STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' COMPENSATION,

Petitioner,

vs.

KP ROOFING MASTERS, LLC,

Respondent.

/

Case No. 15-6062

RECOMMENDED ORDER

On December 29, 2015, a duly noticed hearing was held in this matter in accordance with section 120.57(1), Florida Statutes (2015). The hearing took place via video teleconference with sites in Tallahassee and Miami, Florida, and was presided over by Administrative Law Judge Mary Li Creasy.

APPEARANCES

For Petitioner: Trevor S. Suter, Esquire

Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399

For Respondent: KP Roofing Masters, LLC

(No appearance) STATEMENT OF THE ISSUES

Whether KP Roofing Masters, LLC ("Respondent"), failed to secure the payment of workers' compensation coverage for its employees, and if so, whether the Department of Financial

Services, Division of Workers' Compensation ("Department"), correctly calculated the penalty imposed against Respondent.

PRELIMINARY STATEMENT

This proceeding arose out of the requirement in Florida's Workers' Compensation Law that employers must secure the payment of workers' compensation insurance for their employees. On September 26, 2014, the Department served a Stop-Work Order and Order of Penalty Assessment ("Stop-Work Order") on Respondent for failing to secure workers' compensation for its employees as required by chapter 440, Florida Statutes (2014).1/ On

October 23, 2014, the Department served an Amended Order of Penalty Assessment on Respondent, assessing a penalty of

$95,627.48. On three other occasions, the Department received business records from Respondent and, in turn, issued a new penalty. On September 1, 2015, the Department served a 4th Amended Order of Penalty Assessment, assessing a penalty of

$68,525.42. On September 17, 2015, Respondent filed its petition with the Department that requested a hearing and disputed

$8,434.86 of the penalty that was associated with its subcontractor, Emerald Building Solutions, LLC ("Emerald").

On October 26, 2015, this matter was referred to the Division of Administrative Hearings ("DOAH"). On December 29, 2015, a final hearing was held as scheduled. The Department presented the testimony of Investigator Julio Cabrera ("Cabrera")

and Penalty Auditor Eric Ruzzo ("Ruzzo"). The Department offered

11 exhibits that were accepted into evidence without objection.

Respondent did not appear at the hearing and did not otherwise offer any exhibits.

The Transcript of the final hearing was filed with DOAH on January 12, 2016. The parties' agreed motion for extension of time to file proposed recommended orders was granted on

January 22, 2016, allowing the parties until February 1, 2016, to submit their proposed recommended orders. The Department timely filed its proposed recommended order on February 1, 2016, which was taken into consideration in the drafting of this Recommended Order.

FINDINGS OF FACT

1. The Department is the state agency charged with enforcing the requirement of chapter 440 that employers in Florida secure workers' compensation coverage for their employees. § 440.107(3), Fla. Stat.

2. Respondent was a business providing services in the construction industry. Its principal office is located at 7100 Northwest 12th Street, Suite 210, Miami, Florida 33126. The Investigation.

3. On September 26, 2014, the Department's compliance investigator, Cabrera, observed two individuals performing roofing work on a house in Coral Gables, Florida. Investigator

   
   

   Cabrera interviewed the individuals, identified as Rodolfo Moscoso and Jairo Alvarado. Both men informed Cabrera that they worked for Respondent. Cabrera then checked the permit board located at the jobsite and confirmed that Respondent pulled the permit for the roofing work.

4. After gathering the information at the jobsite, Cabrera consulted the Division of Corporations’ website to determine, inter alia, the identity of Respondent's corporate officers. Cabrera found that Jorge Cappelleti ("Cappelleti") was Respondent's sole corporate officer.

5. Cabrera then consulted the Department's Coverage and Compliance Automated System ("CCAS") for proof of workers' compensation coverage and for exemptions associated with Respondent.

6. An exemption is a method in which a corporate officer can exempt himself from the requirements of chapter 440. See

   § 440.05, Fla. Stat. (2014).

   
   

7. CCAS is the Department's internal database that contains workers' compensation insurance policy information and exemption information. Insurance providers are required to report coverage and cancellation information, which is then input into CCAS.

8. Cabrera's CCAS search revealed that Respondent did not have a workers' compensation policy or an employee leasing

   
   

   policy. Cabrera additionally discovered that Cappelleti had a valid exemption.

9. Cabrera then called Cappelleti who confirmed that the two men at the jobsite were his employees and that the employees were not covered by workers' compensation insurance.

10. Based on the information gathered, on September 26, 2014, Cabrera issued Respondent a Stop-Work Order and Order of Penalty Assessment. On September 29, 2014, Cabrera served Respondent with the Stop-Work Order and Order of Penalty Assessment. Cabrera simultaneously served Respondent with the Request for Production of Business Records for Penalty Assessment Calculation ("BRR"). The BRR requested documents that would enable the Department to determine Respondent's payroll for the time period of September 27, 2012, through September 26, 2014.

11. In response to the BRR, Respondent ultimately provided the Department with bank statements, check details, a general ledger, and other records.

    Penalty Calculation.

    
    

12. In October 2014, the Department assigned Penalty Auditor Ruzzo to calculate the penalty assessed against Respondent.

13. Ruzzo reviewed the business records produced by Respondent and properly identified the amount of gross payroll paid to Respondent's employees on which workers' compensation

    
    

    premiums had not been paid. Ruzzo researched Respondent and Respondent's subcontractors to determine those periods when they were not compliant with chapter 440 during the audit period.

    Ruzzo determined that Respondent was not compliant for the period of September 27, 2012, through September 26, 2014. However, Respondent's corporate officer was not included in the penalty for the periods in which he had an exemption. Additionally, Respondent's compliant subcontractors were not included in the penalty.

14. The business records ultimately produced by Respondent were sufficient for Ruzzo to calculate a penalty for the entire audit period, except for September 26, 2014. For that day, Ruzzo imputed the payroll.

15. On June 2, 2015, based on Ruzzo's calculations, the Department issued a 4th Amended Order of Penalty Assessment to Respondent. On September 1, 2015, the 4th Amended Order of Penalty Assessment was served on Respondent. The 4th Amended Order of Penalty Assessment assessed a penalty of $68,525.42.

16. For the penalty assessment calculation, Ruzzo consulted the classification codes listed in the Scopes® Manual, which has been adopted by the Department of Financial Services through Florida Administrative Code Rules 69L-6.021 and 69L-6.031. Classification codes are assigned to various occupations to

    
    

    assist in the calculation of workers' compensation insurance premiums.

17. Ruzzo assigned the class codes based on information provided to him by Cappelleti. Ruzzo then utilized the corresponding approved manual rates for those classification codes and the related periods of non-compliance.

18. Ruzzo applied the correct approved manual rates and correctly utilized the methodology specified in section 440.107(7)(d)l. and rules 69L-6.027 and 69L-6.028 to determine the penalty.

    The Penalty Associated With Subcontractor Emerald.

    
    

19. Respondent only disputes the portion of the penalty associated with its subcontractor, Emerald, in the amount of

    $8,434.86 for the period of non-compliance from January 1, 2014, through April 8, 2014.

20. Section 440.10(1) provides in relevant part:

    
    

    1. 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 and subcontractor or subcontractors engaged on 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.

       
       

    2. A contractor shall require a subcontractor to provide evidence of workers’

       
       

       compensation insurance. A subcontractor who is a corporation and has an officer who elects to be exempt as permitted under this chapter shall provide a copy of his or her certificate of exemption to the contractor.

       
       

21. Noticeably absent from the statute is the time period within which this evidence of coverage must be provided to the contractor or the nature of the required evidence.

22. Rule 69L-6.032(1) provides:

    
    

    In order for a contractor who is not securing the payment of compensation pursuant to Section 440.38(1)(a), F.S. to satisfy its obligation to obtain evidence of workers’ compensation insurance or a Certificate of Election to Be Exempt from a subcontractor pursuant to Section 440.10(1)(c), F.S., such contractor shall obtain and provide to the Department, when requested, the evidence specified in subsections (2), (3), (4) or (5) herein. (Emphasis added).

    
    

23. Rule 69L-6.032 sets forth the contractor requirements for obtaining evidence that the subcontractor possesses workers' compensation insurance. If a subcontractor is a client company of a leasing company, such as Emerald, rule 69L-6.032(3) specifies that the evidence shall be a Certificate of Liability Insurance ("Certificate").

24. According to the deposition testimony of Cappelleti (Exhibit 11, offered into evidence by the Department), when Emerald began providing services to Respondent in January 2014, Emerald represented that its workers were covered by a policy through an employee leasing company.

    
    

25. In fact, a Certificate, obtained by Respondent sometime before it was requested by the Department, indicates that Emerald had coverage for the period of January 1, 2014, through

    December 31, 2014. This period encompasses the period of time for which the Department now seeks to penalize Respondent.

26. Although Respondent obtained proof of coverage from Emerald, this occurred after Emerald was paid by Respondent for work occurring between January 1, 2014, and April 8, 2014.

27. Ruzzo checked the CCAS and found that the Certificate for Emerald was inaccurate. Emerald apparently did not join the leasing company insurance policy until April 9, 2014. Although a contractor does not have a duty to further investigate when presented with what appears to be a valid Certificate, Ruzzo's calculations penalized Respondent for the period of

    non-compliance of Emerald because Respondent did not seek the proof of coverage until after Emerald's workers were already on the job for Respondent.

28. The Department has demonstrated by clear and convincing evidence that Respondent employed Mr. Moscoso and Mr. Alvarado on September 26, 2014; that Respondent was engaged in the construction industry in Florida during the period of

    September 27, 2012, to September 26, 2014; and that Respondent failed to carry workers' compensation insurance to cover its

    
    

    employees as required by Florida's Workers' Compensation Law from September 27, 2012, to September 26, 2014.

29. The Department has demonstrated by clear and convincing evidence that Ruzzo correctly utilized the methodology specified in section 440.107(7)(d)l. However, the Department failed to show by clear and convincing evidence that a penalty for Emerald's period of non-compliance, in the amount of $8,434.86, should be included in the total penalty assessment of $68,525.42.

    CONCLUSIONS OF LAW

    
    

30. DOAH has jurisdiction over the subject matter of and parties to this proceeding. §§ 120.569 and 120.57(1), Fla. Stat. (2015).

31. Chapter 440 is known as the "Workers' Compensation Law." § 440.01, Fla. Stat.

32. Because administrative fines are penal in nature, the Department is required to prove by clear and convincing evidence that Respondent failed to secure the payment of workers' compensation and that it calculated the appropriate amount of penalty owed by Respondent. See Dep't of Banking & Fin. v.

Osborne Stern & Co., 670 So. 2d 932, 935 (Fla. 1996).

33. Pursuant to sections 440.10, 440.107(2), and 440.38, every "employer" is required to secure the payment of workers' compensation for the benefit of its employees unless exempted or excluded under chapter 440. Strict compliance with the Workers'

Compensation Law is required by the employer. See C&L Trucking

v. Corbitt, 546 So. 2d 1185, 1187 (Fla. 5th DCA 1989); Dep't of Fin. Serv. v. L & I Consolidated Serv., Inc., Case

No. 08-005911 (Fla. DOAH May 28, 2009; DFS July 2, 2009).

1. Section 440.107(2) states "'securing the payment of workers' compensation' means obtaining coverage that meets the requirements of this chapter and the Florida Insurance Code."

2. Section 440.107 also sets out the Department's duties and powers to enforce compliance with the requirement that employers provide workers' compensation coverage for their employees. Section 440.107(3)(g) authorizes the Department to issue stop-work orders and penalty assessment orders in its enforcement of workers' compensation coverage requirements.

3. Cabrera correctly concluded that Respondent was not in compliance with the coverage requirements of chapter 440 on September 26, 2014. Therefore, the Department properly issued and served the Stop-Work Order and the 4th Amended Order of Penalty Assessment.

4. The Department has the duty of enforcing the employer's compliance with the requirements of the Workers' Compensation Law. § 440.107(3), Fla. Stat. To that end, the Department is empowered to examine and copy the business records of any employer conducting business in the state of Florida to determine

   
   

   whether it is in compliance with the Workers' Compensation Law.

   
   

   § 440.107(3), Fla. Stat.

5. Section 440.107(7)(d)l. provides that the Division: shall assess against any employer who has

   failed to secure the payment of compensation

   as required by this chapter a penalty equal to 2 times the amount the employer would have paid in premium when applying approved manual rates to the employer's payroll during periods for which it failed to secure the payment of workers' compensation required by this chapter within the preceding 2-year period or $1,000, whichever is greater.

   
   

   This statutory provision mandates that the Department assess a penalty for non-compliance with chapter 440 and does not provide any authority for the Department to reduce the amount of the penalty.

6. Rule 69L-6.027 adopts a penalty calculation worksheet for the Department's penalty auditors to utilize "[f]or purposes of calculating penalties to be assessed against employers pursuant to section 440.107, Florida Statutes."

7. The Department applied the proper methodology in computing the 4th Amended Order of Penalty Assessment pursuant to section 440.107(7)(d)l. and rules 69L-6.027 and 69L-6.028.

8. Ruzzo properly utilized the penalty worksheet mandated by rule 69L-6.027 and the procedure mandated by section 440.107(7)(d)1. and (7)(e) to calculate the penalty owed by

   
   

   Respondent as a result of its failure to comply with the coverage requirements of chapter 440.

9. Ruzzo improperly included the period of non-compliance of Respondent's subcontractor Emerald. Respondent met the requirements of the statute and applicable rules by providing the Department, when requested, a copy of the Certificate of Emerald showing Emerald had coverage for its workers for the period of January 1, 2014, through December 31, 2014.

10. As Ruzzo testified, there is no basis to penalize a contractor when the Certificate presented by its subcontractor appears on its face to reflect coverage during the applicable audit period. The only reason the penalty for non-compliance of Emerald is being assessed to Respondent is because Respondent did not secure the Certificate prior to Emerald's workers providing services to Respondent.

11. However, there is nothing in the statute or rules which require the contractor to secure such documentation prior to the subcontractor's workers providing services.2/ Only the request of the Department triggers the obligation of the contractor to "obtain and provide evidence" of the subcontractor's coverage during the audit period. See Fla. Admin. Code R. 69L-6.032(1).

    In this case, Respondent secured the Certificate sometime after Emerald's workers began providing services, but prior to the Department's audit. As such, Respondent cannot be penalized in

    
    

    the amount of $8,434.86 for the period of Emerald's failure to secure coverage.

12. Therefore, the Department failed to prove by clear and convincing evidence that it correctly calculated and issued the penalty of $68,525.42 in the 4th Amended Order of Penalty Assessment. Rather, the Department proved by clear and convincing evidence that the total amount due from Respondent is

$60,090.56.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Workers' Compensation, enter a final order determining that Respondent, KP Roofing Masters, LLC, violated the requirement in chapter 440, Florida Statutes, to secure workers' compensation coverage, and imposing upon it a total penalty assessment of $60,090.56.

DONE AND ENTERED this 2nd day of March, 2016, in Tallahassee, Leon County, Florida.

S

MARY LI CREASY

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 2nd day of March, 2016.

ENDNOTES

1/ References to Florida Statutes are to the 2014 version, unless otherwise stated.

2/ Rule 69L-6.024 states, "If a subcontractor hires one or more employees at any time during the life of a contract, that subcontractor must provide the contractor with evidence of workers' compensation insurance before any such employee or employees can perform any work related to that contract." Accordingly, it is an affirmative duty of the subcontractor to provide the evidence of the insurance, rather than that of the contractor to secure the evidence, prior to the subcontractor's workers providing services for the contractor.

COPIES FURNISHED:

Jorge E. Cappelleti

KP Roofing Masters, LLC Suite 210

7100 Northwest 12th Street Miami, Florida 33126-1342

Trevor S. Suter, Esquire Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399 (eServed)

Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed)

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

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.

Docket for Case No: 15-006062

Orders for Case No: 15-006062