Tuesday, July 10, 2012

TX Case Proves Employee Leasing Too Good to be True

Mom used to say that if something seems too good to be true, then it is.

Unfortunately this happened to a Texas employer with tragic consequences.

In July 1999 Jackson Brothers Hot Oil Service entered into a contract with Business Staffing, Inc. (BSI) for a variety of administrative services, and this contract provided that BSI was responsible for acquiring "workers' compensation insurance coverage and/or benefits" for BSI's employees.

BSI was the holder of the only policy issued by Transglobal Indemnity, which had an annual premium of $4,100 for coverage of up to $1,000,000 per accident to cover all of BSI’s 150 client companies' 2,000 leased employees.

My guess is that Jackson Brothers didn't know how much BSI "paid" for its insurance at the time, or that the premium was unrealistically low for the risk being covered, or that they cared at all - they were saving money.

They probably also didn't know at the time that Transglobal was created in the 1990s by Harry Sewill and Richard Chapman, the partial owners of BSI. It was set up to be headquartered in Turks and Caicos in the Caribbean, but it maintained no office or employees there.

Jackson Brothers also probably didn't know at the time that neither Sewill, Chapman, BSI nor Transglobal was licensed to conduct insurance business in the State of Texas.

That all changed in 2005 when an oil field fire set a truck driven by 27-year-old Cody Jackson ablaze.

Cody suffered deep second- and third-degree burns on 65% to 70% of his body. After 18 surgeries and 77 days in intensive care, he "made a remarkable recovery" and is now back to work at his old job as a hot oil truck driver. Cody was the son and nephew of the Jackson Brothers. One can only imagine the grief the family went through while Cody recovered.

After Cody's injury, BSI paid him weekly temporary disability benefits for 18 weeks. It also paid approximately $13,000 of his incidental medical bills until Dec. 6, 2006, but as of that date, still owed $1,016,000 in medical costs for his treatment by Texas Tech University Health Sciences Center and the University Medical Center Hospital burn unit.

When BSI failed to respond to Cody's demand for payment on the outstanding hospital bills, he joined Jackson Brothers in a lawsuit against the company, its directors, Transworld, Sewill, Chapman and others in the District Court of Andrews County. The plaintiffs asserted claims for fraud and violations of the Deceptive Trade Practices Act (DPTA).

After a week long trial, a jury returned a verdict for Jackson Brothers and Cody against BSI.

The jury awarded Cody Jackson $1,016,000 in past medical costs, $5,000 for future medical costs, and $1,161,000 in unpaid lifetime income benefits.

The trial judge ordered an additional $700,000 in damages against BSI and an additional $1,000,000 against Transglobal for their violations of the DTPA, and exemplary damages of $250,000 against Transglobal; $250,000 against BSI, and $37,500 against Chapman and against Sewill.

He also awarded Jackson Brothers $47,000 as a disgorgement of the fees it had paid BSI.

The defendants appealed, but the Texas 8th District Court of Appeals on Thursday rejected their arguments.

I can only hope that Jackson Brothers and Cody are successful in collecting - my guess from the actions of BSI and related entities is that there is no reasonable chance of getting anything close to the court awards because once a fraudster, always a fraudster.

Small employers however should take heed when "leasing" employees. I had posted the other day that I doubted very many employees give any thought whatsoever to whether a prospective employer is properly covered. Likewise, I doubt small employers give any thought to whether they have proper coverage, making them particularly susceptible to schemes perpetrated by unscrupulous service vendors.

Work comp flies under the radar for the vast majority of workers and employers ... until tragedy hits. Then reality serves up some grave lessons.

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