The employer is Hector Ruiz, doing business as Los Primoz Construction. Ruiz was performing work as a subcontractor for contractor Jesco, Incorporated, when his employee Raul Aparacio fell more than fifteen feet and severely injured himself.

Ruiz had a workers’ compensation insurance policy with the American Compensation Insurance Company (ACIC). ACIC initiated a declaratory action in federal court seeking to retroactively void the policy. ACIC alleged that Ruiz materially misrepresented in his application that his company did not perform work more than fifteen feet above ground. ACIC asserted that, had Ruiz been truthful, ACIC would not have issued the policy. It argued that since the statute did not change the common law right to rescind a contract it was entitled to rescind.

The Mississippi Workers’ Compensation Act (MWCA) Controls

The Mississippi Workers’ Compensation Act (MWCA) represents a wide departure from common law by providing compensation to employees accidentally injured during the course and scope of their employment, regardless of fault. This right to recovery comes at the exchange or abrogation of the common law right to recovery from a potentially negligent employer.

RESCISSION IS INCONSISTENT WITH THE STATUTE

Rescission is a retroactive remedy and renders a contract unenforceable from the outset. In the workers’ compensation context, however, the Supreme Court found that allowing rescission is tantamount to allowing an insurer to retroactively cancel a policy rather than the common understanding that a rescinded policy never existed.

The Supreme Court concluded that in Mississippi, voiding the policy ab initio is inconsistent with the “purpose” of Section 71-3-77(1)-which is to provide assurance to the commission that eligible employees are protected under the act.

Finding the MWCA precludes a common law rescission action, the Supreme Court does not hold that an insurer like ACIC has no remedy against an employer who allegedly makes a material misrepresentation. The sole question is whether the MWCA permits the remedy of voiding a policy ab initio based on an employer’s material misrepresentation. And to this question, the Supreme Court answered “no,” it does not.

COLEMAN, JUSTICE, DISSENTING:

Justice Coleman noted that Mississippi has recognized and followed a robust common-law of contracts since well before the State adopted its Workers Compensation Law in 1948 and there is nothing in the Workers’ Compensation Law generally, and nothing in Section 71-3-77 specifically, that abrogates the common law of contracts principle that a contract based on a material misrepresentation is void ab initio. Justice Coleman disagreed with the majority’s holding and answer to the Fifth Circuit’s question because, according to well-settled law, a clear statement of intent, not silence, is required to abrogate the common law.

ZALMA OPINION

Mississippi, like almost every state, applies the common law and its equitable remedies. One of those remedies is called rescission that finds it is unfair to require a person to fulfill the terms of a contract that is obtained as a result of a misrepresentation or concealment of facts material to the acceptance of the contract and treats such contracts as if they never existed. That common law right can only, in my opinion, be eliminated by a direct and specific action of the Legislature. By allowing rescission, the employer instead of the insurer must pay for the workers’ compensation benefits owed to the injured employee, and allowing rescission might deprive that employee of the benefits does not support forcing the insurer to pay millions of dollars of benefits it would not have owed had the insured been truthful. I understand why the court did what it did but believe Justice Coleman was more in line with the law since the Legislature could have included in the statute the elimination of the right to rescission. It did not.