04-003041 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. U And M Contractors, Inc. Status: Closed Recommended Order on Thursday, April 7, 2005.

Summary: The Stop Work Order and penalty for using non-Florida premiums was upheld based on "producer" of the workers` compensation policy.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 04 - 3041

)

U AND M CONTRACTORS, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Upon due notice, this cause came on for a disputed - fact

hearing on January 6, 2005, in Jacksonville, Florida, before

Ella Jane P. Davis, a duly - assigned Administrative Law Judge of

the Division of Administrative Hearin gs.

APPEARANCES

For Petitioners: Joe Thompson

Assistant General Counsel

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399

For Respondent: No Appe arance

STATEMENT OF THE ISSUE

Did Respondent fail to comply with Sections 440.10 and

440.38, Florida Statutes, and if so, what penalty should be

imposed.

PRELIMINARY STATEMENT

On February 26, 2004, Department of Financial Services,

Division of Workers ' Compensation, through one of its

investigators, issued to Respondent a Stop Work Order and Order

of Penalty Assessment, Number 04 - 313 - D1 (Stop Work Order)

asserting that Respondent had failed to abide by the

requirements of Chapter 440, Florida Statutes (the Workers'

Compensation Law). The Stop Work Order required Respondent to

cease business operations and assessed a penalty, pursuant to

Section 440.107(7)(d), Florida Statutes (2003). Respondent

timely requested a disputed - fact hearing. The penalty am ount

was ultimately amended to $51,779.50, pursuant to the Second

Amended Order 04 - 313 - D1 - 03. The case was referred to the

Division of Administrative Hearings on or about August 21, 2004.

After one continuance, the case was heard on January 6,

2005. A fter waiting a half hour, no one appeared on behalf of

Respondent, and the hearing was commenced. Petitioner presented

the oral testimony of David Kunz, an investigator for the

Division of Workers' Compensation, and had six exhibits admitted

in evidence. Because there was still no appearance on behalf of

Respondent at the close of Petitioner's case, the hearing was

concluded without Respondent's presenting any evidence.

A Transcript was filed on January 12, 2005.

Petitioner timely filed a Proposed Recom mended Order on

February 1, 2005, which has been considered in preparation of

this Recommended Order.

FINDINGS OF FACT

1. Petitioner is the agency of the State of Florida

government responsible for enforcing the statutory requirement,

pursuant to Chapter 440, Florida Statutes, that employers secure

the payment of workers' compensation for the benefit of their

employees.

2. Respondent works in the construction industry,

specifically as it relates to drywall services.

3. On February 25, 2004, Petitioner's investigator, David

Kunz, visited Respondent's worksite at 400 West Bay Street in

Jacksonville, Florida (also known as the Bennett Federal

Building). Petitioner's investigator observed 12 workers

engaged in drywall construction. Mr. Kunz spoke with

Resp ondent's project foreman at the worksite, and with the

assistance of a Spanish - speaking colleague, he interviewed all

of Respondent's workers at the site.

4. A representative of the general contractor, Skanska,

U.S.A., furnished Petitioner's investigator with a certificate

of workers' compensation insurance which had been provided to

the general contractor by Respondent as a subcontractor on the

Bennett Federal Building job. The address listed for Respondent

was in North Carolina, and the producer of th e policy also had a

North Carolina address.

5. The next day, Petitioner's investigator obtained a copy

of Respondent's workers' compensation insurance policy. After

reviewing the policy, the investigator concluded that Respondent

had violated Florida's W orkers' Compensation Law, because an

endorsement applying Florida premium rates was not a part of the

policy. Mr. Kunz then issued a Stop Work Order to Respondent on

February 26, 2004.

6. The Stop Work Order required Respondent to cease its

business oper ations immediately, due to its lack of compliance

with Chapter 440, Florida Statutes. By the Stop Work Order,

Respondent was charged with failure to secure the payment of

workers' compensation that met the requirements of Chapter 440,

Florida Statutes, an d the Florida Insurance Code, because North

Carolina premium rates, rather than Florida premium rates, had

been applied. The Stop Work Order indicated that the penalty

amount assessed against Respondent would be subject to amendment

based on further infor mation provided by Respondent, including

the provision of business records.

7. St. Paul's Insurance Companies maintain a presence in

Orlando, Florida, but the documents subsequently provided by

Respondent to the investigator as purported proof of

Responde nt's compliance with Chapter 440, Florida Statutes, did

not meet all necessary Florida requirements. The carrier on

Respondent's policy is St. Paul Fire and Marine Insurance

Company. The "producer" was "Insur A Car Commercial" in North

Carolina. The "pr oducer" is the agent responsible for

processing the policy for the insurance carrier.

8. Respondent's workers' compensation insurance policy

lists U & M Contractors, Inc., 9036 Arborgate Dr., Apt. A,

Charlotte, NC 28273 in the "Insured" column. The polic y number

is 6S16UB - 0130B52 - 8 - 03.

9. Respondent's insurance policy was "produced" outside

Florida.

10. Respondent had procured workers' compensation

insurance from an insurance carrier which was appropriately

licensed to do business in Florida, but Respon dent did not

maintain at all times a Florida endorsement to its policy

indicating that the applicable premium rates were Florida

premium rates. Respondent's workers' compensation insurance

policy includes no Florida endorsement showing the application

of Florida premium rates. Only North Carolina is listed in Item

3A of Respondent's workers' compensation policy. The

endorsement (WC 00 03 26 (A)) for "Other States Insurance" in

Respondent's policy specifically states that it "does not

satisfy the requirem ents of that state's workers' compensation

law" for any state not listed in Item 3A. Florida is not listed

in Item 3A.

11. The "Extension of Information" page of Respondent's

workers' compensation insurance policy indicates the type of

work that Respon dent intends to perform, pursuant to the policy.

The type of work is indicated by a class code, or number,

assigned to the type or category of work. The Extension of

Information page assigns class code 5445 (drywall installation)

as to the work Responden t would be performing under the policy.

12. The source for the class codes is the SCOPES Manual,

published by the National Council on Compensation Insurance

(NCCI). Petitioner's Agency's adoption of the SCOPES Manual was

accomplished by Florida Administr ative Code Rule 69L - 6.021.

13. Respondent's policy's Extension of Information page

further indicates that a premium rate (rate per $100.00 of

remuneration provided to Respondent's employees) of $10.20 had

been applied by the insurer for class code 5445, a nd that the

premium rate was for North Carolina, not Florida. By contrast,

the approved Florida premium rate for class code 5445 is $20.88

per $100.00 of remuneration.

14. The source for Florida premium rates is the NCCI Basic

Manual. Mr. Kunz testified that the Basic Manual is used

regularly by workers' compensation investigators.

15. Mr. Kunz issued an Agency Request for Business Records

on February 26, 2004, the same date as the Stop Work Order. He

specifically sought Respondent's payroll records, because

Chapter 440 requires Petitioner "to calculate the penalty of an

employer who is in noncompliance based on the employer's

payroll." Some payroll records were forwarded to Mr. Kunz by

Respondent. Some payroll records were provided to one of

Petitio ner's fellow investigators by a general contractor for

whom Respondent had subcontracted drywall installation at the

Bennett Federal Building worksite. The latter records were part

of a separate investigation, but were shared between the two

investigators .

16. However, several weeks of Respondent's payroll records

were not initially provided from any source.

17. Respondent's payroll records include, among other

entries, the names of its workers and the dates and amounts of

remuneration provided to those workers. The records indicate

that Respondent provided remuneration to its workers in the

years 2003 and 2004.

18. The penalty period assigned by Petitioner against

Respondent is from November 17, 2003, through February 25, 2004,

because November 17, 200 3, was the day that work on the Bennett

Federal Building began, and February 25, 2004, was the date

listed in the Stop Work Order.

19. Mr. Kunz used the payroll records he had to calculate

an initial penalty amount of $74,479.90. Payroll for weeks not

ac counted for in Respondent's first production of payroll

records was imputed by Mr. Kunz in the initial penalty amount,

pursuant to Chapter 440, by calculations based on the first

records he had. He issued the First Amended Penalty Assessment

Order (Amende d Order) to Respondent on March 3, 2004, in the

amount of $74,479.90.

20. A subsequent production of records by Respondent

caused Petitioner to recalculate the penalty for some weeks for

which payroll previously had only been imputed. The

recalculation c aused the assessed penalty amount to decrease to

$51,779.50, and on March 9, 2004, a second Amended Order in the

amount of $51,779.50 was issued to Respondent.

21. The second Amended Order included the imputation of

payroll for Respondent's two owners, Ju an Mitchell (Mitchell)

and Hector Urbina (Urbina). Mr. Kunz had received no payroll

records at any time for the two owners, though he had twice

specifically requested those records. He determined that the

owners were named on Respondent's insurance poli cy and had

actually been present on the Florida worksite. Mitchell and

Urbina are classified under code 5445 (drywall installation).

Their respective average weekly wages for the entire penalty

period was imputed according to Chapter 440, and the penalty

amount for Mitchell and Urbina was calculated by first

multiplying the evaded premium amount by the premium rate for

class code 5445. The evaded premium amount was determined by

taking the amount of wages for a penalty period, dividing it by

one hundred (100), and multiplying it by the premium rate for

the pertinent class code. The evaded premium amount was then

multiplied by 1.5 to arrive at the penalty amount assessed for

Mitchell ($4,434.72) and for Urbina ($4,434.72). The 1.5

multiplier is specifica lly required by Section 440.107(7)(d)1.,

Florida Statutes.

22. Wages were similarly imputed for the following

employees for February 23, 24, and 25, in 2004, because records

did not exist for that partial work week: Alex Rosales; Jose

Jimenez: Julio Beta ta; Orlin Betata; Erick Estrada; Melvin

Landaverde; Neptale Lopez; and Jose Valentin.

23. In calculating the penalty for the remainder of

Respondent's workers for whom payroll records were provided,

Petitioner's investigator similarly applied the foregoin g

methodology.

CONCLUSIONS OF LAW

24. The Division of Administrative Hearings has

jurisdiction of the subject matter and the parties to this

proceeding, in accordance with Sections 120.569 and 120.57(1),

Florida Statutes (2003).

25. Pursuant to the reaso ning in Department of Banking and

Finance, Division of Securities and Investor Protection v.

Osborne Stern, Inc. , 670 So. 2d 932 (Fla. 1996) and the

Recommended Order in Triple M Enterprises Inc., v. Department of

Financial Services, Division of Workers' C ompensation , DOAH Case

No. 04 - 2524 (RO January 13, 2005), it is concluded that

Petitioner bears the burden of proof herein by clear and

convincing evidence.

26. Section 440.10(1)(a), Florida Statutes (2003), states:

(1)(a) Every employer coming within th e

provisions of this chapter shall be liable

for, and shall secure, the payment to his or

her employees, or any physician, surgeon, or

pharmacist providing services under the

provisions of s. 440.13, of the compensation

payable under ss. 440.13, 440.15, an d

440.16. Any contractor or subcontractor who

engages in any public or private

construction in the state shall secure and

maintain compensation for his or her

employees under this chapter as provided in

s. 440.38.

27. Section 440.107, Florida Statutes, provides in part as

follows:

(1) The Legislature finds that the failure

of an employer to comply with the workers'

compensation coverage requirements under

this chapter poses an immediate danger to

public health, safety, and welfare.

* * *

(7)(a) When ever the department determines

that an employer who is required to secure

the payment of his or her employees of the

compensation provided for by this chapter

has failed to secure the payment of workers'

compensation required by this chapter or to

produce the required business records under

subsection (5) within 5 business days after

receipt of the written request of the

department, such failure shall be deemed an

immediate serious danger to public health,

safety, or welfare sufficient to justify

service by the department of a stop - work

order on the employer, requiring the

cessation of all business operations. If

the department makes such a determination,

the department shall issue a stop - work

within 72 hours. The order shall take

effect when served upon t he employer or, for

a particular employer work site, when served

at that work site. In addition to serving a

stop - work order at a particular work site

which shall be effective immediately the

department shall immediately proceed with

service upon the empl oyer which shall be

effective upon all employer work sites in

the state for which the employer is not in

compliance. A stop - work order may be served

with regard to an employer's work site by

posting a copy of the stop - work order in a

conspicuous location at the work site. The

order shall remain in effect until the

department issues an order releasing the

stop - work order upon a finding that the

employer has come into compliance with the

coverage requirements of this chapter and

has paid any penalty assesse d under this

section. The department may require an

employer who is found to have failed to

comply with coverage requirements of s.

440.38 to file with the department, as a

condition of release from a stop - work order,

periodic reports of a probationary pe riod

that shall not exceed 2 years that

demonstrate the employer's continued

compliance with this chapter. The

department shall by rule specify the reports

required and the time for filing under this

subsection.

28. Section 440.38, Florida Statutes (200 3), states:

(1) Every employer shall secure the payment

of compensation under this chapter:

(a) By insuring and keeping insured the

payment of such compensation with any stock

company of mutual company or association or

exchange, authorized to do busine ss in the

state;

* * *

(7) 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.

(Emphasis supplied.)

29. Section 440.02(16)(a), Florida Statutes (2003),

defines "employer" i n relevant part as "every person carrying on

an employment. . . ." Further, "employment" is defined in

relevant part in Section 440.02(17)(a), Florida Statutes (2003)

as "any service performed by an employee for the person

employing him or her."

30. Resp ondent is an "employer" for the purposes of

Chapter 440, Florida Statutes, because during the penalty period

of November 17, 2003 through February 25, 2004, Respondent

engaged and remunerated its employees for the performance of

drywall installation servic es.

31. Respondent failed to comply with Section 440.38(7),

Florida Statutes (2003), because during the penalty period,

Respondent was working in Florida without the required

endorsement to its workers' compensation insurance policy that

would base its co verage on Florida premium rates and rules.

Respondent's policy indicates that Respondent's coverage was

issued in North Carolina and was based on North Carolina premium

rates, not Florida premium rates. The policy, including the

"Other States Insurance" endorsement, does not satisfy the

requirements of Section 440.38(7). Respondent failed to

maintain, at all times, the Florida premium rate endorsement

required by Section 440.38(7). Moreover, under this policy,

Respondent paid less than half the required Florida premium

rate. The unmistakable directive in Section 440.38(7) is that

employers whose coverage is issued outside of Florida must pay

Florida premium rates in order to do business in Florida.

Respondent failed to meet the requirement.

32. Respo ndent was required to secure the payment of

workers' compensation for its employees "that meets the

requirement of . . . Chapter [440] and the Florida Insurance

Code." See § 440.107(2), Fla. Stat. (2003).

33. Section 440.107(7)(d)1., Florida Statutes (20 03),

states that an employer who fails to secure the payment of

workers' compensation is subject to

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.

34. Petitioner proved that Respondent failed to satisfy

the requirements of both Sections 440 .10 and 440.38, Florida

Statutes.

35. Petitioner correctly imputed the payroll for

Respondent's owners, Mitchell and Urbina, according to Section

440.107(7)(e), Florida Statutes.

36. Petitioner further showed that it applied the

methodology in Section 44 0.107(7)(d)1., in its calculations of

the penalty amount assessed against Respondent and correctly

calculated the penalty amount.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Department of Finan cial Services,

Division of Workers' Compensation, enter a final order that

affirms the Stop Work Order and assesses the $51,779.50 penalty

cited in the Second Amended Order.

DONE AND ENTERED this 7th day of April, 2005, in

Tallahassee, Leon County, Flo rida.

S

ELLA JANE P. DAVIS

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 7th day of April, 2005.

COPIES FURNISHED:

Joe Thompson

Assistant General Counsel

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 3 2399

Juan Carlos Mitchell

U & M Contractors

1912 Southwest 67th Avenue

Fort Lauderdale, Florida 33068

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Pete Dunbar, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recom mended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.