Legal Lines


Parent & Subsidiary Share Liability/Protection

By Sharon Funcheon Murphy - Lewis Wagner LLP
| Date: 11/01/2011

Not everyone notices when the Indiana Workers’ Compensation Act is amended, and such amendments can be extremely important in defending or prosecuting a claim. Hayes Lemmerz Intl. Inc., v. ACE American Ins. Co. (2010 WL 3398152) is an example of the cost of missing the actual language of the statute.

In 2005 a worker for a subsidiary of Hayes Lemmerz was injured in an explosion at a plant in Huntington and another worker was killed. Litigation was filed against the parent corporation, Hayes Lemmerz International, in civil court. No reference was made in the suit that the workers were employees of a subsidiary corporation, and neither party evidently felt that fact was relevant. ACE American Ins. Co. was notified of the suit as they had insurance coverage for the parent corporation, and it agreed to share the cost of the defense but did not assume control of the defense. The trial court initially ruled that Hayes Lemmerz International was not the plaintiffs’ employer, but it was never provided with the pertinent language from the Workers’ Compensation Act in making that ruling.

Because of an amendment to Indiana Code §22-3-6-1(a) in 2001, the employer of a worker is defined as both the subsidiary for whom he works and the subsidiary’s parent corporation. This change occurred in response to the prior case of McQuade v. Draw Tite, Inc., 659 N.E.2d 1016 (Ind.1995) in which the Indiana Supreme Court held that a parent corporation could not avoid civil liability if its corporate structure separated it from the subsidiary company that actually employed the worker. The McQuade court reasoned that the corporation could not enjoy the legal protection afforded by its structure and ignore the division between the entities concerning workers’ compensation matters (essentially declining to pierce the corporate veil to protect the party who erected it.)

The most noteworthy example of how the McQuade holding was applied, before the statute was amended, is the 2001 case of Ritter and Kroger Co. v. Stanton, 745 N.E.2d 828 (Ind.App. 2001). In that case, a truck driver brought a personal injury claim against Kroger for an accident that occurred on Kroger property while he was working for a wholly-owned subsidiary. The jury verdict of $55 million against Kroger was affirmed on appeal, and Kroger was not allowed to raise the bar against civil liability that protects employers even though the employer was a wholly owned subsidiary of Kroger.

Amending the statute in 2001 only solved the problem, however, if attorneys know of the amendment and bring it to the attention of the Court. In the recent case of Hayes Lemmerz v. ACE, counsel for Hayes Lemmerz failed to assert the fact that the parent corporation now shares the same protection against civil liability that the subsidiary (direct employer) has under the Act, and it litigated the issue for two years, at a cost of $267,000, attempting to prove to the trial court that the parent corporation was actually the employer. As noted by the Appellate Court, this “issue” was covered by the 2001 amendment to the Act, but the attorneys failed to cite the relevant language of the Act during the course of the litigation. When Hayes Lemmerz sought reimbursement by ACE for the costs of the litigation on this issue, the 7th Circuit Court of Appeals had no problem in denying reimbursement for those fees on the basis they were not reasonable expenses of litigation. The assertion by Hayes Lemmerz that ACE should have “taken over” the defense of the claim and, thereby, avoided the “mistake” their counsel had made, did not prove persuasive to the Court.