08-005911 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. L And I Consolidated Services, Inc. Status: Closed Recommended Order on Thursday, May 28, 2009.

Summary: Respondent was entitled to exemption for workers' compensation coverage, but let the previous exemption lapse without timely renewal. He renewed, but the months it was lapsed serves as a period when required coverage was not in effect.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF )

WORKERS' COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 08-5911

)

L AND I CONSOLIDATED )

SERVICES, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to appropriate notice this matter came on for

formal hearing before P. Michael Ruff, duly-designated

Administrative Law Judge of the Division of Administrative

Hearings. The hearing was conducted in Pensacola, Florida, on

March 23, 2009. The appearances were as follows:

APPEARANCES

For Department of Financial Services, Division of Workers'

Compensation:

Justin H. Faulkner, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

For L and I Consolidated Services, Inc.:

Samuel W. Bearman, Esquire

Law Office of Samuel W. Bearman, L.C.

820 North 12th Avenue

Pensacola, Florida 32501

STATEMENT OF THE ISSUES

The issues to be resolved in this proceeding concern

whether the Respondent was an employer in the State of Florida,

required to secure the payment of workers' compensation

insurance coverage pursuant to the appropriate provisions of

Chapter 440, Florida Statutes (2007); whether the Respondent

secured such coverage, if required; and whether the proposed

penalty, if any, is warranted.

PRELIMINARY STATEMENT

This proceeding had its origin in an observation made by an

investigator for the Department of Financial Services, Division

of Workers' Compensation (Petitioner, Department), wherein the

Respondent's principal, Richard Longoria, was observed

performing construction work at a job site in or around

Pensacola, Florida. It was determined by the investigator that

the Respondent Corporation did not have workers' compensation

coverage nor an effective exemption therefrom. Consequently,

the investigator issued a Stop Work Order based upon the alleged

failure to obtain workers' compensation insurance coverage

meeting the relevant requirements of Chapter 440, Florida

Statutes, and the Florida Insurance Code. In due course, an

Amended Order of Penalty Assessment was issued and served on the

Respondent on October 31, 2008. The Respondent filed a timely

petition for formal proceeding, and hearing based upon the

Amended Order of Penalty Assessment. The minimum fine of $1,000

had been assessed and, during the free form stage of this

proceeding, the Respondent paid the $1,000 fine in full. After

the filing of the Petition for Hearing, the Petitioner referred

the dispute to the Division of Administrative Hearings, after

which it was assigned to the undersigned Administrative Law

Judge for conduct of a formal proceeding.

The cause came on for final hearing, as noticed, on

March 23 , 2009. The Petitioner presented the testimony of

Michelle Newcomer, an investigator for the Department, as well

as Mark Mark, a Senior Management Analyst II for the Department.

Exhibits 1 through 13 were presented by the Petitioner and were

received into evidence without objection.

The Respondent offered the testimony of its principal and

president, Richard Longoria. The Respondent did not offer any

exhibits into evidence.

Upon conclusion of the proceeding, a transcript of the

proceeding was ordered and was filed on April 8, 2009. Proposed

Recommended orders were thereafter timely filed and have been

considered in the rendition of this Recommended Order.

FINDINGS OF FACT

1. The Department is an agency of the State of Florida

charged with enforcing the various requirements of Chapter 440

Florida Statutes. This includes the requirement, in Section

440.107(3) Florida Statutes, that employers in the State of

Florida, as defined by statute, secure the payment of workers'

compensation coverage for all employees, as provided in Sections

440.10(1)(a), 440.38(1), and 440.107(2), Florida Statutes

(2007).

2. The Respondent is a closely held Florida corporation

with a principal business address of record at 1815 West Detroit

Boulevard, Pensacola, Florida 32534. The president of the

Respondent Corporation is Richard Longoria.

3. On October 29, 2008, an investigator for the

Department, Michelle Newcomer, observed construction work being

conducted at a site at 4111 Baisden Road in Pensacola, Florida.

Ms. Newcomer stopped at that address and encountered Richard

Longoria, the Respondent's president. In the course of their

conversation, Mr. Longoria told Investigator Newcomer that he

was sanding and caulking window frames in preparation for

painting them. He also was engaged in painting shutters at that

address.

4. The so-called "Scopes Manual" is a manual published by

the National Counsel on Compensation Insurance, Inc. (NCCI). In

that manual are certain codes, related to the construction

industry and trades considered to be within that industry.

Painting is considered to be "construction" under the relevant

codes in this manual. The manual, with its codes and

classifications is relied upon in the insurance industry and has

been adopted by the State of Florida, and the Department, in

Florida Administrative Code Rule 69L-6.021. The preparation of

surfaces for painting is contemplated as being included in the

construction trade or industry in that manual, under the

painting classification code.

5. Mr. Longoria performs a significant amount of painting,

but also does general construction, wallpapering, general

maintenance and carpentry work. He has three different

occupational licenses: maintenance, carpentry and

painting/wallpapering. The trades or types of work Mr. Longoria

had disclosed in the course of obtaining his construction

industry exemption, which was effective April 13, 2006, through

April 12, 2008, included paperhanging, wallpapering and

carpentry.

6. During his conversation with Investigator Newcomer,

Mr. Longoria disclosed that he did not have workers'

compensation coverage because he had an exemption from such

coverage. He provided her with a workers' compensation

Exemption card for the construction industry. Ms. Newcomer

observed that the workers' compensation exemption held by

Mr. Longoria, as an officer of the Respondent, had actually

expired some months previously, on April 12, 2008. Ms. Newcomer

consulted the Department's automated database, called the

Coverage and Compliance Automated System (CCAS). That system is

routinely used and lists workers' compensation insurance policy

information for each corporation, which insurance companies are

required to provide to the Department, as well as the workers'

compensation exemptions for corporate officers, if any. The

database confirmed that Mr. Longoria's most recent exemption had

expired on April 12, 2008. He thus did not have a current

workers' compensation exemption on October 29, 2008, when he

encountered Investigator Newcomer. That database also revealed

that there was no record of a workers' compensation insurance

policy in effect for the Respondent, and this was confirmed by

Mr. Longoria's testimony during his deposition (in evidence).

7. Corporate officers who qualify for a workers'

compensation coverage exemption are not automatically exempt,

but must submit a Notice of Election to Be Exempt. They submit

a form, along with a $50 fee, to apply for an exemption. Upon

receipt of a Notice of Election to Be Exempt, the Department

makes a determination as to whether the applicant for the

exemption meets the relevant eligibility requirements. The

exemption request is then processed by the Department and a

Notice of Granting the Exemption, or denial, or a Notice of

Incompletion, and the necessity for more information, is sent to

the applicant.

8. A workers' compensation exemption has a duration of two

years from its effective date. Its effective date is the date

that is entered into the CCAS system. The only Notice of

Election to Be Exempt the Department received from Mr. Longoria,

as of the October 29, 2008, inspection date, was the application

received on April 10, 2006. It became effective on April 13,

2006, and thus was effective until April 13, 2008.

9. Before October 29, 2008, Mr. Longoria had three

construction industry exemptions which were renewed. One

exemption was as a sole proprietor and was effective from

July 4, 1993, through July 4, 1995. He had another exemption

extending from April 13, 2004, through April 13, 2006, and then

an exemption from April 13, 2006, through April 12, 2008.

10. Mr. Longoria stated to Ms. Newcomer, in their

conversation on October 29, 2008, that he had not received

notice of his April 13, 2006 exemption's expiration prior to the

expiration date of April 13, 2008. Ms. Newcomer thereupon

consulted the CCAS system to determine when the notification of

expiration of the exemption had been sent to Mr. Longoria or the

Respondent. That database revealed that a letter notifying him

of the expiration of his exemption had been sent on January 29,

2008. The CCAS entry shows that the expiration notice had been

mailed out to Mr. Longoria to his address of record,

1815 West Detroit Boulevard, Pensacola, Florida 32354. That is

the same address which had been shown on Mr. Longoria's

exemption certificate, effective on April 13, 2006.

11. Mr. Longoria's wife was stricken with cancer. She is

a veteran and sought treatment and therapy for her cancer at a

Veteran's Administration facility in Tennessee. Consequently,

Mr. and Mrs. Longoria moved to Tennessee in May 2006, soon after

the effective date of his exemption. Mr. Longoria filed a

mail-forwarding form with the United States Postal Service in

Pensacola so that his mail would be forwarded to his residence

and address in Tennessee. Mail was forwarded for approximately

one year, but no mail originally sent to his Pensacola address

was forwarded to his address in Tennessee after sometime in

August 2007. Mr. Longoria did not notice this fact until April

2008.

12. None of the later mail addressed to the Pensacola

address was forwarded to Tennessee, even after he renewed his

forwarding application with the postal service in April of 2008.

In fact, he testified that "99 percent of whatever mail was sent

to the Florida address between 2007 and April 2008 was never

forwarded to [Mr. Longoria] in Tennessee." Mr. Longoria,

however, did not file a change of address notification with the

Department prior to submitting his new Notice of Election to be

Exempt, which he filed on October 31, 2008. The Respondent did

not change his mailing address with the Florida Department of

State, Division of Corporations until April 9, 2008.

13. On October 29, 2008, after the discussion between

Mr. Longoria and Investigator Newcomer, concerning the matter of

workers' compensation coverage, Ms. Newcomer issued a Stop Work

Order and Order of Penalty Assessment, and served it on

Mr. Longoria and the Respondent. These were issued because of

the Respondent's failure to secure payment of workers'

compensation in purported violation of Sections 440.10(1),

440.38(1) and 440.107(2), Florida Statutes.

14. Upon issuance of the Stop Work Order, Mr. Longoria

promptly complied. Investigator Newcomer also requested

production of certain business records in order to perform the

relevant penalty assessment calculations. Mr. Longoria promptly

provided the necessary business records to the Department.

15. The parties stipulated that work was being performed

by the Respondent between the dates of April 12, 2008, and

October 29, 2008. This was the period of time when the

exemption was in an expired state.

16. Based upon the Respondent's records, Investigator

Newcomer calculated an amended penalty, for the period of

noncompliance with the workers' compensation law (the period of

expiration of the exemption) using the penalty calculation

worksheet adopted in Florida Administrative Code Rule 69L-6.027.

The total penalty based upon that formula resulted in an

assessment of less than $1,000. The penalty assessed was

therefore $1,000, pursuant to Section 440.107(7)(d), Florida

Statutes, which provides that the penalty to be assessed will be

based on the formula provided in the referenced provision of

Section 440.107, Florida Statutes, and the above-cited rule, or

a minimum of $1,000, whichever is greater. The parties

stipulated that the penalty assessed is accurate, if it is

ultimately determined that the penalty was properly and lawfully

assessed.

17. After being served with the Amended Order of Penalty

Assessment on October 31, 2008, Mr. Longoria promptly paid the

penalty in full, in the form of a cashier's check. He submitted

a new Notice of Election to Be Exempt for himself, as a

corporate officer of the Respondent, which exemption became

effective on that same date. The Respondent was subsequently

issued an Order of Release from the Stop Work Order and an

Amended Order of Penalty Assessment, which allowed the

Respondent to resume working. The expiration of the exemption,

for the number of months referenced above, occurred because the

Respondent, through Mr. Longoria, inadvertently failed to renew

the exemption. Mr. Longoria had not been reminded of his

expiration because he had not received the Notice of Impending

Expiration from the Department. There is no dispute that

Mr. Longoria and the Respondent corporation qualified for the

exemption and were thus not required to secure the payment of

workers' compensation, if the exemption had been effective at

times pertinent hereto. This is because of the corporate

business entity under which the Respondent and Mr. Longoria

operated, with Mr. Longoria as the sole employee and sole

corporate officer and owner.

CONCLUSIONS OF LAW

18. 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. (2008).

19. Cases involving the proposed assessment of

administrative fines have been held to be penal in nature.

Therefore, the Department is required to prove its case by clear

and convincing evidence. Department of Banking and Finance,

Division of Securities and Investor Protection v. Osborne Stern,

Inc. , 670 So. 2d 932, 935 (Fla. 1996); James T. Quinn d/b/a

James Quinn v. Department of Financial Services, Division of

Workers' Compensation , Case No. 08-2745 (DOAH; November 7,

2008). See also § 120.57(1)(j), Fla. Stat. (2008) ("Findings of

fact shall be based upon a preponderance of the evidence, except

in penal or licensure discipline proceedings or except as

otherwise provided by statute.").

20. Florida employers are required to secure the payment

of workers' compensation for employees. §§ 440.10(1)(a),

440.38(1), Fla. Stat. (2007). Section 440.107(2), Florida

Statutes (2007), states that "'Securing the payment of workers'

compensation' means obtaining coverage that meets the

requirements of this chapter and the Florida Insurance Code."

21. Section 440.107(3), Florida Statutes, charges the

Department with the responsibility for enforcing compliance with

the workers' compensation Law and requires issuance of Stop Work

Orders and Penalty Assessment Orders in carrying out enforcement

of workers' compensation coverage requirements. "Employer" is

defined as "Every person carrying on any employment."

any service performed by an employee for the person employing

construction industry in Florida includes "all private

employment in which one or more employees are employed by the

same employer." §§ 440.02(17)(b)2. Fla. Stat.

22. Additionally, "'[e]mployee' means any person who

receives remuneration from an employer for the performance of

any work or service while engaged in any employment. . ."

§§ 40.02(15)(a), Fla. Stat. This definition includes "any

person who is an officer of a corporation and who performs

services for remuneration for such corporation within this

state, whether or not such services are continuous."

and 440.05, Florida Statutes, and Florida Administrative Code

Rule 69L-6.012(2), corporate officers can become exempt from the

coverage requirements of Chapter 440, Florida Statutes, by

appropriately and affirmatively making an election and applying

for such an exemption.

23. "Construction Industry" is defined as "for-profit

activities involving any building, clearing, filling,

excavation, or substantial improvement in the size or use of any

structure or the appearance of any land." § 440.02(8), Fla.

Stat. That section further provides that the Division of

Workers' Compensation may establish by rules certain industrial

classification codes and definitions which meet the criteria for

the term "construction industry." Pursuant to that authority

the Division promulgated Florida Administrative Code Rule 69L-

6.021, which adopts the definitions found in the Scopes Manual,

as referenced in the above findings of fact.

24. There is no dispute that Mr. Longoria and the

Respondent engaged in various activities which come within the

construction industry classification codes, such as painting and

carpentry.

25. Because the Respondent was involved in the

construction industry in his work activities, the Respondent was

an employer if it had at least one employee. See

§ 440.02(17)(b)2., Fla. Stat. Because Mr. Longoria is an

officer of the Respondent Corporation he is an employee of that

Respondent and therefore the Respondent was required to secure

the payment of workers' compensation for that employee.

§ 440.02(15)(a),(b), Fla. Stat.

26. Corporate officers may elect to be exempt from the

requirement for securing payment of workers' compensation ( i.e.

coverage). Such a person electing to be exempt must meet

certain requirements. In the construction industry, "no more

than three officers of a corporation or of any group of

affiliated corporations may elect to be exempt from this chapter

by filing written notice of the election with the Department as

provided in s.440.05." § 440.02(15)(b)2., Fla. Stat. There is

no dispute that Mr. Longoria meets the requirement of being an

officer of the Respondent corporation, with the required level

of ownership of the stock of the corporation in order to qualify

for an exemption under the above last-cited statutory provision.

27. In order to obtain the exemption, a Notice of Election

to be Exempt must be filed. It must be completed, notarized,

attested to and then submitted to the Department with a $50 fee.

See § 440.05(3)(8), Fla. Stat. (2007), and Fla. Admin. Code R.

69L-6.012(2)(4). Various items of information are required to

be included in the Notice of Election, such as copies of

occupational licenses, evidence from the records of the

Department of State, Division of Corporations, identifying the

corporation and its status and any corporations with which the

person seeking the exemption is employed. See § 440.05(3),

Florida Statutes, and Fla. Admin. Code R. 69L-6.012(3). There

is no question that, as a corporate officer, Mr. Longoria meets

these requirements. There is no dispute that the Respondent and

Mr. Longoria meet all of the relevant requirements for obtaining

an exemption. The dispute in this case really focuses on the

fact that the exemption was allowed to expire and some months

elapsed during which the Respondent had not secured the payment

of workers' compensation in accordance with the statutory

authority referenced herein. Because Mr. Longoria met all the

relevant requirements, his new exemption was immediately granted

upon being applied for on October 31, 2008.

28. Section 440.05(6), Florida Statutes, provides that "A

construction industry certificate of election to be exempt which

is issued in accordance with this section shall be valid for two

years after the effective date stated thereon." The exemption

for Mr. Longoria first became effective on April 13, 2006. It

therefore expired on April 12, 2008, as listed on the CCAS data

in Department's Exhibits 2, 3b, and 3d, in evidence.

Mr. Longoria had to renew his exemption before that expiration

date in order to remain exempt from the Florida workers'

compensation laws. Mr. Longoria inadvertently failed to renew

that exemption for the reasons referenced in the above findings

of fact.

29. If a renewal Notice of Election to be Exempt is

received by the Department after the Certificate of Election to

be Exempt has expired, the renewal Certificate of Election to be

Exempt issuance date is the date the renewal Certificate of

Election to be Exempt is approved and entered in the CCAS

database or 30 days after the date the renewal Notice of

Election is received by the Department, whichever is earlier.

See Fla. Admin. Code R. 69L-6.012(7)(e). Mr. Longoria's most

recent exemption election was thus received by the Department on

October 31, 2008, which was its effective date. Thus, the

Respondent brought itself back into compliance with the

referenced workers' compensation laws effective that date, as

explained in the above findings of fact.

30. The workers' compensation exemption holder has a duty

to notify the Department of any change in that person's address

of record, as listed on the Certificate of Election to be

Exempt. See Fla. Admin. Code R. 69L-6.012(14).

Mr. Longoria thus had a duty to notify the Department of any

change of address, which he failed to do due to inadvertence,

prior to the issuance of the Stop Work Order referenced herein.

31. Because Mr. Longoria did not have an effective

exemption between the dates of April 12, 2008, and October 31,

2008, he reverted during that time to the status of an employee

of a Florida corporation for purposes of the referenced

provisions of Chapter 440, Florida Statutes. Because the

Respondent Corporation did not have workers' compensation

insurance coverage, the Respondent failed to secure the payment

of workers' compensation for its employee, Mr. Longoria.

32. The evidence in this de novo proceeding clearly showed

that during that time period the Respondent factually met the

requirements for not having workers' compensation insurance

coverage, its employee qualified for the corporate officer

exemption, (sole employee). That exemption, however, must be

affirmatively requested and the seeker of the exemption, the

corporate officer and the corporation he represents, have an

affirmative duty to apply for the exemption and furnish the

necessary information showing that it is justifiable. While the

Department, by practice, notifies holders of the exemptions when

an exemption is about to expire, it is still the responsibility

and duty of the person seeking to hold an exemption to timely

effect its renewal.

33. While the failure to timely renew the exemption is

understandable given the circumstances Mr. Longoria was

confronting, concerning his wife's illness, during the time his

prior exemption was expiring and should have been renewed, it is

still the responsibility of the applicant for the exemption to

apply for any renewal when expiration is pending. It may appear

harsh to impose a penalty for failure to timely renew the

exemption, especially when that failure was due to inadvertence

and not due to any effort to circumvent the legal requirements.

The fact remains, however, that the Department has no discretion

under the controlling statutory authority when workers'

compensation coverage has not been legally effected and an

exemption from the requirement to secure workers' compensation

has likewise not been effected, by the party with the duty to

seek and renew an exemption.

34. Section 440.107(7)(a), Florida Statutes, authorizes

the Department to issue Stop Work Orders when an employer has

failed to obtain workers' compensation coverage and thus to

require that employer to cease all business operations. Indeed,

the Department is required to issue a Stop Work Order within 72

hours of making the determination that an employer is thus out

of compliance. § 440.107(7)(a), Fla. Stat.

35. The Department is also required by Section

440.107(7)(d)1., Florida Statutes, to

* * *

assess against any employer who has failed

to secure the payment of compensation as

required by this chapter a penalty equal to

1.5 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 3-year period or $1,000, whichever

is greater.

Thus, pursuant to this statute, the minimum penalty amount which

can be assessed is $1,000. The Respondent makes the argument

that, in the de novo context of this proceeding, the evidence at

hearing showed that the Respondent and Mr. Longoria were not

required to have workers' compensation coverage and therefore

the penalty should not be imposed for failing to have that which

the law, as applied to the facts proven at hearing, shows was

not required. That argument however loses sight of the fact

that the Respondent is a corporation and that Mr. Longoria meets

the criteria to be deemed an employee of that corporation. That

being the case, the corporate Respondent is required to have

workers' compensation coverage, unless an exemption is

effectively in place. That was not the case for the period of

time referenced in the above findings of fact; therefore, under

the law, the Department is justified in determining that the

workers' compensation coverage was not secured and that the

corporate officer exemption for its officer/employee had not

been put into effect for the time period in question. That is

sufficient to trigger the above-referenced enforcement and

penalty provisions.

36. In summary, the Department has established that the

Respondent was required to either secure the payment of workers'

compensation under the above provisions of Chapter 440, Florida

Statutes, or that it have an exemption in place for its sole

employee and corporate officer. Since that was not done, albeit

inadvertently, for the period of time in question, the penalty

was properly assessed for failure to secure the payment of

workers' compensation, or demonstrate exemption, as required by

the statute.

RECOMMENDATION

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 Department

of Financial Services, Division of Workers' Compensation,

finding that the Respondent failed to properly secure workers'

compensation insurance coverage for its employee in violation of

Sections 440.10(1)(a) and 440.38(1), Florida Statutes, and that

a penalty in the amount of $1,000 be assessed, as mandated by

Section 440.107(7), Florida Statutes.

DONE AND ENTERED this 28th day of May, 2009, in

Tallahassee, Leon County, Florida.

S

P. MICHAEL RUFF

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 28th day of May, 2009.

COPIES FURNISHED :

Tracey Beal, Agency Clerk

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399-0390

Benjamin Diamond, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0307

Honorable Alex Sink

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Justin H. Faulkner, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

Samuel W. Bearman, Esquire

Law Office of Samuel W. Bearman, L.C.

820 North 12th Avenue

Pensacola, Florida 32501

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.