05-000958 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Afs, Llc Status: Closed Recommended Order on Friday, August 26, 2005.

Summary: The statute does not authorize imposition of an administrative penalty to two employers for the same infraction.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF )

WORKERS' COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 05 - 0958

)

AFS, LLC, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held pursuant to notice, before Barbara J.

Staros, Administrative Law Judge with the Division of

Administrative Hearings, on June 3, 2005, via video -

teleconference in Jacksonville and Ta llahassee, Florida.

APPEARANCES

For Petitioner: Colin M. Roopnarine, Esquire

Douglas D. Dolin, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399

For Respondent: Mark K. Eckels, Esquire

Boyd & Jenerette, P.A.

201 North Hogan Street, Suite 400

Jacksonville, Florida 32202

STATEMENT OF THE ISSUE

The issue is whether The Department of Financial Services

properly imposed a Stop Work Order and Amended Order of Penalty

Assessment pursuant to the requirements of Chapter 440, Florida

Statutes.

PRELIMINARY STATEMENT

On January 10, 2005, the Department of Financial Services,

Division of Workers' Compensation (Division) issued a Stop Work

Order and Order of Penalty Assessment to Respon dent, AFS, LLC.

The Division subsequently amended the amount of the penalty

assessment to $45,643.84, by issuing an Amended Order of Penalty

Assessment on February 16, 2005. On February 18, 2005,

Respondent filed a petition for a formal administrative he aring.

The matter was forwarded to the Division of Administrative

Hearings on or about March 14, 2005. A Notice of Hearing was

issued scheduling the final hearing for June 3, 2005. The case

was heard as scheduled.

At hearing, the Division presented th e testimony of Allen

DiMaria, Robert Lambert, and the deposition testimony of Robert

Sampson, Chuck Szopinski, and Debra Cochran. Petitioner offered

Exhibits numbered 1 through 25, which were admitted into

evidence. Respondent presented the testimony of Braman Avery

and the deposition testimony of Lee Arsenault, Bobby Walton, and

Debra Cochran. Respondent offered Exhibits numbered 1 through

10, which were admitted into evidence.

A Transcript was filed on June 21, 2005. The parties

timely filed Propos ed Recommended Orders. Subsequent to filing

a Proposed Recommended Order, Respondent filed a Notice of

Supplemental Authority. The Division filed a Motion to Dismiss

the Notice of Supplemental Authority in which the Division

included argument regarding t he merits of the case cited and its

applicability to the instant case. Respondent filed a Response

to Petitioner's Motion to Dismiss. Upon consideration,

Petitioner's Motion to Dismiss the Notice of Supplemental

Authority is denied. 1/

References to stat utes are to Florida Statutes (2004)

unless otherwise noted.

FINDINGS OF FACT

1. The Division is charged with the regulation of workers'

compensation insurance in the State of Florida.

2. Respondent AFS, LLC. (AFS), is a corporation located in

Jackson ville, Florida, and is involved in the construction

industry, primarily framing houses. Braman Avery is the owner

and manager of AFS.

3. Lee Arsenault is a general contractor whose business is

located in Jacksonville, Florida. Mr. Arsenault contracte d with

AFS to perform framing services at a construction site located

at 1944 Copperstone Drive in Orange Park, Florida.

4. At all times material to this proceeding, AFS

maintained workers' compensation coverage for its employees

through a licensed emp loyee leasing company.

5. AFS contracted with Greenleads Carpentry, Inc.

(Greenleads) to perform work at the job site in question.

6. Prior to subcontracting with Greenleads, Mr. Avery

requested from Greenleads, among other things, a certificate of

insu rance showing that Greenleads had general liability coverage

and workers' compensation insurance.

7. Greenleads provided a certificate of insurance to

Mr. Avery showing that Greenleads had workers' compensation

coverage. The certificate of insurance cont ains a policy

number, dollar limits, and effective and expiration dates of

June 1, 2004 through June 1, 2005.

8. Debra Cochran is office manager of Labor Finders, an

employee leasing company. According to Ms. Cochran, Labor

Finders' corporate office issu ed the certificate of insurance to

Greenleads. At the time of issuance, the certificate of

insurance was valid.

9. Greenleads did not follow through on its obligations to

Labor Finders in that Green Leads did not "run its workers

through" Labor Finders. Consequently, Greenleads' workers were

not covered by workers' compensation as indicated on the

certificate of insurance. Labor Finders did not issue any

document showing cancellation or voiding of the certificate of

insurance previously issued.

10. Mr. Avery relied upon the face of the certificate of

insurance believing AFS to be in total compliance with statutory

requirements regarding workers' compensation for subcontractors.

That is, he believed that the Greenleads' workers were covered

for workers' compensation as indicated on the face of the

certificate of insurance. Mr. Avery was not informed by Labor

Finders or Greenleads that Greenleads did not, after all, have

workers' compensation coverage in place on the workers

performing work under the con tract between AFS and Greenleads on

the worksite in question.

11. Bobby Walton is president of Insure America and has

been in the insurance business for 35 years. His company

provides general liability insurance to AFS. According to

Mr. Walton, Mr. Aver y's reliance on Greenleads' presentation to

him of a purportedly valid certificate of insurance is the

industry standard. Further, Mr. Walton is of the opinion that

there was no obligation on behalf of Mr. Avery to confirm

coverage beyond receipt of the c ertificate of insurance provided

by the subcontractor. That is, there is no duty on behalf of

the contractor to confirm coverage beyond receipt of the

certificate of insurance.

12. Allen DiMaria is an investigator employed by the

Division. His duties include investigating businesses to ensure

that the employers in the state are in compliance with the

requirements of the workers' compensation law and related rules.

13. On January 5, 2005, Mr. DiMaria visited the job site

in question and observed 13 workers engaged in construction

activities. This visit was a random site check.

14. Mr. DiMaria interviewed the owner of Greenleads and

checked the Division's database. Mr. DiMaria determined that

Greenleads did not have workers' compensation coverage .

15. After conferring with his supervisor, Mr. DiMaria

issued a stop - work order to Greenleads, along with a request for

business records for the purpose of calculating a penalty for

Greenleads.

16. In response to the business records request,

Greenle ads submitted its check ledger along with an employee

cash payment ledger, both of which were utilized in calculating

a penalty for Greenleads.

17. On January 11, 2005, Mr. DiMaria issued an Amended

Order of Penalty Assessment to Greenleads for $45,623.34 .

Attached to the Amended Order of Penalty Assessment issued to

Greenleads is a penalty worksheet with a list of names under the

heading, "Employee Name", listing the names of the employees and

amounts paid to each employee.

18. During the investigation of Greenleads, Mr. DiMaria

determined that Greenleads was performing subcontracting work

for Respondent. This led to the Division's investigation of

AFS.

19. Mr. DiMaria spoke to Mr. Avery and determined that AFS

paid remuneration to Greenleads for work performed at the

worksite. He checked the Division's data base system and found

no workers' compensation coverage for AFS. He determined that

AFS had secured workers' compensation coverage through Southeast

Personnel Services, Inc. (SPLI), also a licens ed employee

leasing company. However, the policy with SPLI did not cover

the employees of Greenleads performing work at the job site.

20. Mr. DiMaria requested business records from Mr. Avery.

Mr. Avery fully complied with this request. He examined A FS'

check registry and certificates of insurance from AFS. Other

than the situation involving Greenleads on this worksite,

Mr. DiMaria found AFS to be in complete compliance.

21. On January 10, 2005, after consulting with his

supervisor, Robert Lamb ert, Mr. DiMaria issued a Stop Work Order

to AFS. A Stop Work Order issued by the Division requires the

recipient to cease operations on a job site because the

recipient is believed to be not in compliance with the workers'

compensation law. The Stop Wo rk Order issued by Mr. DiMaria was

site specific to the work site in question.

22. Based upon the records provided by Mr. Avery,

Mr. DiMaria calculated a fine. Penalties are calculated by

determining the premium amount the employer would have paid

based on his or her Florida payroll and multiplying by a factor

of 1.5.

23. Mr. DiMaria's calculation of the fine imposed on AFS

was based solely on the Greenleads' employees not having

workers' compensation coverage. On February 16, 2005,

Mr. DiMaria issue d an Amended Order of Penalty in the amount of

$45,643.87, the identical amount imposed upon Greenleads. A

penalty worksheet was attached to the Amended Order of Penalty

Assessment. The penalty worksheet is identical to the penalty

worksheet attached to Greenleads' penalty assessment, with the

exception of the business name at the top of the worksheet and

the Division's case number.

24. Greenleads partially paid the penalty by entering into

a penalty payment agreement with the Division. Greenleads t hen

received an Order of Conditional Release.

25. Similarly, AFS entered into a penalty payment

agreement with the Division and received an Order of Conditional

Release on February 16, 2005. Moreover, AFS terminated its

contract with Greenleads.

26. L ee Arsenault is the general contractor involved in

the work site in question. AFS was the sole framing contractor

on this project, which Mr. Arsenault described as a "pretty

significant project." He has hired AFS to perform framing

services over the year s. However, because the Stop Work Order

was issued to AFS, Mr. Arsenault had to hire another company to

complete the framing work on the project.

27. Mr. Avery estimates economic losses to AFS as a result

of losing this job to be approximately $150,000, in addition to

the fine.

28. Mr. Arsenault, Ms. Cochran, as well as the Division's

investigator, Mr. DiMaria, all agree with Mr. Walton's opinion,

that it is customary practice in the construction industry for a

contractor who is subcontracting work to rely on the face of an

insurance certificate provided by a subcontractor.

29. Robert Lambert is a workers' compensation district

supervisor for the Division. When asked under what authority

the Division may impose a penalty on both Greenleads and AF S for

the same infraction, he replied that it was based on the

Division's policy and its interpretation of Sections 440.02,

440.10, and 440.107, Florida Statutes.

CONCLUSIONS OF LAW

30. The Division of Administrative Hearings has

jurisdiction over the parties and subject matter of this

proceeding pursuant to Sections 120.569 and 120.57(1), Florida

Statutes

31. Administrative fines are penal in nature. Department

of Banking and Finance, Division of Securities and Investor

Protection v. Osborne Stern, Inc. , 670 So. 2d 932 (Fla. 1996).

Pursuant to the Court's reasoning therein, it is concluded that

Petitioner bears the burden of proof herein by clear and

convincing evidence. Accord Triple M Enterprises Inc., v.

Department of Financial Services, Division of Workers'

Compensation , DOAH Case No. 04 - 2524 (RO January 13, 2005), and

Department of Financial Services, Division of Workers'

Compensation v. U and M Contractors, Inc. , DOAH Case No. 04 - 3041

(RO April 7, 2005).

32. This is apparently a case of first impression, as no

cases are cited by the parties in their Proposed Recommended

Orders on the issue of the Division's authority to classify two

businesses as employers of the same employees resulting in the

imposition of two identical penalties for the same infraction.

The Division relies on established case law for the proposition

that an agency's interpretation of the law is entitled to great

weight. That is generally the case unless the agency's

interpretation is clearly erroneous or if special agency

expertise is not required or the agency's interpretation

conflicts with the plain and ordinary meaning of the statute.

Florida Hospital v. Agency for Health Care Administration , 823

So. 2d 844 (Fla. 1st DCA 2002); Ocampo v. Department of Health ,

8 06 SO. 2d 633 (Fla. 1st DCA 2002). Moreover, an administrative

agency is a creature of statute and can only do what it is

authorized to do. Id.

33. Section 440.02(15)(a), Florida Statutes, defines

"employee" as "any person who receives remuneration fr om an

employer for the performance of any work or service while

engaged in any employment under any appointment or contract of

hire . . . ." The Division argues in its Proposed Recommended

Order that by not securing workers' compensation coverage, the

sub contractors became employees of AFS by operation of this

definitional section and Section 440.10(1)(a), Florida Statutes.

34. Subsection 440.10(1)(a), Florida Statutes, reads in

pertinent part as follows:

440.10. Liability for Compensation.

(1)(a) . . . 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.

(b) In case a contractor sublets any part

or p arts of his 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

employees 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.

(c) A contractor shall require a

subcontractor to provide evidence of

workers' comp ensation insurance. . . .

(d)1. If a contractor becomes liable for

the payment of compensation to the employees

of a subcontractor who has failed to secure

such payment in violation of s. 440.38, the

contractor or other third - party payor shall

be entitle d to recover from the sub -

contractor all benefits paid or payable plus

interest unless the contractor and

subcontractor have agreed in writing that

the contractor will provide coverage.

(emphasis added)

35. Section 440.107, Florida Statutes, authori zes the

Division to issue stop - work orders and penalty assessment orders

in its enforcement of workers' compensation coverage

requirements. The method used to make the calculation of the

penalty is not at issue here. At issue is whether the Division

is authorized under the law to impose the penalty it imposed

upon Respondent.

36. When the Division imposed the fine on Greenleads, it

did so because it determined that Greenleads was the "employer"

for purposes of workers' compensation coverage. When the

D ivision imposed the fine on AFS, it did so because it

determined that AFS was the "employer" for purposes of workers'

compensation coverage. The Division has defined two businesses

as being the "employer" of the identical employees working at

the same wor k site earning the identical dollars. There is

nothing in the statutes cited by the Division that authorizes

the Division to define two businesses as the employer of the

same employees or that requires an employee to be covered by two

employers; essential ly, that is what the Division is doing.

37. AFS complied with the plain and ordinary meaning of

Subsection 440.10(1)(c), Florida Statutes, by requiring a

subcontractor, Greenleads, to provide evidence of workers'

compensation insurance.

38. 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 G roup 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 tha t 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 pre sented 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 Evans

Blount.

See also LaCroix Construction Company v. Bush , 471 So 2d 134,

136 (Fla. 1st DCA 1985)(the court found that subcontractor

relied on general contractor's representation that it carried

workers' compensation coverage for all employees who were not

covered by

su bcontracting and changed his position to his detriment by

continuing to work without procuring appropriate insurance

coverage.)

39. In this instance, the contractor, AFS, required the

subcontractor, Greenleads, to provide evidence of workers'

compensation insurance, satisfying the requirements of Section

440.10(1)(c), Florida Statutes.

40. Applying the analysis of the court in Criterion

Leasing Group v. Gulf Coast Plastering & Drywall and LaCroix

Construction Company v. Bush , supra , Respondent reasonably

relied upon the certificate of insurance regarding Greenleads'

coverage. Further, the undersigned is not persuaded that,

pursuant to Section 440.10, two businesses can be defined as the

employer of the identical workers for the identical job.

Accordingly , a penalty is not warranted here.

RECOMMENDATION

Based upon the Findings of Fact and Conclusions of Law, it

is

RECOMMENDED:

That the Division of Workers' Compensation rescind the

Amended Order of Penalty Assessment issued February 16, 2005,

and the Stop Work Order issued to Petitioner on January 10,

2005.

DONE AND ENTERED this 26th day of August, 2005, in

Tallahassee, Leon County, Florida.

S

BARBARA J. STAROS

Administrative Law Judge

Division of Administrative H earings

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 26th day of August, 20 05.

Endnote

1/ While this Recommended Order does not rely upon the case cited

by Respondent in its Notice of Supplemental Authority,

Respondent was entitled to file it.

COPIES FURNISHED :

Colin M. Roopnarine, Esquire

Douglas D. Dolin, Esquire

Depar tment of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399

Mark K. Eckels, ESquire

Boyd & Jenerette, P.A.

201 North Hogan Street, Suite 400

Jacksonville, Florida 32202

Honorable Tom Gallagher

Chief Financial Officer

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

NOTICE OF RIG HT 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.