A federal judge in the Western District has reversed his own previous ruling after determining that the power to rescind workers’ compensation coverage lies exclusively with Pennsylvania’s state workers’ compensation system.
U.S. District Judge Kim Gibson of the Western District of Pennsylvania’s ruling came in American Builders Insurance v. Custom Installations Contracting Services, an insurance dispute relating to an injured roofer who plummeted 25 feet to the ground.
In undoing his previous ruling rescinding coverage, Gibson said insurance companies have an available state remedy to rescind workers’ compensation coverage and it would therefore be improper to allow them to file parallel actions in federal court.
Gibson said plaintiff American Builders Insurance Co.’s reliance on a pair of Eastern District of Pennsylvania rulings in American Home Assurance v. Church of Bible Understanding, in which the court found it was proper to decide a recission claim, was unpersuasive because that case appears to have been wrongly decided.
“The court is persuaded by the case law that the rescission claim is covered by the exclusivity provision and outside the scope of its jurisdiction,” Gibson said.
American Builders sells workers’ compensation insurance policies to building companies, but does not insure for roofing work done above 15 feet. According to Gibson’s opinion, Custom Installations either by mistake or misrepresentation told American Builders it did not engage in work above 15 feet, prior to the time James Scott Jr. fell and was paralyzed.
In federal court, American Builders asked for summary judgment on the rescission claim and it was granted. But then American Builders requested a preliminary injunction and restraining order in a collateral workers’ compensation proceeding that the court was unaware of and, as Gibson described in his opinion, “the case dissolved into unforeseen confusion.”
American Builders used the rescission order to file a petition to terminate its obligations to Scott and Custom Installations. Custom Installations argued that Scott needed the money because he was seriously injured and was still hospitalized and hooked up to breathing machines.
The focus also moved to whether the federal court had jurisdiction to disturb an administrative law judge’s ruling putting a stay on the workers’ compensation litigation, ordering American Builders to keep paying benefits to Scott.
“To be sure, the court understands American Builders position and frustration,” Gibson said. “If its version of events is accurate, it only issued the insurance policy to Custom based upon misrepresentations, and now has had to pay over one million dollars and may be required to pay much more.”
He continued, “Hopefully this will all be considered by the [administrative law judge] and the appeals board. None of which, however, changes the conclusion that this court does not have jurisdiction to rescind the insurance policy. The court’s Sept. 7, 2016, summary judgment order will be vacated and the rescission claim will be dismissed.”
John A. Bass of Burns White in Pittsburgh represents American Builders and did not respond to a request for comment.
Anthony E. Patterson of Anthony E. Patterson & Associates in Pittsburgh represents Custom Installations and did not respond to a request for comment.