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July 28, 2016  

 
 Q&A of the Week
Social or Recreational Activity and WC

A Wyoming subscriber recently asked the following question:

An employee was attending a party sponsored by his employer after working hours. The employer catered food and soft drinks but no alcoholic beverages. However, some employees purchased beer and alcohol and set up an area outside the employer's building on the public sidewalk for the employees to drink if they chose to do so. After drinking several bottles of beer, the employee got into a fight with another employee and was seriously injured. The injuries kept the employee from returning to work. The employee then sought workers compensation benefits.
Is the injured employee entitled to WC benefits considering his injuries probably arose from drinking alcohol?


ANSWER: Various courts have held that in order to determine whether an employee's participation in social or recreational activities is job-related, the following items should be considered: whether the activities occur on the employer's premises during a social or recreational period as a regular incident of employment; or, whether the employer, by expressly or impliedly requiring participation or by making the activity part of the services of the employee brings that activity within the orbit of employment; or, whether the employer derives substantial direct benefit from the activity beyond the intangible value of improvement in the employee health and morale that is common to all kinds of recreation and social life.
Based on your description of the incident, the employer did not sponsor the drinking of alcohol or serve alcohol, and the actual drinking and fight occurred on a public area, not in the employer's building. Moreover, the employer certainly did not derive any benefit from the drinking and fighting among employees. It is our opinion that the employee was not injured as a result of employment; that is, there was no causal connection between the employment and the injury and the injury did not arise out of and in the course of employment. So, the employee should not receive WC benefits.
 
 Litigation Watch
Misrepresentations Void Coverage

The insurer brought an action against the insured for a declaratory judgment that the crime policy was void due to misrepresentations in the application. This case is Georgia Casualty & Surety Company v. Valley Wood, 783 S.E.2d 441 (2016).

The evidence introduced at trial showed that the co-owner of Valley Wood obtained insurance coverage with Georgia Casualty through the insurance agent, Lanier. It is undisputed that the insurance application submitted by Lanier to the insurer were not signed. In fact, the co-owner of Valley Wood, Ramey, testified that he did not see the application and that he was never asked questions by anybody pertaining to the application. An underwriter with Georgia Casualty testified that he received the application through an e-mail form the Lanier agency and that he would have rejected the application for crime coverage if the app had stated that Valley Wood did not audit with a certified public accountant and did not require countersignatures on checks. The underwriter also said that this decision was based on the applications.

The trial court denied the insurer's motion and this appeal followed.

The Court of Appeals of Georgia noted that it had to determine whether Georgia Casualty was entitled to a directed verdict. The court said that it was well-established that the insurer need not show actual knowledge of the falsity of misrepresentations in order to prevent a recovery under the policy. The undisputed evidence showed that the use of a CPA audit and a requirement that checks be countersigned were material to the insurer's decision to issue crime coverage to Valley Wood, and that it would not have issued the policy if it had known the true facts.

Valley Wood argued that it cannot be bound by misrepresentations in an unsigned application submitted by its insurance agent. The court concluded that this argument has no merit. The insurance agent is the agent of the insured and in this instance, the evidence showed that the Lanier agency was authorized to procure insurance on behalf of Valley Wood, and its conduct in submitting an application for insurance would undoubtedly fall within the scope of its agency relationship.

The insured also argued that the insurer's failure to timely rescind the policy and return the premium precludes a directed verdict in Georgia Casualty's favor. The court disagreed. The court noted that the purpose of a declaratory judgment is to settle and afford relief from uncertainty and insecurity with respect to rights status and other legal relations. The law is well established that declaratory judgment is not available where a judgment cannot guide and protect the petitioner with regard to some future act, as where an insurance company has already denied a claim.

The Court of Appeals reversed the trial court's denial of a directed verdict in favor of the insurer on the issue of whether the policy was void based upon misrepresentations in the application.

Editor's Note: The Court of Appeals of Georgia rules that misrepresentations in this case were material to the insurer's decision to issue the crime policy and so, the coverage was voided. This was so even though the insured did not sign the application.

This case is presented to show the agency relationship between the insured and the insurance agent, and to show the purpose and well-established law pertaining to a declaratory judgment.
 
 Fraud of the Week
Auto Fraud – Washington
AMOUNT: $5,600


A woman involved in a collision filed claims for injuries from the accident and received $5,600. She had actually had the claims paid for by her medical insurance. She was in another accident a few months later and filed a claim, which the carrier turned in to the insurance department's SIU. She pleaded guilty to fraud, was ordered to pay restitution for the $5,600 and $600 in court costs, and to serve eighty hours community service. Full restitution is yet to be determined.
 
   
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