15-006062 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Kp Roofing Masters, Llc Status: Closed Recommended Order on Wednesday, March 2, 2016.

Summary: Respondent violated the requirement in chapter 440 to secure workers' compensation coverage. Recommend penalty assessment of $60,090.56, which excludes period of subcontractor's non-compliance, based on contractor's reliance on certificate of insurance.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL

SERVICES, DIVISION OF WORKERS'

COMPENSATION,

Petitioner,

vs. Case No. 15 - 6062

KP ROOFING MASTERS, LLC,

Respondent.

_______________________________/

RECO MMENDED ORDER

On December 29, 2 015, 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 tele confer ence

with sites in Tallahassee and Miami, Florida , and was presid ed

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 3 2399

For Respondent: K P Roofing Masters, LLC

(N o appearance)

STATEMENT OF THE ISSUE S

Whether KP Roofing Masters, LLC ("Respondent") , failed to

secure the payment of workers' compensation coverage for its

employees, and if so, whether th e 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 tha t employers must secure the payment

of workers' compensation insurance for their employees. On

September 26, 2014 , the Department served a Stop - W ork Order and

Order of Penalty Assessmen t ("Stop - W ork Order") on Respondent for

failing to secure workers' com pensation for its employees as

required by ch apter 440, Florida Statutes (20 14). 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 Departme nt 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 p etitio n

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 A dministrative He arings ("DOAH"). On December 29,

2015, a final hearing was held as scheduled. The Department

presented the testimony of I nvestigator Julio Cabrera ( " Cabrera " )

and Penalty A uditor Eric Ruzzo ( " Ruzzo " ) . The Department offered

11 exhibits that were accepte d into evidence without objection.

Respondent did not appear at the hearing and did not otherwise

offer any exhibits.

The T ranscript of the final hearing was filed with DOAH on

January 12, 2016. The parties' agreed motion for extension of

time to fil e pr oposed recommended orders was granted on

January 22, 2016, allowing the parties until February 1, 2016, to

submit their proposed recommended orders. The Department timely

file d its p ropose d r ecommended order on February 1, 2016, which

was taken into cons ideration in the drafting of this Recommended

Order.

FINDING S 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. § 440.1 07(3), Fla. Stat.

2. Respondent was a business providing services i n the

construction industry. Its principal office is located at

7100 Northwest 1 2t h Street, Suite 210, Miami, Florida 33126.

The Investigation .

3. On September 26, 2014, the Department 's compliance

investigator, Cabrera, observed two individuals perfo rm ing

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 informatio n at the job site, Cabrera

consulted the Division of Corporatio ns Ó 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 Automate d 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 confir med that the

two men at the job site were his employees and that the employees

were not covered by workers' compensation insurance.

10. Based on the information gathered, on S eptember 26,

2014, Ca brera issued Respondent a Stop - W ork Order and Order of

Penalty Assessment . On September 29, 2014, Cabrera served

Respondent with the Stop - W ork 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 P enalty

A uditor Ruzzo to calculate the penalty assessed against

Respondent.

13. Ruzzo reviewed the business records produced by

Responde nt 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 comp liant 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 i n 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, ex cept for Septem ber 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

Penal ty Assessment was served on Respondent. The 4th Amended

Order of Penalty Assessment assessed a penalty of $68,525.42.

16. For the p enalty a ssessment c alculation, Ruzzo consulted

the classification codes listed in the Scopes® Manual, which has

been adopte d 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 assi gned 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 r ates and

correctly utilized the methodology specif ied in section

440.107(7)(d)l. and rules 69L - 6.027 and 69L - 6.028 to determine

the penalty .

The Penalty Associated With Sub contractor Emerald .

19. Respondent only disputes the portion of the penalty

associa ted 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:

(b) 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 contract or 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.

(c) A contractor shall require a

subcontractor to provide evidence of workersÓ

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. Notic e ably absent from th e statu t e is the time pe r iod

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

Sectio n 440.38(1)(a), F.S. to satisfy its

obligation to obtain evidence of workersÓ

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

Depa rtment, when requested , the evidence

specified in subsections (2), (3 ), (4) or (5)

herein. (E mphasis added).

23. Rule 69L - 6.032 sets forth the contractor requirements

for obtaining evidence that the subcontractor possesses workers'

compensation ins urance. If a subcontractor is a client company

of a leasing company, such as Emer ald, rule 69L - 6.032(3)

specifies that the evidence shall be a C ertificate of L iability

I nsurance ( " Certificate " ) .

24. According to the deposit i on tes t imony of Ca p pe l l et i

(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

thr o ugh an employee leasing company.

25. In fact, a C ertificat e , obtained by Responde n t 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 fr om

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

presente d with what a ppears to be a valid C ertif icate, R uzzo 's

calculations p enalize d Respondent for the period of

non - compl i a nce of Emerald because Responde nt did not seek the

proof of coverage until after Emeral d 's work er s were already on

th e job for Respondent.

28 . The Department has demonstrated b y clear and convincing

evidence that Respondent employed Mr. Moscoso and M r. Alvarado on

September 26, 20 14; that Respondent was engaged in the

construction industry in Florida during the period of

September 27, 2012, to September 26, 2014; and that Respo ndent

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 speci fied

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 t otal 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. S tat.

(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 amou nt of

pena lty owed by Respondent. See Dep't of Banking & Fin. v.

Osbo rne 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 fo r 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. Corbi tt , 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).

34 . Section 44 0.107(2) states "'securing the payment of

workers' compensation' means obtaining coverage that meets the

requirements of this chapter and the F lorida Insurance Code."

35 . 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

e mployees. Section 440.107(3)(g) authorizes the Depart ment to

issue stop - work orders and penalty assessment orders in its

enforcement of workers' com pensation coverage requirements.

36 . Cabrera correctly concluded that Respondent was not in

compliance with the coverage requirements of chapter 440 on

Septembe r 26, 2014. Therefore, the Department properly issued

and served the Stop - W ork Order and the 4th Amended Order of

Penalty Assessment.

37 . The Department has the duty of enforcing the employer's

compliance with the requirements of the Workers' Compensatio n

Law . § 440.1 07(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.

38 . 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 hav e

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.

39 . Rule 69L - 6.027 adopts a penalty calculation wor ksheet

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."

40 . The Department applied the proper methodology in

computing the 4th A mended Order of Penalty Assessment purs uant to

section 440.107(7)(d)l. and r ules 69L - 6.027 and 69L - 6 . 028 .

4 1 . Ruzzo properly utilized the penalty worksheet mandated

by r ule 69L - 6.027 and the procedure m andated by section

440.1 07(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 .

42 . Ruzzo improperly included the period of non - compli a nce

of Respondent's subcontractor Emerald. Respondent met the

re quirements of the statute and applicable rules by providing the

Department, when requested , a copy of the C ertificate of Emerald

showing Emerald had coverage fo r its workers for the period of

January 1, 2014, through December 31, 2014.

43 . As Ruzzo t estified, 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 - complia nce of

Emerald is being assesse d to Respondent is because Respondent did

not secure the Certificate prior to Emerald's workers providing

services to Respondent.

4 4 . 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 trigger s 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 work er s 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

s ecure coverage.

45 . 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 a nd

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, e nter 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 t his 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 .

ENDNOTE S

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

otherwise stated.

2 / Rule 69L - 6.0 24 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 per form 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 servic es 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.