07-004428 U.S. Builders, L.P. vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Wednesday, January 14, 2009.

Summary: Petitioner did not have the workers` compensation insurance coverage required by Florida law. "Other states insurance" coverage did not meet Florida rule requirements. Recommend a statutory penalty of $14,983.96.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

U.S. BUILDERS, L.P., )

)

Petitioner, )

)

vs. ) Case No. 07-4428

)

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS’ )

COMPENSATION, )

)

Respondent. )

)

RECOMMENDED ORDER

A duly-noticed final hearing was held in this case by

Administrative Law Judge T. Kent Wetherell, II, on September 24

and November 17, 2008, by video teleconference between sites in

Tallahassee and Jacksonville, Florida.

APPEARANCES

For Petitioner: William H. Andrews, Esquire

Gray Robinson, P.A.

50 North Laura Street, Suite 1100

Jacksonville, Florida 32202

For Respondent: Kristian E. Dunn, Esquire

Justin Faulkner, Esquire

Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

STATEMENT OF THE ISSUE

The issue is whether Petitioner had the workers’

compensation insurance coverage required by Florida law, and if

not, what penalty should be imposed.

PRELIMINARY STATEMENT

On June 18, 2007, the Department of Financial Services

(Department) issued an Order of Penalty Assessment imposing a

penalty of $14,983.96 on Petitioner for its failure to have the

workers’ compensation insurance coverage required by Florida

law. On August 23, 2007, Petitioner filed a Petition for

Hearing challenging the penalty assessment.

On September 25, 2007, the Department referred this matter

to the Division of Administrative Hearings (DOAH) for the

limited purpose of determining whether Petitioner should be

afforded a hearing on its petition based upon the doctrine of

equitable tolling. The referral was received by DOAH on

September 26, 2007, and the case was assigned to Administrative

Law Judge Don W. Davis.

Judge Davis scheduled the hearing on the equitable tolling

issue for November 19, 2007. The hearing was rescheduled

several times at the request of the parties, and was ultimately

held on February 29, 2008.

On April 30, 2008, Judge Davis issued a Recommended Order

finding that equitable tolling applied and recommending that the

Department afford Petitioner a hearing on the merits of its

petition. On June 25, 2008, the Department issued a Final Order

DOAH for further proceedings.

The Final Order was filed with DOAH on July 1, 2008, and

DOAH’s file in this case was re-opened on July 3, 2008. The

case was assigned to the undersigned as a result of Judge Davis’

retirement.

The final hearing was convened on September 24, 2008. At

the outset of the hearing, the undersigned granted the parties’

ore tenus motion to continue the hearing to allow them to take

the depositions of two witnesses in Texas who had been impacted

by Hurricane Ike. The hearing reconvened on November 17, 2008.

At the final hearing, the Department presented the

testimony of Robert Lambert, and the parties jointly presented

the deposition testimony of Teresa Quenemoen, Nancy Bingham, and

Norman Adams. Joint Exhibits 1 through 4 were received into

evidence. Official recognition was taken of Sections 440.10,

440.107, and 440.38, Florida Statutes (2007), 1 / and Florida

Administrative Code Rules 69L-6.019 and 69L-6.030.

The Transcript of the final hearing was filed with DOAH on

December 9, 2008. The parties were given 21 days from that date

to file proposed recommended orders (PROs). The PROs were

timely filed and have been given due consideration.

FINDINGS OF FACT

1. Petitioner is a Texas corporation that provides general

contracting services.

2. Petitioner has had employees working in Florida since

at least October 1, 2006.

3. On May 30, 2007, Department investigator Teresa

Quenemoen initiated a workers’ compensation compliance

investigation at a job-site in Jacksonville where Petitioner’s

employees were supervising the construction of a retail shopping

facility.

4. At the time of Ms. Quenemoen’s investigation,

Petitioner had a Workers’ Compensation and Employers’ Liability

Insurance Policy (the policy) that covered the period of

October 1, 2006, to October 1, 2007.

5. The policy was issued by EMC Insurance Companies (EMC),

which is authorized to issue workers compensation insurance in

Florida.

6. The policy included an “Information Page” on National

Council on Compensation Insurance (NCCI) Form WC7002.

7. Item 3.A of the Information Page lists Texas as the

only state for which the workers’ compensation section of the

policy applies. Florida is not listed in Item 3.A. 2 /

8. Item 3.C of the Information Page states that Part Three

of the policy applies to all states except for those

specifically excluded. Florida is not one of the excluded

states and, therefore, is implicitly included in the coverage

afforded by Part Three of the policy.

9. Part Three of the policy, entitled “other states

insurance,” provides in pertinent part:

A. How This Insurance Applies

1. This other states insurance applies

only if one or more states are shown in Item

3.C. of the Information Page.

2. If you begin work in any one of those

states after the effective date of this

policy and are not insured or are not self

insured for such work, all provisions of the

policy will apply as though that state were

listed in Item 3.A of the Information Page.

3. We will reimburse you for the benefits

required by the workers compensation law of

that state if we are not permitted to pay

the benefits directly to persons entitled to

receive them.

4. If you have work on the effective date

of this policy in any state not listed in

Item 3.A. of the Information Page, coverage

will not be afforded for that state unless

we are notified within thirty days.

B. Notice

Tell us at once if you begin work in any

state listed in Item 3.C of the Information

Page.

10. Item 4 of the Information Page does not make specific

reference to the Florida-approved classification codes, rates or

manuals; it states that “the premium for the policy will be

determined by our manuals of rules, classifications, rates and

rating plans.”

11. One of the class codes used to calculate the premium

for the policy was 5606, which applies to “Contractor Executive

Supervisor or Construction Superintendent.” The “rate per $100

remuneration” used to calculate the premium for that class code

was $3.85. That rate was applied to an estimated annual payroll

of $1 million for Petitioner’s employees in class code 5606.

12. Although Petitioner had employees working in Florida

since at least October 1, 2006, EMC was unaware that Petitioner

was working in Florida until June 1, 2007, when it was contacted

by Ms. Quenemoen during the course of her investigation.

13. It is questionable whether Petitioner’s employees

working in Florida would have been covered had they been injured

on the job site in Jacksonville. The “other states insurance”

provision of the policy quoted above states that coverage will

not be provided unless EMC is notified within 30 days of

starting work in a state not listed in the policy, and that did

not happen in regards to Petitioner’s work in Florida. However,

an EMC representative testified that it was her understanding

that coverage would, nevertheless, have been provided for

Petitioner’s employees since they were hired in Texas. 3 /

14. A specific Florida endorsement was added to

Petitioner’s policy on or about June 19, 2007, 4 / as a direct

result of Ms. Quenemoen’s investigation. The endorsement was

“back-dated” to October 1, 2006, which was the effective date of

the original policy, because the policy had the “other states

insurance” provision since its inception.

15. Petitioner paid an additional premium for the Florida

endorsement. The premium appears to have been calculated using

the Florida-approved classification code and rate. 5 /

16. On June 18, 2007, the Department issued an Order of

Penalty Assessment based upon the fact that Petitioner was not

in compliance with Florida law at the time of Ms. Quenemoen’s

investigation.

17. The Order of Penalty Assessment imposed a penalty of

$14,983.96, which is 1.5 times the workers’ compensation premium

that Petitioner should have paid on its employees working in

Florida between October 1, 2006, and May 30, 2007.

18. The penalty was calculated using the payroll

information provided by Petitioner to Ms. Quenemoen and the

Florida-approved class code and rate for construction

supervisors.

19. Petitioner does not dispute the calculation of the

penalty.

CONCLUSIONS OF LAW

20. DOAH has jurisdiction over the parties to and subject

matter of this proceeding pursuant to Sections 120.569 and

120.57(1), Florida Statutes (2008).

21. The Department is the state agency responsible for

enforcing the coverage requirements of the Workers’ Compensation

Law. See § 440.107, Fla. Stat.

22. The Department has the burden of proof in this case

even though it is designated as the Respondent. See

Department’s PRO, at ¶ 20; Chapman Ti, Inc. v. Dept. of

Financial Servs. , Case No. 07-2463, 2007 Fla. Div. Adm. Hear.

LEXIS 474, at ¶ 25 (DOAH Aug. 22, 2007; DFS Nov. 9, 2007). The

applicable standard of proof is clear and convincing evidence.

Id.

23. The Department met its burden of proof, as discussed

below.

24. Section 440.10(1)(g), Florida Statutes, provides in

pertinent part:

Subject to s. 440.38, any employer who has

employees engaged in work in this state

shall obtain a Florida policy or endorsement

for such employees which utilizes Florida

class codes, rates, rules, and manuals that

are in compliance with and approved under

the provisions of this chapter and the

Florida Insurance Code. . . . .

25. Section 440.38(7), Florida Statutes, provides:

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.

26. Florida Administrative Code Rule 69L-6.019 provides in

pertinent part:

(1) Every employer who is required to

provide workers’ compensation coverage for

employees engaged in work in this state

shall obtain a Florida policy or endorsement

for such employees that utilizes Florida

class codes, rates, rules and manuals that

are in compliance with and approved under

the provisions of Chapter 440, F.S., and the

Florida Insurance Code, pursuant to Sections

440.10(1)(g) and 440.38(7), F.S.

* * *

(3) In order to comply with Sections

440.10(1)(g) and 440.38(7), F.S., for any

workers’ compensation policy or endorsement

presented by an employer as proof of

workers’ compensation coverage for employees

engaged in work in this state:

(a) The policy information page (NCCI

form number WC 00 00 01 A) must list

“Florida” in Item 3.A. and use Florida

approved classification codes, rates, and

estimated payroll in Item 4.

(b) The policy information page

endorsement (NCCI form number WC 89 06 00 B)

must list “Florida” in Item 3.A. and use

Florida approved classification codes,

rates, and estimated payroll in Item 4.

(4) A workers’ compensation policy that

lists “Florida” in Item 3.C. of the policy

information page (NCCI form number WC 00 00

01 A) does not meet the requirements of

Sections 440.10(1)(g) and 440.38(7), F.S.,

and is not valid proof of workers’

compensation coverage for employees engaged

in work in this state.

27. The evidence clearly and convincingly establishes that

the policy maintained by Petitioner failed to comply with the

requirements of Florida Administrative Code Rule 69L-6.019 from

October 1, 2006, to June 18, 2007. First, Florida was not

listed in Item 3.A of the Information Page as required by

paragraphs (3)(a) and (3)(b) of the rule. Second, even though

Florida was included in the “other states’ coverage” provided

for in Item 3.C. of the Information Page, that is insufficient

as a matter of law under subsection (4) of the rule. Third,

Florida-approved classification codes, rates, and estimated

payroll were not used to calculate the premium in Item 4 of the

the rule, even though the premium paid by Petitioner appears to

have been calculated using a higher rate than the Florida rate.

28. The fact that Petitioner’s employees working in

Florida may have been covered by virtue of the “other states

insurance” provision of the policy is immaterial under the

Department’s rules. Coverage and compliance are separate

concepts. See Dept. of Financial Servs. v. Raylin Steel

Erectors, Inc. , Case No. 05-2289, 2005 Fla. Div. Adm. Hear.

“other states insurance” coverage was no longer sufficient to

meet the requirements of Florida law after the 2003 amendments

to Section 440.38(7), Florida Statutes), adopted in pertinent

part , Case No. 78712-05-WC (DFS Jan. 19, 2006); Triple M

Enterprises, Inc. v. Dept. of Financial Servs. , Case No. 04-

2524, 2004 Fla. Div. Adm. Hear. LEXIS 2509 (DOAH Jan. 13, 2005)

(concluding that the employer failed to comply with Florida law

even though employees would have received benefits under an

“other states insurance” provision nearly identical to the one

at issue in this case).

29. The fact that EMC issued Petitioner a Florida

endorsement in June 2007, and “back-dated” it to October 1,

2006, is also immaterial. The endorsement was not in place at

the time of the Department’s investigation, and Florida law does

not recognize retroactive compliance or coverage. See Dept. of

Labor & Employment Security v Eastern Personnel Services, Inc. ,

Case No. 99-2048, 1999 Fla. Div. Adm. Hear. LEXIS 5569, at ¶ 33

(DOAH Oct. 12, 1999).

30. The Department is authorized, but not required to

issue a Stop-Work Order when it determines that an employer

subject to the Workers’ Compensation Law has failed to secure

the required workers’ compensation insurance coverage. See

§ 440.107(7)(a), Fla. Stat.

31. The Department is, however, required to impose a

penalty on an employer who has failed to secure the required

workers’ compensation insurance coverage. See

§ 440.107(7)(d)1., Fla. Stat. (“[T]he department shall 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.”) (emphasis

supplied); Fla. Admin. Code R. 69L-6.030(1) (stating that an

employer who comes into compliance with the workers’

compensation coverage requirements prior to the issuance of a

stop work order “ shall be assessed a penalty pursuant to Section

issued”) (emphasis supplied).

32. It is undisputed that the application of the statutory

formula in this case results in a penalty of $14,983.96.

33. The undersigned is sympathetic to Petitioner’s

argument in its PRO that the imposition of the statutory penalty

is “excessively harsh” under the circumstances of this case, but

based upon the mandatory language in Section 440.107(7)(d)1.,

Florida Statutes, the Department has no discretion to not impose

a penalty, nor does it (or the undersigned) have any discretion

to deviate from the penalty calculated pursuant to the statutory

formula. See Chapman Ti , supra , at ¶ 32.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is

RECOMMENDED that the Department issue a final order

assessing Petitioner a penalty of $14,983.96 for its failure to

comply with the requirements of Florida law concerning workers’

compensation insurance coverage between October 1, 2006, and

June 18, 2007.

DONE AND ENTERED this 14th day of January, 2009, in

Tallahassee, Leon County, Florida.

T. KENT WETHERELL, II

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 14th day of January, 2009.

ENDNOTES

1 / Unless otherwise indicated, all statutory references are to

the 2007 version of the Florida Statutes officially recognized

at the request of the parties.

2 / See Joint Exhibit 3, at page 53. Unlike the copy of the

policy received into evidence, the copy that Ms. Quenemoen was

initially sent by Petitioner’s Texas insurance agent had “FL”

printed in Item 3.A of the Information Page. Ms. Quenemoen

subsequently learned from EMC that Florida was not on the

policy, and the agent acknowledged that he just typed “FL” onto

the information page before sending it to Ms. Quenemoen. A

Florida endorsement was later properly added to the policy. See

Findings of Fact 14 and 15.

3 / See Joint Exhibit 2 (testimony of Nancy Bingham):

When we had issued the policy in May, I was

aware that they had employees hired in

Texas. And I knew at the time that those

employees could go anywhere in the United

States depending upon where they had a job.

And they had the All States endorsement on

there, which as long as the employees were

hired in Texas, it was our understanding

that they could go into other states to

perform work and we would provide coverage

for them in the event of a claim.

Id. at 11. See also Joint Exhibit 4, at 6, 8-9, 13, 14, 15, 18

(testimony of Norman Adams, the Texas insurance agent who sold

the policy, that Petitioner’s employees would have been covered

under Florida law by virtue of the “other states insurance”

provision of the policy).

4 / This was the “date of issue” reflected on the endorsement.

See Joint Exhibit 1, at Exhibit 2C. See also Joint Exhibit 2,

at 14 (testimony of Ms. Bingham that the separate policy needed

to add Florida to Petitioner’s original policy was issued on

“June 18th, I believe”).

5 / The premium was calculated using classification code 5606

(“Contractors Executive Supervisor or Construction

See Joint Exhibit 1, at Exhibit 2C. The same code and rate were

used in the penalty calculation. Id. at Exhibit 5.

COPIES FURNISHED :

Kristian E. Dunn, Esquire

Department of Financial Services

Division of Workers’ Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

William H. Andrews, Esquire

Gray Robinson, P.A.

50 North Laura Street Suite 1100

Jacksonville, Florida 32202

Honorable Alex Sink

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Daniel Sumner, 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 Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.