Toxic Tort Cases and the Effect of Worker’s Compensation Exclusivity On The Employer and Third Party Joint Tortfeasors in California

A toxic tort lawsuit generally refers to a specialized product liability claim where the plaintiff seeks compensation for illness or injury caused by exposure to a hazardous substance. Common chemicals or compounds that are often the subject of toxic tort lawsuits include asbestos, benzene, talc, PFAs, lead, paraquat, glyphosate, and respirable crystalline silica. Although exposure resulting in toxic tort litigation can arise in many different contexts, it is common for these exposures to occur in an occupational setting. For example, over the past four years, a wave of litigation has hit California arising from purported exposure of stone countertop fabricators to respirable crystalline silica through the countertop fabrication process.

In California, typical defendants in a toxic tort lawsuit include manufacturers, distributors, suppliers and retailers of the toxin or product containing the toxin to which the plaintiff claims to have been exposed. Plaintiffs may also name manufacturers or suppliers of machines or other personal protective equipment that were used together with or intended to protect them from the toxin.

Conspicuously missing from the typical list of defendants in toxic tort cases, especially where the context of exposure is occupational, is the plaintiff’s employer. Indeed, the Occupational Safety and Health Administration, both Federally and its California counterpart, require that employers provide their employees with a “safe and healthful” work environment. (See 29 CFR 1910, et seq; see California Labor Code 6400, subd. (a).) With that obligation in mind, why then are employers often omitted by plaintiffs from the typical toxic tort lawsuit? The reason: Worker’s Compensation exclusivity.

This article discusses the effect of California’s worker’s compensation exclusivity rule in the context of toxic tort claims, and its effect on the employee’s claims against the employer, cross-complaints brought by third parties against an employer for indemnity and contribution, and recourse available to third parties when a cross-complaint against a negligent employer is barred.

1.         Worker’s Compensation Exclusivity: The “Compensation Bargain” 

Worker’s compensation exclusivity is premised upon a fundamental “compensation bargain.” (Cole v. Fair Oaks Fire Protection Dist. (1987) 43 Cal.3d 148, 160.) Specifically, when an employee is injured during the course and scope of his or her employment, the employer will compensate the employee for that injury, regardless of whether the employer bears any fault for the injury. In exchange, with limited exception, the payment provided through worker’s compensation to the employee is the only recourse that the employee has against his or her employer arising from the injury. (California Labor Code § 3600, subd. (a), 3602, subd. (a); see Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th 800, 812–813.)  An injured employee obtains “relatively swift and certain compensation in return for the surrender of the right to bring tort actions for his employer’s failure to provide a safe place of employment.” (Royster v. Montanez (1982) 134 Cal.App.3d 362, 371.) “The exclusivity rule applies even where the employer’s misconduct is serious, willful or intentional; in such cases, Labor Code section 4553 dictates that the employee’s recovery is increased by one-half.”” (Vuillemainroy v. American Rock & Asphalt, Inc. (1999) 70 Cal.App.4th 1280, 1283.)

In the context of a toxic tort claim where the employee claims that the employer failed to provide him or her with a safe work environment, and simultaneously claims that the product was defective, any employer negligence falls squarely within the “compensation bargain” of worker’s compensation exclusivity. As such, the employee is often precluded from commencing a separate, civil claim against the employer, and is limited to a worker’s compensation claim and any related legal action – a wholly separate claim from a toxic tort claim that may be brought against the manufacturers or distributors of the allegedly toxic product.

2.         Exceptions to Worker’s Compensation Exclusivity

As a prefatory matter, there is no worker’s compensation exclusivity if an employer does not have worker’s compensation insurance. If an employer fails to take advantage of that protection, or improperly classifies an employee as an independent contractor for whom worker’s compensation insurance is not required, then there is no “compensation bargain” in place, and the employee can bring a civil action against the employer for occupational exposure injuries.

However, when an employer does have active worker’s compensation insurance, which provides coverage to the injured employee, there are three statutory exceptions to exclusivity which are established by California Labor Code § 3602(b):

(1) Where the employee’s injury or death is proximately caused by a willful physical assault by the employer.

(2) Where the employee’s injury is aggravated by the employer’s fraudulent concealment of the existence of the injury and its connection with the employment, in which case the employer’s liability shall be limited to those damages proximately caused by the aggravation. The burden of proof respecting apportionment of damages between the injury and any subsequent aggravation thereof is upon the employer.

(3) Where the employee’s injury or death is proximately caused by a defective product manufactured by the employer and sold, leased, or otherwise transferred for valuable consideration to an independent third person, and that product is thereafter provided for the employee’s use by a third person.

Of those exceptions, typically only fraudulent concealment is at issue in a toxic tort case. To recover under this exception, the injured employee must prove each of the following three elements: “(1) the employer knew that the plaintiff had suffered a work-related injury; (2) the employer concealed that knowledge from the plaintiff; and (3) the injury was aggravated as a result of such concealment.”(Chavez v. Alco Harvesting, LLC (2024) 102 Cal.App.5th 866, 871 [quoting Palestini v. General Dynamics Corp. (2002) 99 Cal.App.4th 80, 90, 120 Cal.Rptr.2d 741 (Palestini)]; see also Jimenez v. Mrs. Gooch’s Natural Food Markets, Inc. (2023) 95 Cal.App.5th 645, 658, 313 Cal.Rptr.3d 151.) Additionally, “[t]he employer must have actual knowledge of the injury; constructive or imputed knowledge is insufficient.” (Chavez, supra, [citing Hughes Aircraft Co. v. Superior Court (1996) 44 Cal.App.4th 1790, 1796, 52 Cal.Rptr.2d 514.])

The rationale behind the fraudulent concealment exception is to hold an employer accountable when its behavior exceeds the boundaries contemplated by the employee-employer relationship. Claims at law are not barred when the employer steps outside of its proper role and the resulting injury is beyond the scope of the compensation bargain. (See Johns-Manville

Products Corp. v. Super. Ct. (1980) 27 Cal.3d 465, 476-79.)

3.         Application of Worker’s Compensation Exclusivity to Third Party Cross-Complaints Against Employers for Indemnity and/or Contribution

As discussed above, the typical list of defendants in a toxic tort action includes manufacturers and distributors of the allegedly toxic substance or a product containing the toxic substance to which the injured plaintiff claims to have been exposed. Where the exposure happened in the course and scope of the plaintiff’s employment, the plaintiff will likely bring a separate worker’s compensation action against his or her employer for failure to provide a safe work environment, and a separate toxic tort action against, for example, the product manufacturer claiming that the product, or any warning related to use of the product, was defective. Under such a scenario, the manufacturer defendant ideally would cross-complain against the employer, or vice versa, seeking indemnity and contribution for the employer’s respective percentage of fault for the employee’s injuries. Here, however, worker’s compensation exclusivity, subject to limited exceptions, also operates to bar the manufacturer’s cross-complaint. This bar on cross complaints against employers for indemnity and contribution is articulated in California Labor Code sec. 3864, which states:

If an action as provided in this chapter prosecuted by the employee, the employer, or both jointly against the third person results in judgment against such third person, or settlement by such third person, the employer shall have no liability to reimburse or hold such third person harmless on such judgment or settlement in absence of a written agreement so to do executed prior to the injury.

While both the employer and employee benefit from the “compensation bargain” underlying worker’s compensation exclusivity, third parties named in a toxic tort lawsuits are not parties to the “compensation bargain” but are still barred by it nonetheless, gaining no benefit other than a potential, partial offset under Witt v. Jackson (discussed below). Indeed, courts have applied the Labor Code sec. 3864 to bar cross-complaint seeking nearly every form of relief that could be brought in a cross-complaint against an employer, including: “(1) for breach of contract; (2) for breach of express and implied warranties; (3) for implied equitable indemnity; (4) for fraud; (5) for negligent misrepresentation; (6) for equitable estoppel; (7) for waiver; and (8) for declaratory relief.”(C.J.L. Construction, Inc. v. Universal Plumbing (1993) 18 Cal.App.4th 376, 385.)

Enacted in 1959, the purpose of Labor Code sec. 3864 was to eliminate the “dual insurance burden” on employers. Prior to its enactment, employers were required to carry both worker’s compensation insurance to protect against employee claims and general liability insurance to protect against implied indemnity claims that may be brought by third parties. As explained in E.B. Wills Co. v. Superior Court,

Prior to 1959, an employer of an employee, injured as the result of the joint negligence of the employer and a third party, was subject to the doctrine of implied indemnity and, like any other joint tortfeasor, was required to indemnify the third party for any judgment recovered by the employee against the third party when the negligence of the employer was active and the negligence of the third party was passive. However, in 1959 the California Legislature, to eliminate the dual insurance burden imposed upon the employers of this state by the workers’ compensation law and the implied indemnity doctrine, enacted section 3864 of the California Labor Code. Under this section the employer of an employee who is injured as the result of the joint negligence of the employer and a third party is no longer required to indemnify the third party in the absence of an express indemnification agreement.

(E. B. Wills Co. v. Superior Court (1976) 56 Cal.App.3d 650, 653–654 [internal citations omitted].)

However, the same exceptions to worker’s compensation exclusivity available to the employee also are available to a third party cross-complainant against the employer. (See e.g., Chase Chem. Co. v. Hartford Accident & Indem. Co. (1984) 159 Cal.App.3d 229, 238 [“[I]f an employee sues his employer at law for aggravation of his initial injuries because of his employer’s fraudulent concealment of the existence of the condition and its cause and connection with employment, then, since the employer has stepped outside of that protected role as an employer, a third party is entitled to such indemnity from the employer for such aggravation without regard to the lack of existence of a written indemnity agreement for those damages proximately caused by the aggravation.”].)

For the purposes of a fraudulent concealment exception to worker’s compensation exclusivity, at the pleading stage, an employee or a third party need only plead the employer’s knowledge of a worked-related injury in “general terms,” as opposed to with particularity, to survive a demurrer. (Chavez v. Alco Harvesting, LLC (2024) 102 Cal.App.5th 866, 872.)

Additionally, as further indicated by Labor Code sec. 3864, third parties also have an additional, statutory exception to worker’s compensation exclusivity if the employer has entered into a written agreement to hold harmless or indemnity the third party, which agreement was entered and signed by both the employer and third party prior to the plaintiff’s injury at issue. Court have strictly construed the signature requirement, indeed requiring that both parties must have signed the agreement before the injury occurred in order for the indemnity agreement to effectively overcome worker’s compensation exclusivity. (See Hansen Mechanical, Inc. v. Superior Court (1995) 40 Cal.App.4th 722, 731.)

4.         Worker’s Compensation Payment as Offset to Judgment Against Third Party

Although a third party cross-complaint for indemnity and contribution may be barred against a negligent employer, the manufacturer may raise employer negligence as an affirmative defense to potentially obtain a partial offset of any judgment against the manufacturer, up to the total amount of the worker’s compensation payment. In Witt v. Jackson, the California Supreme Court analyzed the issue of whether a negligent employer could obtain reimbursement of a worker’s compensation payment from payments made to the employee (e.g., settlement or judgment) by third party, joint tortfeasors. In addressing that issue, the Supreme Court also addressed the issue of double recovery by the employee, which resulted in the Witt v. Jackson offset:

It is evident from this language that had the employer brought an action in his own name against the third party under Labor Code, section 3852 he would not have been allowed to recover compensation payments made to the employee. Thus, when a person is entitled to indemnity against a negligent employer, the employer cannot recover reimbursement for compensation payments made to an injured employee either by asserting a lien against a judgment recovered by the employee or by bringing an action directly against the third party. A negligent employer should be in no better position when, as here, the third party tortfeasor does not seek indemnity; to allow the employer reimbursement in either case would allow him to profit from his own wrong. Since, however, the injured employee may not be allowed double recovery, his damages must be reduced by the amount of workmen’s compensation he received.

(Witt v. Jackson (1961) 57 Cal.2d 57, 72–73 (holding modified by Associated Construction & Engineering Co. v. Workers’ Comp. Appeals Bd. (1978) 22 Cal.3d 829).)

However, as discussed above, the “compensation bargain” of worker’s compensation requires payment to the injured employee regardless of whether the employer was negligent. Therefore, in order to benefit from the Witt v. Jackson offset, a third party tortfeasor, such as a manufacturer, must prove that the employer was negligent and that such negligence caused or contributed to the employee’s injury at issue. Indeed, the Witt v. Jackson offset only applies to deduct the employer’s apportioned share of the employee’s damages, based upon the percentage of fault assigned to the employer by the jury, up to the total amount of worker’s compensation paid by the negligent employer. (Associated Construction & Engineering Co. v. Workers’ Comp. Appeals Bd. (1978) 22 Cal.3d 829.) Similarly, despite the language of Witt, the California Supreme Court in Associated Construction & Engineering Co. further held that the employer is also entitled to a partial offset of worker’s compensation owed, “but only to allow the concurrently negligent employer a credit against workers’ compensation obligations which exceed the proportionate liability he would incur for indemnification of the third party under a comparative system of allocating tort responsibility among multiple wrongdoers.” (Id. at 832-833.)

Although Witt v. Jackson provides manufacturers some financial protection if a cross-complaint against a negligent employer is barred, the manufacturer may be required to prove employer negligence using litigation subpoena power only, as California courts have previously held that the Witt v. Jackson offset is an affirmative defense, only, and cannot be used to compel the employer to participate as a party in the litigation.

As noted previously, when an issue can be raised by means of an affirmative defense, a trial judge may therefore dismiss a declaratory relief claim raising the same questions in the cross-complaint. Also, the purposes of the Workers’ Compensation Law would be contravened by permitting a third party to require the employer to undergo the expense of undertaking participation in a civil suit without its consent. As noted previously, a purpose of the law under these circumstances is to ” ‘insulate the employer from tort liability for … employees’ injuries.’ “

(C.J.L. Construction, Inc. v. Universal Plumbing (1993) 18 Cal.App.4th 376, 391.)

5.         Impact of Proposition 51 on General Damages

In addition to the Witt v. Jackson offset, Proposition 51 also provides some minimal additional protection to joint tortfeasors in scenarios where recoupment from an employer is barred due to worker’s compensation exclusivity. Proposition 51, which was codified as California Civil Code sec. 1431.2, was enacted in 1986 as part of tort reform. Proposition 51 limits the application of joint and several liability among joint tortfeasors to economic damages, only. For general or non-economic damages (i.e., pain and suffering), a joint tortfeasor is only liable for its proportionate share based upon its percentage of fault apportioned by the jury.

Applied in the context of a toxic tort case, even when an employee’s claim against a negligent employer are exhausted and a third party is barred from seeking indemnity or contribution, the third party joint tortfeasor may still establish employer fault and have the employer added to the verdict form as a joint tortfeasor to whom fault may be apportioned by the jury. Assuming then that the jury finds the manufacturer to be 40% at fault and the employer to be 60% at fault for the plaintiff’s injuries, while the manufacturer remains jointly and severally liable for the plaintiff’s economic damages (limited only by any Witt v. Jackson offset), it is only liable for 40% of the plaintiff’s general/non-economic damages, pursuant to Proposition 51.

6.         Overall Effect of Worker’s Compensation Exclusivity on Third Parties and Litigation Implications

Worker’s compensation exclusivity creates strategic challenges for manufacturers, distributors, and other third parties named by employee plaintiffs in toxic tort claims, as they not only are tasked with defending against the toxic tort claim but also bear the burden of proving employer negligence, as an affirmative defense, in order to take advantage of the offsets available through Witt v. Jackson and Proposition 51. Exceptions to worker’s compensation exclusivity, including fraudulent concealment by the employer or a written agreement to defend and indemnify, signed by both parties, may allow for a third party to successfully pursue a cross-complaint against an employer notwithstanding worker’s compensation exclusivity.

Where no exception applies, the employer remains shielded and additionally can pursue a lien against the employee’s recovery, if the amount of worker’s compensation paid exceeds the total amount of the employee’s liability as established by the jury.

These protections and outcomes only apply, however, if an employer takes advantage of them by purchasing and providing their employees with proper worker’s compensation insurance.