Rauschan v. State Compensation Insurance Fund

This is an action in tort and was brought by the plaintiff to recover damages upon two separate and distinct causes of action—the one, for the utterance by the defendant Gilbert, “as the servant and agent of the (defendant) State Compensation Insurance Fund,” of certain alleged slanderous language and words of and concerning plaintiff, and involving the statement that plaintiff was afflicted with a loathsome disease, and the second founded upon the charge that, by reason of said alleged slanderous language and words, as so uttered by said Gilbert, they having been uttered in the presence of the wife of the plaintiff, the latter lost the affection, consortium, society, etc., of his said wife, or, in other words, that the utterance of said language and words, as explained, caused the alienation from plaintiff of the affection, consortium, etc., of his wife.

The defendant State Compensation Insurance Fund, to which hereinafter Ave will refer as the “ Compensation Fund,” interposed a demurrer to the complaint upon both general and special grounds. The court sustained the demurrer so interposed, “without leave to amend.” Judgment was thereupon entered dismissing the action as to the demurring defendant. The plaintiff appeals from said judgment.

The plaintiff, by this action, seeks to fasten upon the defendant Compensation Fund liability for the damage he claims to have sustained by reason of the alleged slanderous words used by the defendant Gilbert of and concerning plaintiff and for the loss by him of the affection, consortium, etc., of his Avife, because of the utterance of said language" and Avords in her presence and hearing, upon the theory that Gilbert, at the time he used the alleged slanderous language, was the agent of the other defendant and then acting Avithin the scope of his authority as such agent.

The complaint alleges that the defendant Compensation Fund was and is a corporation, organized under the laAvs of the state of California, and “was and is duly and regularly in the business of acting as an insurance carrier for employees and others in said state, under the provisions of the Workmen’s State Compensation, Insurance and Safety Act of the state of California, for profit”; that Dr. Ramon

It is then alleged that the “words so spoken and published were and are deliberately false and defamatory,” were so known to be by said Gilbert, and were made maliciously and “with the object to frighten plaintiff and cause him to abandon his claim for compensation for said injury, which said claim had been filed with and was then pending before the Industrial Accident Commission of the state of California, and were intended to save the said defendant State Compensation Insurance Fund from paying compensation to plaintiff to which he was lawfully entitled.”

The complaint proceeds to allege that the plaintiff has been greatly damaged in his good name and reputation as a result “of the speaking and publication of the said words” by defendant Gilbert, as alleged; that, ever since the utterance of said words by said Gilbert, the marital" relations of plaintiff have been disrupted; that his wife, ever since the utterance of said words as indicated, has vilified plaintiff, has wrongfully accused him of promiscuous sexual relations with other women than herself and has and does wrongfully characterize him in language befitting one who habitually engages and has engaged in indiscriminate immoral relations with disreputable females; “that since the said speaking of the said words, plaintiff’s wife has refused and still refuses to have any marital relations with plaintiff, and because of the premises plaintiff has been deprived of his domestic happiness.” For the damage so set up and claimed, plaintiff asks for an award of $25,000.

The Second cause of action, as we have seen, is for the alleged loss by plaintiff of “comfort, consortium and affection” of his wife, the direct result, as the complaint alleges, of the utterance by defendant Gilbert, under the circumstances described in the statement of the first cause of action, of the Avords therein set forth and which constitute the grounds of complaint herein. For the damage so claimed plaintiff also asks for the sum of $25,000.

[1] An act known as the Workmen’s Compensation Act was passed by the legislature of 1911 (Stats. 1911, p. 796). In October, 1911, the people adopted and added to article XX of the constitution, section 21, expressly authorizing the legislature to create and enforce a liability on the part of all employers to compensate their employees for any injuries incurred by said employees in the course of their employment, irrespective of the fault of either party. (Stats. 1911, p. 2179.) In pursuance of said amendment to the constitution the legislature in 1913 passed a law entitled in part: “An act to promote the general welfare of the people of this state as affected by accident causing the injury or death of employees in the course of their employment, by creating a liability on the part of employers to compensate such employees and their dependents for such accidental injury or death, irrespective of the fault of either party, and providing the means and methods of enforcing such liability ; and creating a ‘ State Compensation Insurance Fund’ to insure employers against such liability and providing for its administration and regulating such insurance by other insurance carriers,” etc. (Stats. 1913, p. 279). Section 1 of this law provided that the same “may be cited as the ‘Workmen’s Compensation, Insurance and Safety Act. ’ ” In 1918 section 21 of article XX of the constitution was amended by a vote of the people. Among‘the changes therein made was a provision expressly authorizing “the establishment and management of a State Compensation Insurance Fund,” a provision which was not contained in the amendment of 1911 of article XX of the constitution. However, the legislation involved in said acts represented the exercise of the state’s power of police, notwithstanding the express grant in the constitution authorizing such legislation. (Western Indemnity Co. v. Pillsbury, 170 Cal. 686 , 694 [Ann. Cas. 1916E, 703, 151 Pac. 398 , 401].) In other words, as was said in the case just mentioned, in which the Workmen’s Compensation, Insurance and Safety Act was under attack: “If such a law may be given force, the sanction for it must be found in that legislative authority usually termed the police power.” These propositions, however, are not contested here. And, as we understand counsel for the appellant, he does not deny

[2] It is a proposition placed beyond the realm of doubt— indeed, it is elementary—that the state cannot be sued without its consent, “and all the authorities are united upon the proposition that it is a general principle of law that a state is not liable for the torts of its officers, agents or servants, and that it can be made so liable only upon its clear and definitely given consent.” (Western Assur. Co. v. Drainage Dist., 72 Cal. App. 68 , 75 [ 237 Pac. 59 ], in which a hearing was denied by the supreme court; see, also, notes to vol. 13, A. L. B.) Upon this proposition we may well present excerpts from a few of the authorities. In Gibbons v. United States, 8 Wall. (U. S.) 275 [ 19 L. Ed. 453 , see, also, Rose’s U. S. Notes], Mr. Justice Miller said:

“The general principle which we have already stated as applicable to all governments forbids, on a policy imposed by necessity, that they should hold themselves liable for the unauthorized wrongs inflicted by their officers on the citizens, though occurring while engaged in the discharge of official duties.”

In his work on Agency, section 319, Judge Story declares that:

“The government does not undertake to guarantee to any person the fidelity of any of its officers or agents whom it employs, since that would involve it in all its operations in endless embarrassments and difficulties and losses, which would be subversive of the public interests.” (See, also, Hensley v. Reclamation Dist. No. 556, 121 Cal. 96 , 97 [ 53 Pac. 401 ]; Sels v. Green, 81 Fed. 555 , affirmed in 88 Fed. 127 .)

[3] But we do not understand that the appellant disputes the foregoing proposition. He does claim, however, that under the Employers ’ Liability Act a party may sue the State Compensation Insurance Fund to recover damages for a tort committed by any of the officers or agents or servants

[5] The case of Chapman v. State of California, 104 Cal. 690 [ 43 Am. St. Rep. 158 , 38 Pac. 457 ], is cited by appellant as authority for his position that the state, in instances in which it engages in the prosecution of what in an ordinary sense would properly be regarded as a business enterprise, may be sued and held liable for the torts of its officers or agents employed in performing the duties of its proprietary powers. In that case the action was for damages for the loss

“A wharfinger is impliedly bound by his contract as such to exercise ordinary care for the preservation and safety of property intrusted to him (Edwards on Bailments, 3d ed., sec. 35.9), and this imposes upon him the duty to exercise ordinary care to ascertain the condition of his wharf, that he may know whether it is reasonably safe for the purposes for which he hires it; and, if merchandise is received by him upon a wharf which is unsafe, and is thereby lost, so that he cannot deliver it according to 1ns contract, the wharfinger is liable therefor if ordinary care would have enabled him to know the condition of his wharf; and such negligence on his part will be treated as a failure to exercise ordinary care for the safety of the property intrusted to him. This negligence, however, and the consequent loss of the goods intrusted to him, would, be a, breach, of the terms of his contract, and his liability therefor could have been enforced at common law- by an action of assumpsit (1 Chitty on Pleading, 114; Baker v. Liscoe, 7 Term Rep. 171); and under our practice the owner or consignee may sue upon the contract for the damages sustained by reason of such negligence.” (Italics ours.)

“But when the sovereign engages in business and the conduct of business enterprises and contracts with individuals, whenever the contract in any form comes before the courts the rights and obligations of the contracting parties must be adjusted upon the same principle as if both contracting parties were private persons. Both stand upon equality before the law, and the sovereign is merged in the dealer, contractor, and suitor. (See, also, Carr v. State, 127 Ind. 204 [ 22 Am. St. Rep. 624 , 11 L. R. A. 370 , 26 N. E. 778 ].)”

'The foregoing language should be read in the light of the declarations of the court in the same case first hereinabove quoted. As so read and considered, it is clear that the court, in using the language which appellant construes as a support for his position, was referring entirely to cases in which the state had breached its contracts, negligently or otherwise. In other words, the court, in the language referred to, was speaking of actions against the state sounding in contract and not of actions to recover damages for the torts of the state’s officers, agents or servants committed while discharging their duties as such. While not saying so in so many words, it is clear that the court, in the Chapman opinion, had in mind and purposely recognized the proposition that, as to the state or any of its agencies or mandatories established for the purpose of administering portions of its sovereign powers, the rule of liability for wrongs committed by the state or such agencies appertains exclusively to breaches of contractual obligations, and not to the tortious acts of the agents or employees of the state committed in the course of their employment as such from which injury to the person or property of others directly follows. Indeed, if the Chapman decision could reasonably be construed as sanctioning the right of action in tort against the state or any of its mandatories for the torts of its officers, etc., the case would represent an exception to the general run of cases upon that subject in practically all the state as well as federal jurisdictions. Many of these cases are cited in respondent’s brief. They are too numerous to mention herein.

“Said fund shall, after a reasonable time during which it may establish a business, be fairly competitive with other insurance carriers, and it is the intent of the legislature that said fund shall ultimately become neither more nor less than self-supporting. In order that the state compensation insurance fund shall ultimately become neither more nor less than self-supporting, the actual loss experience and expense of the fund shall be ascertained on or about the first of January in each year for the year preceding, and should it then be shown that there exists an excess of assets over liabilities, such liabilities to include the necessary reserves, and a reasonable surplus for the catastrophe hazard, then, in the discretion of the commission, a cash dividend shall be declared to, or a credit allowed on the renewal premium of each employer who has been insured with the fund, such cash dividend or credit to be such an amount to which, as in the discretion of the commission, such employer may be entitled as the employer’s proportion of divisible surplus.”

Thus it is clearly made to appear that the legislature did not intend that the Compensation Fund should be managed for profit, but, to the contrary, plainly evinced the intention that it should not be conducted as a profit-bearing enterprise to the state. A similar proposition was advanced in the case of Melvin v. State, 121 Cal. 16 [ 53 Pac. 416 ], The plaintiff sought damages against the state for personal injuries received by the falling of a portion of the “grand stand” on which he was sitting as a spectator at the state fair held at Sacramento, claiming and alleging that said “stand” was, by the state’s officers in charge of the fair, negligently maintained in a condition unsafe for the use or purpose for which it was erected and intended to be maintained. He paid the required admission fee to the grounds and buildings of the fair, and it was contended, among other things, as here, that the state fair was a business enterprise

[7] The proposition that the state, when it engages in the prosecution of a private business enterprise, waives its immunity from liability for the torts of its officers or agents employed in the administration of the affairs of such enterprise, is not supported either by principle or authority. As we have seen, appellant seeks to support the proposition upon the theory upon which municipalities are held subject to the rule of liability in cases in which the damage complained of has been caused by the negligent act or conduct of an officer, agent or servant engaged in the discharge of duties appertaining to or connected with the administration of some function of the municipality in the employment or exercise of its proprietary capacity or powers. In the case of Riddoch v. State, 68 Wash. 329 [Ann. Cas. 1913E, 1033, 42 L. R. A. (N. S.) 251 , 123 Pac. 450 , 452], the court had before it precisely the same proposition. In a well-considered opinion, the supreme court of Washington held that the proposition Avas entirely untenable. What is said in the opinion on the subject involves such a clear exposition' of the rule and of the reasons that mark a clear line of distinction between the state and municipalities in such a ease, that we feel that we are justified in reproducing it in full:

“The appellant seeks .to confine this rule of nonliability for torts to cases where the negligence of the officer or agent occurred in the discharge of some purely governmental function of the state. He contends that, in leasing the armory, the state was engaged in a private enterprise, and that the rule of nonliability, therefore, does not apply. The question is admittedly a new one. No authority distinctly so holding, nor indeed recognizing such an exception, has been cited,

and we have found none. It is argued that the distinction is sustained by analogy to a similar exception to the rule of nonliability as applied to municipal corporations. The analogy, however, does not hold. Municipal corporations enjoy their immunity from liability for torts only in so far as they partake of the state’s immunity, and only in the exercise of those governmental powers and duties imposed upon them as representing the state. In the exercise of those administrative powers conferred upon, or permitted to, them solely for their own benefit in their corporate capacity, whether performed for gain or not, and whether of the nature of a business enterprise or not, they are neither sovereign nor immune. They are only sovereign and only immune in so far as they represent the state. They have no sovereignty of their own, they are in no sense sovereign per se. Their immunity, like their sovereignty, is in. a sense borrowed, and the one is commensurate with the other. Such is, in effect, the conclusion reached in Hill v. Boston, 122 Mass. 344 [ 23 Am. Rep. 332 ], after a most exhaustive review of the authorities, both American and English. The same principle underlies our own decisions. Sutton v. Snohomish, 11 Wash. 24 [ 48 Am. St. Rep. 847 , 39 Pac. 273 ]; Russell v. Tacoma, 8 Wash. 156 [ 40 Am. St. Rep. 895 , 35 Pac. 605 ]; Cunningham v. Seattle, 42 Wash. 134 [7 Ann. Cas. 805, 4 L. R. A. (N. S.) 629 , 84 Pac. 641 ]; Linne v. Bredes, 43 Wash. 540 [ 117 Am. St. Rep. 1068 , 11 Ann. Cas. 238, 6 L. R. A. (N. S.) 707 , 86 Pac. 858 ],

“On the other hand, the state is inherently sovereign at all times and in every capacity. It is the Organized embodiment of the sovereign power of the whole people. By reason of this sovereignty, it possesses all powers, but only such powers as are within the limitations of the state constitution and without the prohibitions of the Federal Constitution. It can do no act except in the exercise of' this sovereign power and within these constitutional limitations. If it may constitutionally take pver any enterprise, though usually of the nature of a private business, the very taking over is an exercise of this sovereign power. It seems much more logical and much more consonant with the idea and genius of sovereignty that the enterprise thus taken over should be impressed with the sovereign character of the state than that the state should become hampered by the private

character of the enterprise. The latter result is incompatible with the concept of sovereignty. ■

“This seems to us to be the only logical basis for the following decisions holding the state not liable for torts in connection with the administration of such enterprises taken over by the state: State v. Hill, 54 Ala. 67 , in which the state was held not liable at the suit of an owner for the tortious killing of stock by the agents of the state in operating a railroad; Melvin v. State, 121 Cal. 16 [ 53 Pac. 416 ], in which the state was held not liable to a spectator who had paid for admission to a state fair conducted by an agency of the state for tortious injury by the falling of negligently constructed seats; Denning v. State, 123 Cal. 316 [ 55 Pac. 1000 ], in which the state was held not liable to an employee injured by the fall of a negligently fastened ladder on a tug boat owned by the state and operated by the state harbor commissioners as an agency of the state.”

To the same effect are all of the eases to which our attention has been directed. Of these, the following may be named: Davis v. State, 30 Idaho, 137 [Ann. Cas. 1918D, 911, 163 Pac. 373 , 375]; Herkimer Lumber Co. v. State, 196 App. Div. 708 [ 185 N. Y. Supp. 119 , 122]; State v. Sharp, 21 Ariz. 424 [ 189 Pac. 631 ]; Dietrich v. Palisades Interstate Park Com., 114 Misc. Rep. 425 [ 187 N. Y. Supp. 454 , 456]; Stephens v. Commissioners of Palisades Interstate Park Com., 93 N. J. L. 500 [ 108 Atl. 645 ]; State v. Mutual Life Ins. Co., etc., 175 Ind. 59 [ 42 L. R. A. (N. S.) 256 , 261, 93 N. E. 213 ]; Clodfelter v. State, 86 N. C. 51 [ 41 Am. Rep. 440 ],

The necessary conclusion from the foregoing considerations is, obviously: That the State Compensation Insurance Fund is an agency of the state created and maintained for the purpose of administering certain of the state’s sovereign powers; that the state cannot be bound by or held liable for the torts of its agents, servants or employees committed while engaged in the performance of their duties as such, unless it has clearly given its consent to be so bound or liable; that the state of California has not authorized the maintenance of actions against it or any of its mandatories for the torts of its agents, etc., committed while prosecuting their duties as such, and that, therefore, the plaintiff cannot maintain this action against respondent herein. The

The judgment is affirmed.

Finch, P. J., and Plummer, J., concurred.

A petition by appellant to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on March 21, 1927.