THE EXCEPTIONS TO THE RULE: Understanding The Dual Capacity Doctrine

The Exclusive Remedy Rule is neither exclusive nor a remedy. What began as a cornerstone of the social insurance experiment known as workers’ compensation has become so riddled with leaks that employers and their insurers often give up on subrogation in order to protect themselves from liability they were never intended to bear. One of the biggest holes in the exclusive remedy dam is known as the Dual Capacity Doctrine. Like all of the other holes in the dam, it has gotten much bigger over the years. Understanding it is crucial to recovery efforts regardless of the state you are subrogating in.

The exclusive remedy provision of a state’s workers’ compensation act is a bar to all tort actions by an employee against an employer. A trade-off occurs because the employee sacrifices the uncertain common law remedy in tort for employment-related injuries in exchange for the certain recovery of workers’ compensation benefits, which are paid regardless of employer fault. In exchange for potentially unlimited liability even for the most innocent employer, the employee’s exclusive remedy against the employer is recovery of statutory benefits. An employee cannot sue his own employer in tort – or at least that’s the way it’s supposed to work.

Established exceptions to this exclusive remedy protection include intentional acts of the employer or co-employees, retaliatory discharge, and the employer’s failure to procure workers’ compensation coverage. What about when the employer wears more than one hat? The Dual Capacity Doctrine has evolved over time to allow tort actions against an otherwise protected employer who, in addition to acting as employer, also acts in another capacity.

First Adopted

The first court to adopt the Dual Capacity Doctrine was the California Supreme Court in 1952.[1] The employee was a nurse injured on the job and was negligently treated by a co-employee chiropractor. The employee sued the chiropractor and her employer and the Court eventually ruled that “an employee injured in an industrial accident may sue the attending physician for malpractice if the original injury is aggravated as a result of the doctor’s negligence, and that such right exists whether the attending doctor is the insurance doctor or the employer.” Accordingly, an employer normally shielded from tort liability under the Exclusive Remedy Rule may become liable in tort to its employee if, in additional to its capacity as employer, it occupies a second capacity conferring on it obligations that are independent of its obligations as an employer.[2] “[T]he decisive dual-capacity test is not concerned with how separate or different the second function of the employer is from the first but with whether the second function generates obligations unrelated to those flowing from the first, that of employer.”[3] Within moments after the crack in the dam appeared, the trial lawyers amassed at the gates.

To be liable under the Dual Capacity Doctrine, an employer must act in a capacity other than that of the employer.[4] The underlying public policy rational for the doctrine is that when an employee’s injury is caused concurrently by the employer’s breach of a duty owed to all members of the public, denying that person a common law cause of action would strip the employee of a cause of action available to nonemployees simply because he or she is an employee.[5] Over the years, at least eight distinct “other capacities” in which an employer may act, potentially exposing the employer to tort liability, despite the protection of the Exclusive Remedy Rule, have been considered by various courts.[6]

Manufacturer or Distributor of Defective Product

When the employer manufactures, modifies, distributes, or installs a product that causes an employee workplace injuries, courts have considered whether the employee may bring a product liability action against the employer. A minority of states have applied the Dual Capacity Doctrine in this context, requiring that the second persona of the employer be completely independent from his obligations as an employer. Under the minority view, the Dual Capacity Doctrine is applied (i.e., suit against employer allowed) if the defective product is sold to the general public, as well as provided to the employee for use (e.g., an employee of Chrysler is injured by a defective Chrysler vehicle).[7] The Dual Capacity Doctrine has been accepted in California,[8] Ohio[9] and Illinois[10], among other states.

On the other hand, the majority of states reject the Dual Capacity Doctrine in cases involving products made by the employer (i.e., suit against employer not allowed). These states include Arkansas[11], Indiana[12], North Dakota[13], and Oklahoma[14]. As the Oklahoma court stated:

The majority of jurisdictions have refused to apply the dual-capacity doctrine under a products liability theory, when the employer manufactures, modifies, distributes or installs a product used in the employee’s work. Application of the dual-capacity doctrine requires that the second persona of the employer be completely independent from his obligations as an employer. If the employer is also the manufacturer of the product which caused the employee’s injury, the two personas of manufacturer and employer are interrelated. An employer has a duty to provide a safe workplace for his employees. If an employer provides an employee with a defective machine or tool to use in his work, he has breached his duty as a manufacturer to make safe machinery, and his duty as an employer to provide a safe working environment. Yet, the two duties are so inextricably wound that they cannot be logically separated into two distinct legal personas.[15]

Provider of Medical Services

A second scenario in which an employer may be liable in tort under the Dual Capacity Doctrine involves an employer that provides medical services to its own employee. Duprey v. Shane, the first case to adopt the Dual Capacity Doctrine, was a California case that adopted the Dual Capacity Doctrine (i.e., suit against employer allowed) in the context of providing medical services.[16] Several states accept the doctrine in such a context, including Ohio.[17] On the other hand, the doctrine has been rejected under such circumstances (i.e., suit against employer not allowed) in Illinois,[18] Tennessee[19], Mississippi[20], and Florida.[21] The most common approach seems to be that the Dual Capacity Doctrine will expose the employer to liability only if the employer personally performs medical services. The rationale is that there is a crucial difference between paying for services and physically performing them, as it is impossible to cause physical injury by writing a check.[22]

Owner of Real Estate

There is virtually no support for application of the Dual Capacity Doctrine when the employer is sued as premises owner, typically in something akin to a slip and fall case. In Sharp v. Gallagher, the Illinois Supreme Court drove home the reason why. In Sharp, the employee was injured while working at a residential construction site, and the premises was also owned by contractor-employer through a land trust.[23] The Court held that an employer cannot be sued as the owner or occupier of land, whether the cause of action is based on common-law obligations of landowners or on a law such as a safe place statute or structural work act. Apart from the basic argument that mere ownership of land does not endow a person with a second legal persona or entity, there is an obvious practical reason requiring this result. The Court said that an employer, as part of his business, will almost always own or occupy premises, and maintain them as an integral part of conducting his business. If every action and function connected with maintaining the premises could ground a tort suit, the concept of exclusiveness of remedy would be reduced to a shambles.[24]

Employer is Self-Insured

It has been argued that an employer that is self-insured actually wears two hats, one as employer and the other as insurance company. However, there is very little support for applying the Exclusive Remedy Rule. The rationale is two-part: (1) self-insurance is within the scope of employer activity; and (2) taking on the role of an insurer does not give rise to an independent duty in terms of providing safe work premises, which is the employer’s duty.[25]

Most cases in this area are based upon negligent inspection of the premises. Generally, courts have rejected the Dual Capacity Doctrine in the context of an employer who is also a self-insurer (i.e., suit not allowed).[26]

Corporate Subsidiaries or Related Entities

The uniform rule is that the operation of different divisions within a corporation does not create separate capacities within the meaning of the Dual Capacity Doctrine. Even states which apply the Dual Capacity Doctrine in other situations generally do not apply the Dual Capacity Doctrine (i.e., allow suit against employer) in this context. In the cases that allow suit against a corporate subdivision or related corporation, the argument for imposing liability is that it is a separate division/entity of the employer’s business causes an employee’s injury.[27]

Government Divisions

The general rule is that an employee of one governmental division cannot sue the government when another governmental division causes the employee to suffer injuries.[28] Nonetheless, an argument can be made for applying the Dual Capacity Doctrine, as governments often have many employees and separate departments, which act independently.[29]

Employer as Vendor

When there is a vendor/vendee relationship between the employer and its employee, it has been argued that the Dual Capacity Doctrine should apply, but only if the employer is in the business of supplying the injury-causing goods or services. Two Michigan decisions explain this limitation. In Panagos v. North Detroit Gen. Hosp., a hospital employee cut his mouth on food purchased in a hospital cafeteria.[30] The Dual Capacity Doctrine was allowed, and a tort suit against the employer was allowed. The Court said that the plaintiff’s case was based upon the vendor-vendee relationship and the cause of action has nothing to do with the fact that the plaintiff also happened to be employed by the defendant. In Neal v. Roura Iron Works, Inc., an employee brought breach of warranty suit against employer, which sold the employee a glove which became caught in a drill press.[31] The Court distinguished Panagos and did not allow a suit because the plaintiff’s accident could not possibly have happened but for the fact that he was employed by the defendant as a drill press operator. Moreover, the gloves allegedly sold to the plaintiff were to be used by him in his capacity as an employee of the defendant, and it was while plaintiff was performing in this capacity that the accident occurred.

Statutory Duty Not Imposed By Workers’ Compensation Act

This final application of the Dual Capacity Doctrine has not been widely considered by U.S. courts. The question is whether the statutory duty arises independent of the employer-employee relationship. Because these cases concern very specific factual scenarios, the results have differed.[32]

Summary

Oliver Wendell Holmes once said that, “The young man knows the rules, but the old man knows the exceptions.” American courts have drilled a multitude of holes in the exclusive remedy protection provided by state workers’ compensation systems in the name of fairness and common sense. According to the Dual Capacity Doctrine, an employer who is generally immune from tort liability to an employee injured in a work-related accident may become liable to his employee as a third-party tortfeasor if he occupies, in addition to his capacity as an employer, a second capacity that confers upon him obligations independent of those imposed upon him as an employer. Subrogation professionals must be able to recognize when and under what circumstances this doctrine will come back to haunt them. Because liability of and a recovery by the employee from an employer wearing two hats usually doesn’t translate into a pool of money from which the workers’ compensation carrier can be reimbursed. And in the end, that is our goal.

If you should have any questions regarding this article or subrogation in general, please do not hesitate to contact Gary Wickert at [email protected].

[1] Duprey v. Shane, 241 P.2d 78, aff’d, 249 P.2d 8 (Cal. 1952).

[2] 2A A. Larson, The Law of Workmen’s Compensation, § 72.80.

[3] Id.

[4] Guy v. Arthur H. Thomas Co., 378 N.E.2d 488 (Ohio 1978).

[5] Perry v. Heavenly Valley, 163 Cal. App.3d 495 (Cal. App. 1985).

[6] See generally, Note, Worker’s Compensation: The Dual-Capacity Doctrine, 6 WM. MITCHELL L. REV. 813 (1980).

[7] See Weber v. Armco, Inc., 663 P.2d 1221, 1226 (Okla. 1983).

[8] See Douglas v. E. & J. Gallo Winery, 69 Ca. App.3d 103 (Cal. Ct. App. 1977) (employee injured when scaffolding manufactured by employer and on which employee was working collapsed).

[9] See Mercer v. Uniroyal, Inc., 361 N.E.2d 492 (Ohio Ct. App. 1976) (employee injured by defective tires that were manufactured by employer and coincidentally on truck leased by employer from another company).

[10] Smith v. Metropolitan Sanitary District, 396 N.E.2d 524 (Ill. 1979) (employee injured by employer’s leased truck with a defective emergency brake).

[11] Lewis v. Gardner Engineering Corp., 491 S.W.2d 778 (Ark. 1973) (defective pile driver).

[12] Needham v. Fred’s Frozen Foods, 359 N.E.2d 544 (Ind. App. 1977) (defective pressure cooker).

[13] Schlenk v. Aerial Contractors, Inc., 268 N.W.2d 466 (N.D. 1978) (defective wire winder).

[14] Weber, 663 P.2d at 1225-26.

[15] Id.

[16] Duprey, 241 P.2d 78, aff’d, 249 P.2d 8; See also D’Angona v. County of Los Angeles, 613 P.2d 238 (Cal. 1980) (aggravation of employee’s work-related disease by hospital doctors).

[17] Guy v. Arthur H. Thomas Co., 378 N.E.2d 488 (Ohio 1978) (hospital employee brought suit after employer-hospital failed to diagnose mercury poisoning).

[18] McCormick v. Caterpillar Tractor Co., 85 Ill 2d 352 (Ill. 1981) (malpractice of physician hired by employer).

[19] McAlister v. Methodist Hosp., 550 S.W.2d 240 (Tenn. 1977) (hospital employee injured by negligent treatment of back injury). The court said, “The employer is the employer, not some person other than the employer. It is that simple.”

[20] Trotter v. Litton Systems, Inc., 370 So.2d 244 (Miss. 1979) (infection caused by negligence of personnel at employer’s first aid station).

[21] Warwick v. Hudson Pulp & Paper Co., 303 So.2d 701 (Fla. Dist. Ct. App. 1974) (aggravation of back injury at in-house clinic).

[22] 2A A. Larson, The Law of Workmen’s Compensation, § 72.80.

[23] Sharp v. Gallagher, 447 N.E.2d 786 (Ill. 1983).

[24] Id.

[25] See Note, Workers’ Compensation: The Dual-Capacity Doctrine, 6 WM. MITCHELL L. REV. 813 (1980).

[26] See Adair v. Moretti-Harrah Marble Co., 381 So.2d 181 (Ala. 1980) (“Here, we begin with the premise that the employer is not a third party. Just as the carrier cannot be the employer, the employer cannot be a party ‘other than the employer.’ We do not believe that the totality of the Workmen’s Compensation Act contemplates the transformation from employer to third party by its performance, or lack of performance, of work-related activities such as safety inspections.”); Denman v. Duval Sierrita Corp., 558 P.2d 712 (Ariz. Ct. App. 1976) (action based on negligent inspection by the employer/self-insurer) (In Arizona, the Court considered but rejected the doctrine, saying, “Appellant theorizes that appellee is acting in a dual capacity and as an insurance carrier is a third party liable in common law negligence. This theory is without support in the case law or logic. It defeats the public policy of the State of Arizona as set forth in the Workmen’s Compensation statutes. It would work to penalize the self-insurer and is without merit.”); Swain v. J.L. Hudson Co., 230 N.W.2d 433 (Mich. Ct. App. 1975) (“We fail to see why the assumption of an employer’s own insurance risk should alter the clear meaning of this [worker’s compensation] statute. A self-insured employer cannot be a ‘third party’ against whom an employee may institute suit.”).

[27] See Mercer v. Uniroyal, 361 N.E.2d 492 (Ohio App. 1976) (“In recent years, corporations and employers have entered a variety of fields and economic factors have promoted diversification rather than specialization. Conglomerates have become the rule. A corporation’s economic structure should not dictate the right of the injured to recover or that each new corporate merger erases a like number of causes of action”).

[28] See Note, Workers’ Compensation: The Dual Capacity Doctrine, 6 WM. MITCHELL L. REV. 813 (1980) (collecting cases); see also 2A A. Larson, The Law of Workmen’s Compensation, § 72.80.

[29] Bradshaw, The “Dual-Capacity” Doctrine: Employer Tort Liability for Certain Work-Related Injuries, Minn. Tr. Law, July 1978.

[30] Panagos v. North Detroit Gen. Hosp., 192 N.W.2d 542 (Mich. Ct. App. 1971).

[31] Neal v. Roura Iron Works, Inc., 238 N.W.2d 837 (Mich. Ct. App. 1975).

[32] In Wisconsin, an employee was a national guardsman injured as a result of the negligence of another guardsman and sought to recover under a Wisconsin statute requiring the state to pay a judgment entered against a guardsman acting in good faith. This suit was allowed because, according to the court, the state is wearing two hats, that of employer and that required of it under the guardsman statute. Mazurek v. Skarr, 210 N.W.2d 691 (Wis. 1973). In New York, the Court of Appeals adjudicated a case in which an employee injured in an accident while being driven home in car owned by employer sought to recover under New York’s vicarious liability statute which imposes liability on a vehicle owner for negligence of any person operating vehicle with owner’s permission. Suit was not allowed because to allow the suit was to thwart the legislative purpose of the exclusive remedy provision. It seems that the essential question is whether the statutory duty arises independent of the employer-employee relationship. Naso v. Lafata, 152 N.E.2d 59 (N.Y. Ct. App. 2005).

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Gary L. Wickert
Partner

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has nearly four decades of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.