This case is before us on appeal by West Bend Mutual Insurance Company [West Bend] from a decision of the compensation judge finding West Bend estopped from denying workers’ compensation insurance coverage for Innovative Lawn Systems, Inc. [Innovative], the employer of the injured employee, Mark Schmitt [the employee], and on cross-appeal by Innovative from the judge’s denial of its claim for attorney fees against West Bend resulting from breach of contract by West Bend’s failure to assume the duty to defend.^[1]  We affirm the compensation judge’s determinations on both issues.

The various relationships here at issue are somewhat complicated and require some initial explanation.  American Interstate Insurance Co. [American] provided a policy of workers’ compensation insurance to Structural Repair Services and Valley Landscaping, Inc., for policy periods running from February 24, 1999, to February 24, 2000, and from February 24, 2000, to February 24, 2001.  American’s policy also listed three “additional insured” companies:  Total Repair, Inc., Valley Erosion, Inc., and Valley Waterproofing, Inc.  All of the named insured companies were owned by Jeff Trog and David Otterdahl, all were operated from the same address in Bloomington, Minnesota, and all shared equipment and employees.

On December 18, 2000, American sent a “Notice of Cancellation or Nonrenewal” of coverage to Structural Repair Services at its corporate address in Bloomington.  The effective date for termination of coverage was to be February 24, 2001.  The notice, sent by certified mail, was addressed only to Structural Repair Services.  Separate notices of cancellation or termination were not addressed or sent to any of the other companies named as “additional insureds” under the policy, nor was any notice of cancellation filed with the commissioner as required by Minn. Stat. § 176.185.

About eight months after the purported policy termination date, Mr. Trog and Mr. Otterdahl decided to part company and entered into a settlement agreement to that effect dated October 22, 2001.  According to the agreement, Mr. Otterdahl essentially left the partnership to operate Valley Waterproofing and Mr. Trog merged the remaining businesses except for Valley Erosion into Total Repair Services, Inc. [Total Repair].  Valley Erosion, originally incorporated in February 1999, was not addressed by the settlement agreement between Mr. Trog and Mr. Otterdahl.  By at least August 1, 2002, Mr. Trog had obtained workers’ compensation coverage for Total Repair through West Bend.  Mr. Otterdahl and Valley Waterproofing had, by December 1, 2002, become insured by Dakota Truck Underwriters.

In the spring of 2002, Jeff Trog began discussing the formation of a lawn care business with his brother John Trog.  Jeff agreed to help finance the business, and the brothers chose to amend Valley Erosion’s articles of incorporation to reflect a name change to Innovative Lawn Systems, Inc., and a change of address for the registered office of the corporation.^[2]  The amendments were filed at the Secretary of State’s office on May 1, 2002.  Jeff Trog had not been doing any business under the Valley Erosion name since the settlement agreement with Mr. Otterdahl.  Nor, during the period prior to the name change, did Valley Erosion have any equipment or employees.

The financial backing for Innovative came from Jeff Trog, and he was named secretary, CFO, and treasurer.  He did not participate in the day-to-day operations of Innovative.  John Trog became the CEO and corporate president and ran the business.  He brought his own customers to the business, developed new customers, and bought the necessary equipment.  John was not involved in any of his brother’s prior businesses, including Valley Erosion.  No assets, equipment, accounts, inventory, or paperwork transferred from Valley Erosion to Innovative.  Valley Erosion had engaged in erosion control activities as well as lawn service and snow plowing.  Innovative did not address erosion control but focused primarily on lawn service and snow plowing.

At the time that Innovative was being formed, Jeff Trog had a longstanding relationship with Dennis Just, an insurance agent with the Ross Nesbit Agency, who had previously provided business insurance for Structural Repair Services and its related companies.  Mr. Just had a written contract with West Bend through his employer, the Ross Nesbit Agency, to solicit, receive, bind, and execute insurance contracts on behalf of West Bend, and at the time that Innovative was being formed, Jeff Trog contacted him and told him that his brother would be contacting him regarding his business insurance needs.  John Trog then contacted Mr. Just, who had already been providing liability, auto, and workers’ compensation insurance for Total Repair, and, according to his later uncontroverted testimony, asked Mr. Just “to provide [him] with all the needed insurance to operate the business properly.”  John Trog has admitted that he did not know exactly what insurance he needed and relied on the agent to tell him, and Mr. Just has acknowledged that he understood that John Trog was not experienced in insurance matters and would not know what he needed in this regard.  It was understood by both John Trog and Dennis Just that workers’ compensation insurance would be provided, if necessary.

Mr. Just determined that workers’ compensation insurance was not necessary, after being informed by John Trog that he had no employees and did not elect to cover himself as the owner.  At least as of August 14, 2003, Innovative, according to an audit performed by West Bend, had no employees and the owner was doing all of the necessary work himself.  John Trog never informed Mr. Just or West Bend that Innovative had any employees.  West Bend issued auto, liability, and inland marine coverage, but not workers’ compensation coverage.

After John Trog began bidding projects on behalf of Innovative, he learned that most townhome or condominium associations required that he have a million-dollar liability policy and a workers’ compensation insurance policy.  Several customers required that he furnish a certificate of insurance, demonstrating that he had the necessary insurance in place.  Whenever certificates of insurance were requested by a customer, John Trog contacted the Ross Nesbit Agency and told either Mr. Just or one of Mr. Just’s assistants what he needed.  The Ross Nesbit Agency complied with the requests and provided the certificates of insurance to Innovative and the various associations.  The certificates described the coverage afforded and listed policy numbers for general liability, automobile liability, and workers’ compensation and employer’s liability insurance.  The workers’ compensation policy identified by number on the certificates of insurance here at issue was a policy issued by West Bend to Total Repair as the named insured.  A number of certificates of liability insurance were issued by the Ross Nesbit Agency between April 14, 2003, and February 22, 2005, representing that Innovative had workers’ compensation insurance coverage.  John Trog testified that, without those certificates of insurance, no condominium association would have hired Innovative.

Innovative hired both full-time and part-time seasonal employees.  During busier times, John Trog would also give employees of his brother’s company, Total Repair, opportunities to pick up hours by working for him at Innovative.  One of John Trog’s full-time hires was Mark Schmitt, the injured employee in this case.  On November 30, 2004, while working for Innovative, Mr. Schmitt fell from a ladder, fracturing his left foot/ankle.

Within one or two days of the employee’s injury, John Trog contacted Mr. Just and told him that he needed to file an accident report regarding the employee’s injury.  Mr. Just advised him to complete a First Report of Injury and to fax it to his office.  John Trog completed the report as instructed, and Mr. Just submitted the employee’s claim to West Bend.  On December 14, 2004, West Bend served a Notice of Insurer’s Primary Liability Determination, indicating that the claim was being denied because Innovative did not have a workers’ compensation policy in force with West Bend.

On January 18, 2005, the employee filed a Claim Petition against Innovative, as an uninsured employer, and the Special Compensation Fund [the Fund], seeking temporary total disability benefits as well as medical and rehabilitation benefits.  The Fund filed an answer alleging that the employer had an active workers’ compensation policy with American under the company name of Valley Erosion, Inc./Structural Repair Services, Inc., which policy, it asserted, remained in effect pursuant to Minn. Stat. § 176.185.  About a week later, the employee filed an Amended Claim Petition, adding Total Repair and West Bend as an employer/insurer and American as the insurer for Innovative.  Both West Bend and American denied liability for the employee’s injury.  West Bend admitted that it provided a policy of workers’ compensation insurance for Total Repair, but it denied the employee was an employee of Total Repair.  West Bend denied also that it provided coverage for Innovative.  American admitted that it had provided workers’ compensation coverage for Total Repair through February 24, 2001, but it denied that it had ever insured Innovative against workers’ compensation liability.  On July 13, 2005, attorney John Guthmann filed a notice of appearance on behalf of Innovative, as neither insurer was willing to defend or indemnify Innovative against the employee’s claim.  A hearing before a compensation judge at the Office of Administrative Hearings was scheduled for June 14, 2006.

On April 19, 2006, about two months before the scheduled hearing, American filed a Petition for Temporary Order pursuant to Minn. Stat. § 176.191.  American alleged that employer and insurer status and coverage was being disputed amongst the parties, but it agreed to pay temporary total disability benefits and medical expenses to and on behalf of the employee pending resolution of liability.  A Temporary Order was issued by a compensation judge on May 2, 2006.

The matter came on for hearing before a compensation judge on June 14, 2006.  No additional claims were being made by the employee.  Issues presented to the judge for his determination included the following:  1) whether Innovative was insured against workers’ compensation liability on November 30, 2004; 2) whether insurance coverage had been properly terminated by American; 3) whether American was entitled to reimbursement for payments made under the Temporary Order issued May 2, 2006; and 4) whether one of the insurers had a duty to defend Innovative and, if so, whether Innovative was entitled to payment of its attorney fees and costs.  Evidence introduced at trial included the hearing testimony of Jeff Trog and John Trog and the deposition testimony of Dennis Just and the employee.  Documentary evidence included various policies of insurance, American’s notice of cancellation to Structural Repair Services, the October 22, 2001, settlement agreement between Jeff Trog and Dave Otterdahl, various articles of incorporation, and the agency agreement between West Bend and Ross Nesbit Agencies, Inc.

In a Findings and Order issued August 24, 2006, the compensation judge determined that the Notice of Cancellation sent to Structural Repair Services by American was effective to terminate and cancel the policy of insurance that had covered Valley Erosion as an additional insured.  The judge determined further that, even if that cancellation was not effective, Valley Erosion never did any further business after the cancellation and Innovative was a new business with a new name and a new owner.  The judge determined also that West Bend was estopped from denying workers’ compensation insurance coverage for Innovative, based on the representations of coverage made by its agents at the Ross Nesbit Agency.  Finally, the judge concluded that there was no duty to defend Innovative on the part of West Bend, and he therefore denied Innovative’s claim for attorney fees.  West Bend appeals, and Innovative and American cross-appeal.

West Bend contends on appeal that the compensation judge did not have jurisdiction to rule that West Bend was estopped from denying coverage for the employee’s injury and that, even if estoppel does apply to this case, the judge erred in concluding that Innovative reasonably relied upon the representations of West Bend’s agent.

West Bend argues that the true issue in this case involves either a negligence claim under tort law or a breach of contract issue between agent Just and Innovative.  Neither theory of recovery, it contends, pertains to “the laws relating to workers’ compensation,” as referenced in Minnesota Statutes § 175.17.  Illustrative of its contention, West Bend relies upon Taft v. Advance United Expressway, 464 N.W.2d 725, 44 W.C.D. 35 (Minn. 1991), in which the supreme court held that workers’ compensation courts do not have subject matter jurisdiction over a claim by a workers’ compensation insurer against the Minnesota Insurance Guaranty Association for reimbursement of benefits paid on behalf of an insolvent insurer.  West Bend acknowledges that this court has reviewed numerous coverage issues where the employer allegedly relied on the misrepresentations of an insurance agent, but it argues that jurisdiction was never raised in any of those cases.^[3]  We are not persuaded.

Workers’ compensation courts have jurisdiction to consider “all questions of fact and law arising under the workers’ compensation laws of [Minnesota].”  See Minn. Stat. § 175A.01, subd. 5.  This jurisdiction extends also to passing upon questions related to insurance policies and coverage where such a determination is ancillary to adjudication of the employee’s claim.  See Peterson v. Vern Donnay Constr. Co., 48 W.C.D. 664, 699 (W.C.C.A. 1993).  Moreover, insurance coverage determinations invariably require compensation judges to apply principles of contract law and agency theory.  See Steidel v. Metcalf, 210 Minn. 101, 297 N.W. 324, 11 W.C.D. 492 (1941); Nehring v. Bast, 258 Minn. 193, 103 N.W.2d 368, 21 W.C.D. 246 (1960); Oster v. Riley, 276 Minn. 274, 150 N.W.2d 43, 24 W.C.D. 170 (1967); and Krebs v. Krebs, 36 W.C.D. 288 (W.C.C.A. 1983).  Contrary to West Bend’s assertion, the claim before the compensation judge in this case related not to a claim for negligence or breach of contract against West Bend’s agent but to direct claims by the employee for workers’ compensation benefits and by the employer for insurance coverage.

We reject also West Bend’s contention that this case is analogous to Taft v. Advance United Expressway, supra.  In Taft, the supreme court ruled that the jurisdiction of workers’ compensation courts did not extend to interpreting or applying the provisions of the Minnesota Insurance Guaranty Act [MIGA].  Because MIGA’s obligations were governed solely by Minnesota Statutes § 60C, et. seq., claims against MIGA were held to not arise under the workers’ compensation laws of Minnesota.  In the present case, however, the issue of insurance coverage was clearly ancillary to the employee’s claim for benefits and therefore fell within the purview of the compensation judge’s adjudication of issues arising under the Workers’ Compensation Act.  We therefore conclude that the compensation judge had jurisdiction to consider whether West Bend was estopped from denying coverage for the employee’s injury.  We also note that, although the issue of jurisdiction may not have been explicitly addressed by preceding courts in their decisions, affirmances on coverage issues in those decisions implicitly recognized the lower courts’ jurisdiction to decide such issues.

The compensation judge determined that West Bend was estopped from denying workers’ compensation insurance coverage for Innovative, based on the representations of coverage made by its agents at the Ross Nesbit Agency.  West Bend contends that this determination by the judge is unsupported by substantial evidence in the record.  Specifically, it argues that it is extremely unlikely that John and Jeff Trog relied on the certificates of insurance coverage issued by the Ross Nesbit Agency, in that they failed to produce them until after they were deposed, about a year after the coverage dispute arose.  Further, West Bend argues, it would have been unreasonable for the Trogs to have relied on the certificates when they never specifically discussed workers’ compensation insurance with Mr. Just and never told him that Innovative had any employees.  We are not persuaded.

Equitable estoppel may apply if the party against whom estoppel is sought made an inducement or a misrepresentation of material fact on which the party seeking estoppel reasonably relied to its detriment.  See Neuberger v. Hennepin County Workhouse, 340 N.W.2d 330, 36 W.C.D. 348 (Minn. 1983); see also Sandnas v. Iron Range Lumber, Inc., 52 W.C.D. 392, 398 (W.C.C.A. 1998).  Whether equitable estoppel is applicable depends on the facts of each case and is a question for the trier of fact.  O’Donnell v. Continental Casualty Co., 263 Minn. 331, 116 N.W.2d 680, 684 (1962).  In the present case, it is undisputed that agent Dennis Just and the Ross Nesbit Agency had actual and apparent authority to bind West Bend to a workers’ compensation policy.  It is also undisputed that a number of certificates of liability insurance were issued by the Ross Nesbit Agency between April 14, 2003, and February 22, 2005, representing that Innovative had workers’ compensation insurance.  The judge found that John Trog and Innovative reasonably relied on the certificates of liability insurance and thought that there was workers’ compensation insurance coverage for Innovative.  In a memorandum accompanying his findings and order, the judge explained:

In arguing that it is extremely unlikely that Innovative could have relied on the certificates of insurance, West Bend fails to explain how the timing of Innovative’s document production during discovery made their reliance unlikely.  Nor is it clear, in the context of the facts and circumstances of this case, why John Trog’s failure to report that he had employees would render it unreasonable for him to have relied upon the certificates of coverage.  It was entirely clear to John Trog, to Mr. Just, and to the Ross Nesbit Agency that certificates providing proof of workers’ compensation coverage were necessary for Innovative to do business.

As noted by the compensation judge and acknowledged also by Mr. Just, John Trog was unsophisticated in business matters and relied upon Mr. Just to provide Innovative with all necessary business insurance.  Mr. Just also admitted that the certificates of insurance were a representation that West Bend provided workers’ compensation insurance to Innovative and that he would expect Innovative to rely on that representation.  We conclude that the judge’s application of equitable estoppel was appropriate in this case and is amply supported by the record.  Representations of workers’ compensation coverage were made by West Bend’s agent; Innovative reasonably relied upon those representations; and Innovative will be harmed if estoppel is not applied.  We therefore affirm the judge’s decision on this issue.   See Hengemuhle v. Long Prairie Jaycees, 358 N.W.2d 54, 59, 37 W.C.D. 235, 239 (Minn. 1984).

At the hearing, Innovative contended that it was entitled to an award of attorney’s fees.  This contention was based upon the argument that the applicable policies issued by both West Bend and American provide an obligation to pay awarded workers’ compensation benefits and the expenses involved in any legal defense attendant to a litigated workers’ compensation claim.  Citing the case of Morrison v. Swenson, 274 Minn. 127, 142 N.W.2d 640 (1966), Innovative contends that, when an insurer breaches its contract by failing to provide a defense to an arguably covered claim and litigation is required to enforce its right to a defense and indemnification, the insured is generally awarded reasonable costs and attorney’s fees.  See Lanoue v. Fireman’s Fund Am. Ins. Cos., 278 N.W.2d 49 (Minn. 1979); see also American Standard Ins. Co. v. Le, 551 N.W.2d 923 (Minn. 1996).  The compensation judge declined to assess attorney fees, and we agree with his conclusion.

In Morrison, a personal injury action was brought against an automobile owner who claimed that an insurance company was obligated under a liability policy to defend the action.  The insured brought a third-party action for a declaratory judgment against the insurer and, in the same action, claimed payment of attorney fees incurred in prosecuting the action.  The court there stated:

The Supreme Court has subsequently made it clear that “attorney fees are recoverable in a declaratory judgment action only if there is a breach of contractual duty or statutory authority exists to support such an award.”  American Standard Insurance Company v. Le, 551 N.W.2d 923 (Minn. 1996) (emphasis in original).

In Sazama Excavating v. Wausau Insurance Companies, 521 N.W.2d 379 (Minn. App. 1994), pet. for rev. denied (Minn. Oct. 27, 1994), a case involving a claim for attorney fees against a workers’ compensation insurer and essentially on point with the case before us, the Minnesota Court of Appeals declined to apply the Morrison exception in a workers’ compensation setting.  In Sazama, an employee of Sazama was injured in a work-related accident.  Sazama sought coverage under its insurance policy, but the insurer denied coverage and refused to defend Sazama.  Accordingly, the Special Compensation Fund stepped in to represent Sazama in the workers’ compensation proceeding.  Sazama subsequently commenced a declaratory judgment action, asking that the insurer be held responsible for (1) a duty to defend Sazama, (2) a duty to indemnify Sazama, (3) costs, and (4) attorney fees.  Sazama argued that it had to participate in the workers’ compensation proceedings and to bring the declaratory judgment action in order to avoid the penalties imposed upon uninsured employers under Minnesota Statutes § 176.183, subdivisions 1 & 2.  That statute authorizes the Commissioner of Labor and Industry to recover from uninsured employers any benefits paid out by the Fund to injured employees.  It also authorizes an award of penalties.  The court in Sazama found it an important distinction that Morrison involved liability insurance coverage for a common law negligence claim, whereas a workers’ compensation claim is a creation of statute, not of the common law.  Citing Senske v. Fairmont & Waseca Canning, 232 Minn. 350, 359 n.4, 45 N.W.2d 640, 647, N3 (1951), the court noted that “workers’ compensation laws are substitutional of the common law.”  Sazama, 521 N.W.2d at 383.  Finding no specific legislative authorization for an award of attorney fees to an employer whose workers’ compensation insurer denies coverage, the court declined to expand the common law rule of Morrison into the workers’ compensation sphere.

Innovative argues that Sazama was wrongly decided and should not be followed by this court.  It points out that the supreme court has permitted application of common law concepts to workers’ compensation disputes without legislative intervention.  Further, Innovative argues, attorney fees are routinely awarded in coverage cases under the no-fault act, Minnesota Statutes § 65B.48, and there is no rational basis to distinguish between statutorily mandated automobile insurance and statutorily mandated workers’ compensation insurance when applying the Morrison rule.  Moreover, it asserts, the workers’ compensation statute does not require insurers to include a duty-to-defend clause in workers’ compensation policies.  Thus, Innovative suggests, imposition of a duty-to-defend requirement into workers’ compensation policies would be a purely private contractual function, and therefore, it argues, the court of appeals was mistaken in its belief that the duty to defend in a workers’ compensation policy is based solely upon statutory rather than common law principles.

There is merit to Innovative’s arguments.  Common law principles are regularly applied in workers’ compensation cases.^[4]  Further, we see little distinction between statutorily mandated automobile insurance and statutorily mandated workers’ compensation insurance when applying the Morrison rule.  It is undisputed that West Bend’s standard workers’ compensation policy includes coverage for defense costs.  West Bend breached its duty to defend, so its insured was compelled to pay attorney fees “as a direct loss incident to the breach of a contractual duty to defend.”  Garrick v. Northland Ins. Co., 469 N.W.2d 709, 714 (Minn. 1991).  Under Sazama, West Bend can breach its contractual duty leaving its insured with no remedy.

We nonetheless affirm the compensation judge’s denial of attorney fees to Innovative.  Had this matter been the subject of a District Court declaratory judgment action, Sazama would control and Innovative would not be entitled to recover its costs and attorney fees.  We decline to rule contrary to Sazama, thereby establishing an opposite result in workers’ compensation cases.