In Barrett Business Services, Inc. v. Workers’ Compensation Appeals Board and Rafael Rivas, the Court of Appeal for the Second Appellate District affirmed the WCAB’s denial of reconsideration of its determination of which party should bear the loss when a stolen check, with a forged indorsement, is cashed and the payee never receives the check. The appellate court held that because there was no delivery of the check to the claimant who had filed an updated change of address with the Court, its issuance did not discharge the employer’s underlying obligation to pay him.
The claimant, a laborer, sustained a work-related injury. Based on prior settlement negotiations, his employer prepared and forwarded a “compromise and release” to the claimant’s attorney. That document contained an incorrect address for the claimant, and, as is common in WCAB cases the employer sent the $17,000 settlement check directly to the claimant at his prior address. The claimant never received the check, which was stolen and negotiated at a check-cashing service and paid by the employer’s bank.
The WCAB judge found that the employer was liable to pay the settlement proceeds of $17,000 to the claimant. The ALJ reasoned that he should not have to pursue legal remedies from other responsible parties, where the employer was in a better position to do so, and where he was not at fault and was the designated beneficiary of this benefits delivery system. Again, the injured worker properly filed a change of address with the Court prior to the case settling. The employer subsequently petitioned for reconsideration, which the WCAB denied.
The employer claimed that the WCAB committed reversible error in ordering it to pay the claimant $17,000 after it had discharged its original obligation by mailing a settlement check in that amount to the address designated in the compromise and release agreement, though not the current address of the claimant.
In determining which party was responsible for the loss, the court found that California Uniform Commercial Code § 3420, a conversion statute, and the Uniform Commercial Code comment to that statute, were specifically applicable. Section 3420(a) of the California UCC provides in part, “an action for conversion of an instrument may not be brought by … a payee or endorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a copayee.”
The comment to that statute states, in relevant part, “the payee has no conversion action because the check was never delivered to the payee. Until delivery, the payee does not have any interest in the check. The payee never became the holder of the check, nor a person entitled to enforce the check. … But if the check is never delivered to the payee, the obligation owed to the payee is not affected. If the check falls into the hands of a thief who obtains payment after forging the signature of the payee as an indorsement, the obligation owed to the payee continues to exist after the thief receives payment.”
The comment also addresses the rights of the other parties to the transaction. Specifically, “The drawer of the check has no conversion remedy, but the drawee is not entitled to charge the drawer’s account when the drawee wrongfully honored the check. The remedy of the drawee is against the depositary bank for breach of warranty …. The loss will fall on the person who gave value to the thief for the check.”
The employer argued that mailing the settlement check to the claimant at the address specified in the compromise and release (a settlement agreement) discharged its obligation to him. The court noted that the employer, however, not the claimant, drafted that agreement. Additionally, the employer failed to give notice when it stopped using its claims adjusting agent and took its claims unit in-house. The workers’ compensation file still listed the former agent as the adjuster of record more than 18 months after the claimant’s attorney served a notice of his change of address on defense counsel and on the former claims adjuster. However, notice of this change of address was not in the employer’s claims file. In other words the company and its representative failed to update their file.
The court concluded that where the issuer does not deliver the check to the payee, the issuer remains liable to the payee on the underlying obligation. In this case, delivery to the claimant did not occur—he never received the check. Consequently, the employer remained liable to him on the underlying obligation. This case is no April Fool’s joke. Double payments can mean increased premiums for businesses. Applicant’s counsel should also be diligent in sending reminders of change of address information to all counsel multiple times when checks are being sent directly from the employer. This case should be a lesson to all attorneys and insurance companies to make sure the case information sheet is updated and the current counsel and parties are accurate. The full opinion can be found here. If anyone has questions about their existing employment law claims or outstanding settlement payments, please contact Quintilone & Associates for more information.