vs. )
Respondent. )
Case No. 05-1732
Pursuant to notice, the Division of Administrative Hearings, by its designated Administrative Law Judge, P. Michael Ruff, held a final hearing in the above-styled case in Shalimar, Florida, on August 24, 2005. The appearances were as follows:
For Respondent: David C. Hawkins, Esquire
The issues to be resolved in this proceeding concern whether the Petitioner properly secured the payment of workers'
compensation benefits for employees by securing proper workers' compensation insurance coverage, as delineated by Subsection 440.107(2), Florida Statutes (2004) and, if not, what if any penalty for such failure is warranted.
This cause arose when a Stop Work Order (05-072-1A) (SWO) was issued by the Respondent Agency requiring the Petitioner Robert Donovan Construction, Inc. (Petitioner) (Donovan) to cease business operations because of alleged failure to obtain proper workers' compensation insurance coverage as provided in the workers' compensation law Chapter 440, Florida Statutes, at the Petitioner's Florida job site. The Respondent issued an Amended Order of Penalty Assessment (AOPA) assessing a penalty in the amount of $76,945.90 pursuant to Subsections 440.107(3)(d) and (7), Florida Statutes (2004.)
The Petitioner elected to contest the SWO and penalty assessment by filing a petition for hearing. The Petition was referred to the Division of Administrative Hearings and ultimately to the undersigned Administrative Law Judge.
The cause came on for hearing as noticed. The Respondent presented the testimony of two witnesses at the final hearing, Ralph Taylor, the Respondent's investigator and Maureen Haxton, a senior underwriter with Auto Owners Insurance Company, who testified by deposition. The Respondent introduced 23 exhibits
which were admitted into evidence. The Petitioner presented the testimony of William J. Grubbs, a construction manager with DH Corporation, and Keith Cowart, an insurance agent, who testified via deposition. Additionally, the Petitioner introduced three exhibits which were admitted into evidence. Upon conclusion of the hearing the parties ordered a transcript and requested an extended period to file proposed recommended orders. Thus Proposed Recommended Orders were timely filed on September 22, 2005, and have been considered in the rendition of this Recommended Order.
The Petitioner in this proceeding is a Florida corporation engaged in the construction industry. Its business domicile is Destin, Florida, and the job site at issue was in the town of Cinco Bayou, Florida. The Respondent is an agency of the State of Florida charged with enforcing the provisions of Chapter 440, Florida Statutes, specifically Section 440.107, Florida Statutes (2004), requiring employers to secure the payment of compensation benefits for employees in the event they have an on- the-job injury. In this proceeding the Respondent has charged that the Petitioner failed to abide by the workers' compensation insurance coverage requirements of Chapter 440, Florida Statutes, regarding two subcontractors, Scott Williams, d/b/a Vinyl Masters, LLC, (Williams) domiciled in Alburn, Alabama, and J & L
Concrete a/k/a Moses Construction, Inc., (J & L) of Liliburn, Georgia.
There is no dispute that the Petitioner did not have its own workers' compensation insurance policy as of February 10, 2005. The most recent policy ended July 2, 2003. The Petitioner thus did not itself secure payment of workers' compensation on behalf of Williams or J & L during the period of proposed penalty assessment, September 8, 2004 through February 10, 2005.
The Petitioner was the general contractor engaged to perform construction operations at 1028 Anniston Court, Cinco Bayou, Florida (job site), on February 10, 2005, the date of the investigator's inspection visit and investigation. The Petitioner was sub-contracting certain vinyl siding work at that job site to Williams, a subcontractor.
The Respondent's investigator, Ralph Taylor, conducted his investigation at the job site and observed four workers installing vinyl siding. Upon investigation he determined that the four workers were employed by Williams in this effort and identified the workers as Juan Oriz, Noe Mendieta, Jose Palma, and Jose Aboyte.
Mr. Taylor's investigation revealed that Williams did not have a current workers' compensation exemption applicable to Florida law nor did he have a Florida workers' compensation insurance policy. He determined this by examination of the
Respondent's data base, the Coverage and Compliance Automated System (CCAS). Williams informed Mr. Taylor, however, that he had obtained a policy of workers' compensation insurance through the Cruchfield Insurance Agency of Birmingham, Alabama. A facsimile of the declaration page from a workers' compensation insurance policy issued by Alabama Home Builders Self Insurance Fund to Vinyl Masters, LLC (Williams) was transmitted to
Mr. Taylor by a representative of the Cruchfield Insurance Agency of Birmingham.
Florida law requires that an employer who has employees engaged in work in Florida must obtain a Florida policy or endorsement for such employees which employs Florida class codes, rates, rules, and manuals that are in compliance with the provisions of Chapter 440 as well as the Florida Insurance Code. See § 440.10(1)(g), Fla. Stat. (2004). Florida Administrative Code Rule 69L-6.019(2) requires that in order for an employer to comply with Sections 440.10(1)(g) and 440(38)(7), Florida Statutes, any policy or endorsement used by an employer to prove the fact of workers' compensation coverage for employees engaged in Florida work must be issued by an insurer that holds a valid certificate of authority in the State of Florida.
The insurance policy held by Williams did not satisfy the standard. First, the Alabama Home Builders self-insurance fund is not authorized to write insurance in Florida. Secondly,
the premium was based on a rate that was less than the Florida premium rate. The policy declaration page shows that Alabama Home Builders insured Vinyl Master effective January 1, 2005, for carpentry operations under class code 5645 at a premium of $20.58 per $100 of payroll. The premium rate using Florida rates for that same class code should have been $38.40 for $100 of payroll. Thus Vinyl Masters/Williams was not in compliance with the coverage law requirements at that job site at the time of the investigation on February 10, 2005.
Employers employing on job sites in Florida are required to keep business records that enable the Respondent to determine whether the employer is in compliance with the workers' compensation law. § 440.107(2), Fla. Stat. (2004). Investigator Taylor issued a request for production of business records to Williams on February 10, 2005. That same date the Respondent issued a request for production of business records to the Petitioner. Each request asked the employer to produce, for the preceding three years, documents that reflected payroll, payments to each subcontractor, and proof of insurance. Williams produced no records. The Petitioner produced no records related to employment of Williams or Vinyl Masters.
When an employer fails to provide requested business records which the statutes requires it to maintain and to make available to the Respondent Agency, the Respondent is authorized
to impute that employer's payroll using "the statewide average weekly wage as defined in Section 440.12(2), multiplied by l.5."
§ 440.107(7)(e), Fla. Stat. (2004). The statewide average weekly wage for the four quarters beginning June 30, 2004, was $651.38.
The Respondent thus could have imputed payroll for the entire three-year period for which it requested business records which were not produced. The Respondent imputed payroll however, for a lesser period, January 11, through February 10, 2005. This corresponds to the one-month period that the four Williams workers had told Investigator Taylor that they had worked "in the area."
The amount that the Petitioner would have paid in premium under Section 440.107(7)(e), Florida Statutes (2004), based on payroll imputed from the statewide average weekly wage of $651.38 for work under class code 5651, during the period January 11, through February 10, 2005, multiplied by the statutory multiplier factor of 1.5, yields a penalty amount of
$5,629.52.
In any event, Williams did not properly secure the payment of compensation for Williams or the four workers in question, named above. Under Section 440.10(1)(b), Florida Statutes, (2004), the Petitioner could became the "statutory employer" of Williams and its workers if Williams, the
subcontractor, had not secured the payment of workers' compensation.
The credible evidence at hearing reveals, however, that Williams has already entered into a payment agreement with the Respondent to pay the subject penalty, referenced above, concerning Williams' failure to have "Florida-complaint" workers' compensation coverage properly secured for Florida workers and Florida operations. Additionally, the testimony of Mr. Grubbs, the manager for the Petitioner (which is accepted), reveals that the four workers in question only worked three days at most. Moreover, their hourly wage rate was only $15.00 per hour. Therefore, although the Petitioner supplied no business records in advance to the investigator regarding the subcontractor, Williams, which might allow the Respondent to impute payroll based on average weekly wage for calculation for a penalty under the applicable statutory authority; in this de novo proceeding context, the Petitioner did supply sworn testimony and records showing the actual wage rate and time worked for these employees, thus obviating use of the average weekly wage and imputed payroll for penalty calculation.
Additionally, the Petitioner showed, through the testimony of Mr. Grubbs, that indeed the Petitioner had a certificate of insurance showing, to the best of Petitioner's knowledge at the time, that Williams had secured the payment of
workers' compensation through the Alabama insurance carrier, named above, in accordance with accepted industry practice. Thus the Petitioner was under a good faith, reasonable belief that this subcontractor, Williams, had secured proper payment of workers' compensation coverage at the time the Petitioner engaged Williams as a subcontractor on the job-site in question.
In summary, in view of these facts the assessment of penalty to the Petitioner is incorrect. The Investigator,
Mr. Taylor's, testimony itself shows that had he known that the workers only worked for three days, the penalty should only be based upon that amount of work or hours applied to the penalty calculation formula. Because Williams has undertaken and agreed to pay the penalty in question for not properly securing workers' compensation coverage, no penalty is justifiably assessed against the Petitioner. If that were done the Respondent, in effect, would be treating both Williams and the Petitioner as employers of the same employees simultaneously, for the same job and occurrence. No evidence justifying this, given the relevant statutory scheme and case law, has been adduced.
Subcontractor J & L Concrete
In response to the Respondent's request for business records from the Petitioner concerning subcontractor J & L Concrete, the Petitioner produced ledgers showing payments to J & L. The Petitioner contracted with J & L during the period
September 8, 2004 through February 10, 2005. During that period it paid J & L $155,413.98 for labor under class code 5403.
During this period of time J & L had a workers' compensation policy covering its employees issued by Auto Owners Insurance Company of Lansing, Michigan (Auto Owners). The testimony of Maureen Haxton, a senior underwriter in the workers' compensation underwriting department of Auto Owners, confirmed that a policy endorsement was issued which took effect on
July 13, 2004. That endorsement listed the State of Georgia in item 3A but did not list the State of Florida in item 3A. Auto Owners later issued a policy endorsement on May 10, 2005, that added Florida to item 3A, effective on March 18, 2005.
The later endorsement issued by Auto Owners was not effective on February 10, 2005, when the SWO was issued to the Petitioner. The penalty sought to be assessed against the Petitioner for work attributable to J & L, based upon Section 440.107(7)(d)1., Florida Statutes (2004), is based on remuneration paid by the Petitioner to J & L for work under class code 5403 for period September 8, 2004 through February 10, 2005.
Keith Cowart is an authorized insurance agent for Auto Owners Insurance Company. His agency is located in Lawrenceville, Georgia. He originally issued a workers' compensation policy to J & L in July of 2002 and a current policy
is in effect for J & L to and including July 2006 and was in effect during the penalty assessment period.
Mr. Cowart testified that had an employee in Florida suffered an injury on or before February 10, 2005, that the employee would have received workers' compensation benefits from Auto Owners and that employees injured in Florida would have received the level of benefits required by Florida law. Cowart indicated in his testimony that there are annual audits of J & L, under their contractual arrangement, by Auto Owners, to determine how much of its payroll is attributable to work conducted in Florida for workers' compensation insurance premium purposes.
The J & L payroll is audited annually and J & L is billed a premium rate based upon Florida work and payroll and premium rates for workers' compensation insurance attributable to work done by its employees in the State of Florida. J & L is thus charged a higher premium for employees working in Florida and is obligated to pay that Florida premium rate. J & L previously paid $40,000.00 in payroll for Florida workers on Florida jobs and was billed Florida premium rates for workers' compensation coverage based upon that payroll after an annual audit. It was projected for the year 2005-2006 J & L would owe premiums for at least $70,000.00 of workers' compensation payroll in Florida and had paid premiums due for workers' compensation coverage in the
past for Florida job workers based upon Florida premium rates, according to Mr. Cowart.
In summary, the evidence, including Mr. Cowart's sworn testimony, establishes that J & L had a workers' compensation policy coverage in effect during the period of alleged non- compliance. Mr. Cowart opined that injured Florida employees during that period of time would have received the benefits authorized by Florida law. He established that J & L was charged Florida premium rates, and pursuant to the audit being conducted in July 2005, would be charged Florida premium rates for workers, jobs performed, and payroll attributable to Florida during the period of time in question in this case. Although the endorsement issued by Auto Owners showing Florida as a listed state in "item 3A," for purposes of the rule cited below, did not take effect until after March 18, 2005, the persuasive evidence, in the form of Mr. Cowart's testimony, shows that J & L had secured workers' compensation coverage which paid Florida- mandated benefits at Florida premium rates for workers at Florida jobs at times pertinent to the SWO. Moreover, the Petitioner required the sub-contractor J & L to provide evidence of workers' compensation coverage and relied on that evidence reasonably and in good faith. It changed its position to its detriment by continuing to work on the job without securing its own appropriate coverage.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the subject matter of and the parties to this proceeding. §§ 120.569 and 120.57(1), Fla. Stat. (2004).
The Agency has the burden of proving justification for the SWO and penalty it seeks to assess by clear and convincing evidence. Department of Banking and Finance Division of Securities and Investor Protection v. Osborne Stern and Co., 670 So. 2d 932 (Fla. 1996). All employers in the State of Florida as statutorily defined, are required to secure the payment of workers' compensation for their employees. §§ 440.10(1)(a) and 440.38(1), Fla. Stat. (2004).
"Employer" is defined as "every person carrying on any employment . . ." § 440.02(16), Fla. Stat. (2004). "Employment
. . . means any service performed by an employee for the purpose of employing 'him or her' and 'with respect to the construction industry, [includes] all private employment in which one or more employees are employed by the same employer." § 440.02(17)(a) and (b)2. Fla. Stat. (2004).
A contractor is obligated to secure the payment of workers' compensation for its subcontractor or the employees of its subcontractor when the subcontractor fails to do so. Subsections 440.10(1)(b) and (c), Florida Statutes (2004), provide pertinently as follows:
In case a contractor sublets any part or parts of his or her contract work to a subcontractor or subcontractors all of the employees of such contractor or subcontractors engaged in such contract work shall be deemed to be employed in one and the same business or establishment, and the contractor shall be liable for, and shall secure, the payment of compensation to all such employees, except to employees of a subcontractor who has secured such payment.
A contractor shall require a subcontractor to provide evidence of workers' compensation insurance. . . .
(emphasis supplied).
Under the circumstance where the subcontractor has not secured such payment of workers' compensation benefits, the general contractor situated as the Petitioner, can become the "statutory employer" of both the subcontractor and the subcontractors employees. See, e.g., Llluch v. American Airlines, Inc., 899 So. 2d 1146, 1147-1148 (Fla. 3d DCA 2005).
The Petitioner was the general contractor at the job site in question and sublet parts of the work to Williams and J & L. Williams had no valid workers' compensation coverage since its workers' compensation policy was written with a carrier who had no authority to issue workers' compensation insurance coverage in Florida and which coverage was not shown to represent the payment of Florida premium rates. The Petitioner, however, complied with the plain and ordinary meaning and purpose of Subsection 440.10(1)(c), Florida
Statutes, by requiring the subcontractor, Williams, to provide evidence of workers' compensation insurance. It acted in good faith and reasonably relied on that representation by the certificate of insurance supplied by Williams. It relied to its detriment by accepting the "proof" of coverage provided by Williams and foregoing the obtaining of its own coverage.
An employer who elects to secure the payment of workers' compensation by obtaining a commercial insurance policy must assure that the policy comports with Florida law. In pertinent part the statutes and rules germane to the issue in this case specify as follows:
Subject to s. 440.38, any employer who has employees engaged in work in this state shall obtain a Florida policy or endorsement for such employees which utilizes Florida class codes, rates, rules, and manuals that are in compliance with and approved under the provisions of this chapter and the Florida Insurance Code.
See § 440.10(1)(g), Fla. Stat. (2004).
Subsection 440.38(7), Florida Statutes (2004), provides in relevant part as follows:
Any employer who meets the requirements of subsection (1) through a policy of insurance issued outside of this state must at all times, with respect to all employees working in this state, maintain the required coverage under a Florida endorsement using Florida rates and rules pursuant to payroll reporting that accurately reflects the work performed in this state by such employees.
Florida Administrative Code Rule 69L-6.019(3)(4), provides as follows:
In order to comply with Section 440.10(1)(g) and 440.38(7), Florida Statutes, for any workers' compensation policy or endorsement presented by an employer as proof of workers' compensation coverage for employees engaged in work in this state:
The policy information page (NCCI Form #WC00 00 001A) must list 'Florida' in item
3.A. and use Florida approved classification codes, rates, and estimated payroll in
item 4.
The policy information page endorsement (NCCI Form #WC89 06 00 B) must list 'Florida' in item 3.A. and use Florida approved classification codes, rates, and estimated payroll in item 4.
A workers' compensation policy that lists 'Florida' in item 3.C. of the policy information page (NCCI Form #WC 00 01 A) does not meet the requirements of Sections 440.10(1)(g) and 440.38(7), F.S., and is not valid proof of workers' compensation coverage for employees engaged in work in this state.
The above findings of fact reveal that the endorsement issued by Auto Owners to J & L on October 21, 2004, does not list Florida in item 3.A., and thus does not comport with the above-quoted legal requirements. Additionally, the endorsement issued by Auto Owners on May 10, 2005, effective March 18, 2005, while it does comport with Florida legal requirements quoted above, was not effective until March 18, 2005, and therefore
after the non-compliance/penalty period at issue in this case. Therefore, J & L Concrete did not have a Florida endorsement listing Florida in item 3.A of the policy in question during the period of non-compliance specified in this case, which was September 8, 2004 through February 10, 2005.
It also true, however, based upon the Auto Owner's Agent, Mr. Cowart's, testimony that, as found above, workers' compensation coverage paying a Florida benefit level did exist in favor of J & L during times pertinent to this case, and that J & L was obligated to pay Florida premium rates for Florida jobs for that coverage to Auto Owners (by virtue of its audit process).
In any event, the Petitioner, Donovan, exercised due diligence in complying with the plain and ordinary meaning and the purpose of Subsection 440.10(1)(c), Florida Statutes, by requiring both subcontractors, Williams and J & L, to provide evidence of workers' compensation insurance in the form of certificates of insurance. It reasonably relied on the evidence of coverage to its detriment by foregoing obtaining its own coverage for the relevant employees, which the law permits it to do.
The practice of reliance on the face of a certificate of insurance by a contractor who has been presented with a purportedly valid certificate of insurance, has been addressed
by the courts within the context of Section 440.10, Florida Statutes. In Criterion Leasing Group v. Gulf Coast Plastering &
Drywall, 582 So. 2d 799, 801 (Fla. 1st DCA 1991), the court found that an insurance company should have reasonably expected that a contractor would rely on a certificate of insurance presented to that contractor:
We find that it was foreseeable to Hartford that Evans Blount would use the certificate of insurance as proof of workers' compensation coverage. First . . . [t]he certificate of insurance listed both Criterion and Evans Blount as coinsureds.
The certificate was presented to Gulf Coast as proof of workers' compensation coverage.
Second, Section 440.10(1), Florida Statutes, requires a general contractor to provide workers' compensation coverage for a subcontractor's employees except when the subcontractor already has obtained coverage. Therefore, Hartford should have reasonably expected that Gulf Coast would rely on the certificate of insurance naming Evans Blount as a coinsured. This promise of coverage induced Gulf Coast to subcontract with the Evans Blount.
See also LaCroix Construction Company v. Bush, 471 So. 2d 134,
136 (Fla. 1st DCA 1985) (the court found that the subcontractor relied on general contractor's representation that it carried workers' compensation coverage for all employees who were not covered by subcontracting and changed his position to his detriment by continuing to work without procuring appropriate insurance coverage).
Applying the analysis of the court in Criterion Leasing Group v. Gulf Coast Plastering & Drywall and LaCroix
Construction Company v. Bush, supra, the Petitioner reasonably relied upon the certificates of insurance regarding Williams's and J & L's coverage. It satisfied the requirements of Subsection 440.10(1)(c), Florida Statutes.
Finally, the Respondent agency has entered into an agreement with Williams for it to pay the penalty assessed related to its four employees regarding the job at issue (see the above findings regarding the actual wage rate and days worked). The Respondent in this proceeding also seeks to impose the same penalty on the Petitioner. It is thus effectively seeking to treat both Williams and the Petitioner as the employer of the identical workers for the identical job and time period. There is nothing in the statutes relied on by the Respondent that authorizes the Respondent to define two businesses as the employer of the same employees or that requires an employee to be covered by two employers, which is essentially what the Respondent is doing by also seeking to impose the penalty on the Petitioner for the same situation for which it has imposed it on Williams. Pursuant to Section 440.10, two businesses cannot be defined as the employer for the same workers for the same job. Therefore, no penalty is warranted for Petitioner Donovan. See Department of Financial
Services, Division of Workers' Compensation v. AFS LLC, DOAH Case No. 05-0958 (Recommended Order: August 26, 2005).
Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore,
RECOMMENDED that a final order be entered by the Respondent Agency rescinding Stop Work Order number 05-0721-1A issued to the Petitioner on February 10, 2005, and the Amended Order of Penalty Assessment issued to the Petitioner on March 30, 2005.
DONE AND ENTERED this 29th day of November, 2005, in Tallahassee, Leon County, Florida.
P. MICHAEL RUFF Administrative Law Judge
Filed with the Clerk of the Division of Administrative Hearings this 29th day of November, 2005.
David C. Hawkins, Esquire Department of Financial Services Division of Legal Services
Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
Carlos G. Muniz, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
