08-001925 American Coatings, Inc., A/K/A A. C. Painting, Inc. vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Tuesday, May 5, 2009.

Summary: Respondent showed Petitioner had not secured properly FL endorsed workers` comp. policy. Petitioner showed that it did provide FL level of benefit coverage. Petitioner showed it was entitled to credit in penalty calculation for amount of premium paid.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AMERICAN COATINGS, INC., d/b/a )

A. C. PAINTING, INC., )

)

Petitioner, )

)

vs. ) Case No. 08-1925

)

DEPARTMENT OF FINANCIAL SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to appropriate notice, this cause came on for

formal proceeding and hearing before P. Michael Ruff, a duly

designated Administrative Law Judge of the Division of

Administrative Hearings, in Orlando, Florida, on January 28,

2009. The appearances were as follows:

APPEARANCES

Petitioner: Robert L. Dietz, Esquire

Zimmerman, Kiser & Sutcliffe, P.A.

Post Office Box 3000

Orlando, Florida 32802

Respondents: Thomas H. Duffy, Esquire

Douglas D. Dolan, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

STATEMENT OF THE ISSUES

The issues to be resolved in this proceeding concern

whether the Petitioner corporation's workers' compensation

insurance policy was in compliance with the provisions of

Chapter 440, Florida Statutes, cited below, despite not having a

specific Florida endorsement; whether the Department properly

issued a Stop Work Order against the Petitioner and whether the

proposed penalty of $240,927.55 was properly assessed.

PRELIMINARY STATEMENT

This proceeding arose upon the issuance of a Stop Work

Order to American Coatings, Inc., a Tennessee corporation, doing

business in Florida under the name A.C. Painting, Inc.

(Petitioner). An investigation was initiated by a workers'

compensation compliance investigator for the Department's

Division of Workers' Compensation (Division) (Respondent) which

revealed that the Petitioner corporation had been allegedly

performing work in Florida without valid Florida workers'

compensation coverage. The Stop Work Order was issued on

February 19, 2008. After requesting and receiving the relevant

business records from American Coatings, the Division's

investigation calculated and assessed a penalty, as provided by

Section 440.107(7), Florida Statutes, in the amount of

$240,927.55.

The Petitioner chose to contest the Division's position as

to the question of whether proper workers' compensation coverage

was in force at the times pertinent hereto, and as to the manner

and amount in which the penalty was assessed. A Petition for

Administrative Hearing was therefore timely filed on March 7,

2008, and the matter was referred to the Division of

Administrative Hearings. The case was assigned to the

undersigned Administrative Law Judge and scheduled for hearing

on July 22, 2008. After demonstration of good cause, by

agreement of the parties, the case was continued twice and

ultimately scheduled and heard on the above-referenced date.

The case came on for hearing as noticed. The Respondent

Agency presented the testimony of two witnesses at the hearing

and introduced 19 exhibits into evidence. The Petitioner called

one witness and introduced two exhibits into evidence. Upon

concluding the hearing a Transcript of the testimony was ordered

and was filed on March 16, 2009. The Proposed Recommended

Orders were timely filed on or before March 26, 2009. Those

Proposed Recommended Orders and briefs were considered in the

rendition of this Recommended Order.

FINDINGS OF FACT

1. The Petitioner, American Coatings, Inc., is a

commercial painting corporation based in Tennessee. It has been

in business since 1994 in the State of Tennessee, and through a

predecessor entity, since 1985. The Petitioner does business in

other states, including the State of Florida, and in fact

operates in approximately 14 states. It has done so since the

year 2000. It has had no workers' compensation claims from any

of its Florida work sites during the entire time it has operated

in Florida. On February 19, 2008, the Petitioner was painting

portions of the premises at "the Estates of Rockledge" in

Rockledge, Florida. It had other operations in Florida in the

three years prior to February 28, 2008. When the Petitioner

applied for workers' compensation coverage in Tennessee, the

Petitioner advised its broker and insurance carrier that it

maintained operations in Florida. The workers' compensation

carrier and agent provided certificates of workers' compensation

insurance for the Petitioner's Florida operations which

supported its good faith belief that it had valid workers'

compensation insurance in Florida.

2. Respondent presented no evidence that Mr. Carswell and

the Petitioner have committed fraud, misrepresentation, or

omission concerning the obtaining and maintaining of workers'

compensation insurance coverage for its Florida operations.

There was no attempt to conceal the fact that the Petitioner had

insurable operations in Florida. For the three years prior to

February 28, 2008, the Petitioner maintained a policy of

workers' compensation insurance for all employees, including

those employees that performed operations in Florida. A

workers' compensation premium was paid for each employee in

question for all periods in the three years preceding

February 28, 2008.

3. The Respondent is an Agency of the State of Florida

responsible for enforcing the various statutory requirements of

Chapter 440, Florida Statutes, including Sections 440.107 and

440.38, Florida Statutes (2007). Its authority includes Section

440.10(1)(a), Florida Statutes, which imposes upon all employers

in Florida the obligation to secure the payment of workers'

compensation. The Respondent is statutorily charged with the

obligation to monitor employers operating in Florida, to ensure

that statutory employers maintain appropriate workers'

compensation coverage on employees. There is no dispute that

the Petitioner, is an "employer" for purposes of Sections

was operating in the construction industry and regularly

employed at least one person.

4. Pursuant to the Division's statutory authority,

Investigator Eugene Wyatt of the Department's Division of

Workers' Compensation, Bureau of Compliance, visited the subject

worksite in Brevard County, Florida, where an apartment complex

was under construction. Mr. Wyatt inquired at the general

contractor's headquarters trailer and was told that a painting

subcontractor known as American Coatings was employing workers

on the site. Using the Federal Employer Identification Number,

Mr. Wyatt checked with the Department's Coverage and Compliance

Automated System (CCAS) data base and learned that American

Coatings, Inc. the Petitioner, which did business in Florida as

A.C. Painting, Inc., did not have a record of a Florida workers'

compensation coverage policy since December of 2003. Upon

inquiry of the general contractor's supervisor at the job site,

Mr. Wyatt learned that American Coatings, Inc., had furnished

proof of insurance to the general contractor. It was shown as a

certificate of liability insurance from American Coatings, in

evidence as Department's Exhibit 17.

5. Investigator Wyatt contacted the agent who had produced

the Certificate of Insurance and asked if a Florida endorsement

had been procured for that policy. He was told that the policy

had a "an all states" endorsement. Mr. Wyatt then contacted the

underwriter and was told that it was a policy for Tennessee and

not for Florida (apparently Tennessee rates and codes applied).

6. The investigator then contacted Benjamin Carswell, the

President of the Petitioner. He informed him that in his view

the company was not in compliance with the Florida requirement

that workers' compensation policies covering Florida work and

Florida employees be specifically endorsed for the State of

Florida. He stated that he would issue a Stop Work Order, which

he did on February 19, 2008. (SWO). The SWO was posted at the

worksite and served personally on Mr. Carswell on February 21,

2008. After the Petitioner entered into an installment payment

plan as to the penalty, the SWO was ended with an Order of

Conditional Release, on February 28, 2008.

7. The Petitioner sent a copy of consolidated insurance

policy number WC8263193, by fax to Terrence Phillips, the chief

of the Respondent's Orlando compliance office. The information

page of this policy showed that only Tennessee was listed in

item 3A of the policy. Item 3C stated that the policy was in

effect in all other states, however, except for North Dakota,

Ohio, Washington, West Virginia, and the states listed in item

3A. Item 4 listed various occupational classifications with

their codes and the premium rates for each. The codes were for

the State of Tennessee. The effect of these terms was that

Florida was included in the category for "all other states."

8. Florida Law requires that Florida be listed as a state

in item 3A, and requires a policy to utilize Florida class

codes, rates, rules, and manuals, in order for an employer to be

compliant with workers' compensation coverage requirements of

Chapter 440, Florida Statutes. Investigator Wyatt determined

that compliance was deficient and that a penalty should be

calculated and assessed. He therefore served a request for

production of business records on Mr. Carswell on February 21,

2008. The business records were necessary to construct the

payroll amounts and number of employees at issue, so that the

penalty, based upon the Petitioner's Florida Payroll, could be

calculated.

9. Mr. Carswell believed in good faith, throughout all

times pertinent to this matter that his company was compliant

with Florida workers' compensation coverage requirements. After

compliance was called into question, however, he also obtained

an additional workers' compensation insurance policy, apparently

obtained on or about February 20, 2008. It showed that coverage

was effective, related back to May 1, 2007. Based upon this

additional policy, the Petitioner provided Investigator Wyatt

with an additional certificate of insurance for this policy.

10. On March 6, 2008, Investigator Wyatt learned that the

SWO was a duplicate and had to be substituted. A new SWO was

issued as an amended SWO. A Second Amended Order of Penalty

Assessment and an Amended Order of Conditional Release from SWO,

under the second SWO number of 08-092-D4, was issued.

11. Investigator Wyatt calculated the penalty by reviewing

the business records supplied by the Petitioner and determining

what each employee had been paid between February 23 and

December 31, 2005; during all of 2006; during all of 2007 and

between January 1, and February 22, 2008. Each employee's

payroll, for each year or portion thereof, was divided by 100

and multiplied by an actuarial figure known as the "approved

manual rate," which is related to the job duties the employee

performed. In the case at hand, all the employees were engaged

in commercial painting and, therefore, their classification

codes were all 5474. Each trade, occupation or profession has a

particular code assigned to it by the National Council on

Compensation Insurance (NCCI) and each code has its own rate,

the codes and rates being adopted in the Respondent Agency's

Rules. The product of one one-hundredth of the gross payroll,

and the approved manual rate, constitutes the "evaded premium."

In effect this is the insurance premium the employer should have

paid during the years it did not actually secure the appropriate

payment of workers' compensation for its Florida Employees

(proper Florida or Florida-endorsed coverage). Each employee's

premium added together was then multiplied by the statutory

factor of 1.5 in order to determine the total penalty amount the

Respondent seeks to assess.

12. The penalty amount herein was calculated using the

correct Florida Approved Manual Rate and class codes. The

Respondent established that its calculations indicated that, for

the Florida employees of the Petitioner, based upon its Florida

payrolls for the three year period in question, the total

workers' compensation premium, under the Florida rate, would be

in the amount of $160,618.15. Based upon that Florida workers'

compensation premium amount, when multiplied by the statutory

factor of 1.5 times that amount, the Respondent arrived at a

total proposed assessed penalty of $240,927.55.

13. The Petitioner established, through the testimony of

Mr. Carswell that, for the time period at issue, for the Florida

employees and payroll, the Petitioner had paid workers'

compensation premiums of $111,682.21 for the coverage it had in

effect. It acknowledges that this was not paid pursuant to

Florida rates, rather it was based upon Tennessee rates. It is

the position of the Petitioner that the difference in premiums.

between the above Florida premium amount, and the premium that

the Petitioner actually paid, was $48,935.94. The Petitioner

maintains that this differential is what really should be

determined to be the unpaid or "evaded" premium, based upon

Florida rates, and, if that amount was multiplied by 1.5 then

the total penalty actually due should be $73,403.91.

14. An initial penalty payment of $24,092.76 has already

been made by the Petitioner. Periodic penalty payments,

assessed beginning March 2008, and continuing, have been paid in

the amount of $36,139.40. The total penalty already paid by the

Petitioner, as of the hearing date, is thus $60,232.16. The

Petitioner contends that the actual penalty to be paid should be

based upon the differential between the correct total premium

due, when using the correct Florida manual rate, and the total

premium actually paid by the Petitioner, which, when applied in

the above-referenced calculation results in the penalty due of

$73,402.91. This would then be reduced by $60,232.17, the

amount already paid, for a total remaining amount due of

$13,171.75, as of the hearing date.

CONCLUSIONS OF LAW

15. 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).

16. Cases involving the proposed assessment of

administrative fines have been held to be penal in nature.

Therefore, the Respondent 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. Dept. of Financial Services, Division of Workers'

Compensation , Case No. 08-2745 (DOAH: Nov. 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 . . ."

17. In order to prove its case the Respondent had to

demonstrate that the Petitioner is an employer for purposes of

Florida law and did not secure the payment of workers'

compensation for its employees in the manner provided in the

statutory authority referenced herein. There was no dispute

that the Petitioner was an "employer," inasmuch as it was

operating in the construction industry in Florida and regularly

employed at least one person. §§ 440.02(16)(a) and

440.02(17)(b)2, Fla. Stat. (2007).

18. The Respondent has established by clear and convincing

evidence that the Petitioner violated Sections 440.10 and

440.38, Florida Statutes. Under the circumstances referenced in

the above Findings of Fact, that violation was not willful or

intentional. The Petitioner was under a good faith belief,

based upon representations of its insurance agent and/or broker,

that it had complied with Florida workers' compensation

requirements. The referenced statutory provisions imposed upon

all employers the obligation to secure payment of workers'

compensation for employees. Section 440.10(1)(a), Florida

Statutes, provides as follows:

Every employer coming within the 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, and

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.

19. Section 440.38, Florida Statutes, states, in relevant

part:

(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 or mutual company or association or

exchange, authorized to do business in the

state . . . .

20. The obligations set out in Sections 440.10(1)(a) and

440.38(1)(a), Florida Statutes, are governed by Section

440.107(2), Florida Statutes, which reads, in relevant part:

(2) For purposes of this section, 'securing

the payment of workers' compensation' means

obtaining coverage that meets the

requirements of this chapter and the Florida

Insurance Code. . . .

(3) The department shall enforce workers'

compensation coverage requirements,

including the requirement that the employer

secure the payment of workers' compensation,

and the requirement that the employer

provide the carrier with information to

accurately determine payroll and correctly

assign classification codes.

At the hearing Petitioner contended, that its lack of a

violation of the second sentence of subsection (2) above was

exculpatory. That provision provides as follows:

However, if at any time an employer

materially understates or conceals payroll,

materially misrepresents or conceals

employee duties so as to avoid proper

classification for premium calculations, or

materially misrepresents or conceals

information pertinent to the computation and

application of an experience rating

modification factor, such employer shall be

deemed to have failed to secure payment of

workers' compensation and shall be subject

to the sanctions set forth in this section.

21. The Department does not dispute that the Petitioner

has not been accused of, and did not materially understate or

conceal its payroll, misrepresent or conceal its employee

duties, or materially misrepresent or conceal information

relevant to a rating modification factor. The Petitioner

claimed that such an allegation was necessary in order to

justify a Stop Work Order and a penalty. That position is

without merit. The first sentence of subsection (2), quoted

above, is distinct from the rest of the subsection. Employers

can be stopped from working and assessed monetary penalties if

they do not secure payment of workers' compensation for

employees. It is clear from subsection (3) that securing

coverage is a separate requirement from providing accurate

information to carriers. Finally, an employer who has not

secured coverage might not have provided any information at all

to a carrier.

22. The essential issue in this proceeding concerns

whether the consolidated insurance policy of the Petitioner,

number WC8263193, complied with Florida's requirements for

workers' compensation policies issued to out-of-state domiciled

employers, operating in Florida with Florida employees

(employees based in Florida in accordance with the authority

cited below). The Petitioner contends that it secured the

payment of workers' compensation coverage through this policy

and the Department argues that the policy was not sufficient to

comply with Florida statutes and rules concerning the proper

characteristics of workers' compensation coverage. The

Petitioner concedes that the payment of workers' compensation

secured by the policy referenced above was not at Florida

premium rates.

23. The policy did not secure the payment of workers'

compensation in Florida in the manner required by Florida law.

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. . . . The

department shall adopt rules for

construction industry and nonconstruction-

industry employers with regard to the

activities that define what constitutes

being "engaged in work" in this state, using

the following standards:

1. For employees of nonconstruction-

industry employers who have their

headquarters outside of Florida and also

operate in Florida and who are routinely

crossing state lines, but usually return to

their homes each night, the employee shall

be assigned to the headquarters' state.

However, the construction industry employees

performing new construction or alterations

in Florida shall be assigned to Florida even

if the employees return to their home state

each night.

* * *

3. For construction contractors who

maintain a permanent staff of employees and

superintendents, if any of these employees

or superintendents are assigned to a job

that is located in Florida, either for the

duration of the job or any portion thereof,

their payroll shall be assigned to Florida

rather than the headquarters' state.

4. Employees who are hired for a

specific project in Florida shall be

assigned to Florida.

24. Similarly, Section 440.38 states in relevant part:

(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.

25. The Department has promulgated Florida Administrative

Code Rule 69L-6.019, to apply to the above-referenced Section

440.10(1)(g), Florida Statutes. That rule provides:

(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.

(2) In order to comply with Sections

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

or endorsement presented by an employer as

proof of workers' compensation coverage for

employees engaged in work in this state must

be issued by an insurer that holds a valid

Certificate of Authority in the State of

Florida.

(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 07 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.

(5) Workers' Compensation and Employees

Liability Insurance Policy-Information Page,

NCCI form numbers WC 00 00 01 A (rev. May 1,

1988) and Workers' Compensation and

Employers Liability Insurance Policy -

Policy Information Page Endorsement, WC 89

06 00 B (rev. July 7, 2001) are hereby

adopted and incorporated herein by

reference. These forms can be obtained from

the Florida Department of Financial

Services, Division of Workers' Compensation,

200 East Gaines Street, Tallahassee, FL

32399-4228.

(6) An employee of a construction industry

employer headquartered outside the state of

Florida is "engaged in work" in Florida if

he or she participates in any one of the

following activities in the state of

Florida:

(a) The employee engages in new

construction, alterations, or any job or any

construction activities involving any form

of the building, clearing, filling,

excavation or improvement in the size or use

of any structure or the appearance of any

land as defined in Section 440.02(8), F.S.,

or performs any job duties or activities

which would be subject to those contracting

classifications identified in the

Contracting Classification Premium

Adjustment Program contained in the Florida

State Special pages of the Basic Manual (as

incorporated in Rule 69L-6.021, F.A.C.)

within the borders of the state of Florida,

regardless of whether an employee returns to

his or her state each night, or

(b) If the employer maintains a

permanent staff of employees or

superintendents and the staff employee or

superintendent is assigned to construction

activities in Florida for the duration of

the job or any portion thereof, or

(c) If the employer hires employees in

Florida for the specific purpose of

completing all or any portion of

construction contract work and related

construction activities in the state of

Florida.

26. The Petitioner's Tennessee policy did not contain a

proper Florida endorsement in Item 3.A. of the information page

of the policy. The Petitioner's policy in effect on

February 19, 2008, only listed Tennessee under Item 3.A.

Florida Administrative Code Rule 69L-6.019(3)(a) provides that

if Florida is not a listed state in item 3.A., then the policy

does not have a Florida endorsement and the employer has thus

not secured the payment of workers' compensation for Florida

employees as contemplated by that rule and in the manner

provided in the statute. Thus, the policy at issue lacked a

Florida endorsement as required by Sections 440.10(1)(g) and

440.38(7), Florida Statutes.

27. The Respondent maintains that the Petitioner's

reliance on the "all states coverage" provided in Item 3.C. of

the Petitioner's policy is misplaced. The above-quoted rule

makes clear that policies listing Florida only under Item 3.C.

are not compliant with Florida law as a Florida endorsement.

The Tennessee policy, moreover, used only Tennessee class codes

and rates. The Florida approved manual rate for the class code

5474, germane to this case, was $13.51 per $100.00 in payroll.

The Tennessee policy using Tennessee's 2007 rates shows that the

Petitioner would have been charged $8.90 for $100.00 in payroll,

a substantial cheaper premium rate. Moreover, the Tennessee

policy listed different classification codes from those accepted

in Florida, set forth in Florida Administrative Code Rules 69L-

6.021(1) and 69L-6.031(6).

28. The Petitioner argued that the Tennessee policy did

provide coverage for Florida employees, even if Florida was not

a listed state in Item 3.A of the policy's information page.

The Petitioner asserts that the policy terms show that it would

cover any injuries suffered in any of the states covered in Item

3.C., "the other states coverage," so long as proper notice was

given to the insurer in advance. The Petitioner's evidence does

indeed show that the employees in question would be covered by

that policy.

29. The coverage based upon Item 3.C., however, upon which

Petitioner relies, does not provide the endorsement required by

Section 440.38(7), Florida Statutes. Numerous Recommended

Orders from the Division of Administrative Hearings have

determined that "other states" language functionally identical

to that at issue herein did not exempt an employer with an out-

of-state policy from obtaining a Florida policy or policy

endorsement. See , e.g. , Triple M Enterprises, Inc. v.

Department of Financial Services, Division of Workers'

Compensation , Case No. 04-2524, (DOAH: Jan. 13, 2005) (other

states language in policy did not exempt out-of-state employer

with Alabama policy from requirement of obtaining Florida policy

or endorsement that would apply Florida rates, rules, and class

codes to Alabama policy).

30. Indeed, there is a difference between coverage, i.e.

what an insurer may ultimately cover under a policy, and

compliance with Florida law. That distinction was recognized in

U.S. Builders, L.P. v. Department of Financial Services,

Division of Workers' Compensation , Case No. 07-4428 (DOAH:

Jan 14, 2009). In that case, a Texas-based employer had a

workers' compensation insurance policy in effect. The

information page of that policy did not list Florida in Item

3.A. but did list Florida in Item 3.C.; it did not have Florida

class codes or rates in Item 4 of the policy, but also had a

provision whereby the insurer would cover injuries suffered in

other states if notice were given. Id. at 4-6. An insurance

company employee testifying in that case showed that the company

would have provided coverage for injuries suffered in Florida

even in the absence of notice. Id. at 6.

31. The Administrative Law Judge in that case determined

that the employer had not complied with Florida law and

therefore was required to pay the assessed penalty. His

Recommended Order provided:

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 Information Page as required by

paragraphs (3)(a) and (3)(b) of 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 sates 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. LEXIS 1336, at ¶¶ 28, 31

(DOAH Oct. 19, 2005) (explaining that "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).

32. The case of Department of Financial Services v. Raylin

Steel Erectors, Inc. , Case No. 05-2289, (DOAH Oct. 19, 2005)

cited in U.S. Builders, is also on point. That case involved

workers who were insured under a Georgia policy that listed

Florida in the "other states" provision. The Administrative Law

Judge noted that during the penalty period the Department had

established, Section 440.38(7), Florida Statutes, had been

enacted and Florida Administrative Code Rule 69L-6.019 had been

promulgated by the Respondent. This created the requirement

that employers have Florida-endorsed coverage using Florida

rates and rules. Judge Cohen ruled:

It is found by clear and convincing

evidence that Respondent failed to comply

with Section 440.38(7), Florida Statutes

(2003), because during that portion of the

penalty period subsequent to October 1,

2003, Respondent was working in Florida

without the required endorsement to its

workers' compensation insurance policy that

would base its coverage on Florida premium

rates and rules. Respondent's policy

indicates that Respondent's coverage was

issued in Georgia and was based on Georgia's

premium rates, not Florida premium rates.

The policy, including the "Other States

Insurance" endorsement does not satisfy the

requirements of Section 440.38(7), Florida

Statutes (2003). Respondent failed to

maintain, at all times, the Florida premium

rate endorsement required by Section

440.38(7), Florida Statutes (2003).

However, for the period of any work

performed prior to October 1, 2003,

Petitioner failed to prove by clear and

convincing evidence that Respondent's "other

states coverage" would not cover its sub-

subcontractors and their employees who

worked on Respondent's projects in Florida.

Raylin Steel Erectors at ¶ 31.

33. Thus it is apparent that, since 2003, with the

enactment of Section 440.38(7), Florida Statutes (2003), all

employers operating in Florida must acquire workers'

compensation coverage that employs Florida rates and rules. The

promulgation of Florida Administrative Code Rule 69L-6.019 shows

what is required to demonstrate a proper Florida endorsement for

insurance policies issued to out-of-state companies. The

Petitioner's Tennessee policy did not have a proper Florida

endorsement and so the Petitioner did not secure the payment of

workers' compensation in the manner required by Florida law for

its employees, although the persuasive evidence shows that those

employees were covered by the workers' compensation policy under

the "other states" coverage provision and that the benefits to

any injured worker would be no different than those otherwise

required by Florida law.

34. The decision in Raylin Steel Erectors and U.S.

Builders is consistent with other recommended orders. See

Department of Financial Services, Division of Workers'

Compensation v. U and M Contractors , Case No. 04-3041, ¶¶ 10,

28, 31 (DOAH Apr. 7, 2005); Department of Financial Services,

Division of Workers' Compensation v. William R. Sims Roofing,

Inc. , Case No. 06-1169 ¶¶ 11, 52-53, 57-59 (DOAH Nov. 30, 2006);

Department of Financial Services, Division of Workers

Compensation v. HR Electric, Inc. , Case No. 04-2965 ¶¶ 4, 9, 29-

31, (DOAH Jun. 8, 2006); Department of Financial Services,

Division of Workers Compensation v. Simpro Homes , Case No. 06-

731 ¶¶ 10-11, 30, 32-33 (DOAH Aug. 4, 2006).

35. Section 440.107, Florida Statutes (2007), set out the

Department's duties and powers to enforce compliance with the

requirement to provide for the payment of workers' compensation.

Section 440.107(3)(g), Florida Statutes, authorizes the

Department to issue Stop-work Orders and Penalty Assessment

Orders in its enforcement of workers' compensation coverage

requirements.

36. As to penalties, Section 440.107, Florida Statutes,

states in pertinent part:

(7)(d)1. In addition to any penalty, stop-

work order, or injunction, the 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.

Thus, as the Department is obligated by statute to use an

established formula to calculate the penalty, it was justified

in penalizing the Petitioner an amount equal to one-and-one half

times the workers' compensation premiums the Petitioner evaded

for the three-year audit period at issue.

37. The methodology for calculating the penalty is

mandated by rule and statute. Florida Administrative Code Rule

69L-6.025 adopts a penalty calculation worksheet for the

Department's investigators to utilize. Analysis of that

worksheet shows that an important calculation is to establish

the premium that should have been paid. Premium is equal to

1/100th of each employee's pay, i.e., the gross payroll-which is

then multiplied by an established rate based on the risk of

injury (the approved manual rate).

38. The premium "the employer would have paid" under the

relevant Florida annual rate was this established to be

$160,618.15. The unrefuted testimony of the Petitioner's

witness, Benjamin Carswell, establishes that the Petitioner paid

workers' compensation premium of $111,682.21 for the workers'

compensation policy it had in force covering its Florida

employees, issued in Tennessee. This was admittedly not based

on Florida rates, but the persuasive evidence showed it provided

workers' compensation benefits at Florida-required levels.

39. In reality the "evaded premium" (to use Respondent's

term) was not the entire $160,618.15 "Florida rate premium," but

rather the differential between that premium amount and the non-

Florida rate-based premium actually paid, $111,682.21. That

amount would be $48,935.94. 1.5 times $48,935.94 results in a

penalty actually due, under such a construction of Section

440.107(7)(d)(1), Florida Statutes (2007), of $73,402.91.

Applying a credit for penalty already paid of $60.232.16

(through the hearing date) results in a penalty balance due, at

that point, of $13,171.75.

40. Such a construction of the above penalty statute is

reasonable in serving the legislative purpose of ensuring that

all employers, employing Florida employees, on Florida jobs,

provide coverage at the same rates, so that those paying Florida

premium rates do not, in effect, subsidize those who pay a lower

rate, by using a non-compliant policy with non-Florida premium

rates. In the situation at hand, a penalty based on the above

differential serves that purpose, and is a reasonable, a just

way to construe that statute under the peculiar facts and

circumstances of this case. This is not the, perhaps, more

typical situation where the non-compliant employer has secured

no workers' compensation coverage and thus paid no premiums. In

that circumstance, the calculation of the penalty based on the

full three-year Florida payroll at the Florida premium rates

would be appropriate. That is not the situation and correct

interpretation here.

41. It is also noted that the Petitioner is paying a

monthly penalty of $3,613.79. The above-referenced amount of

penalty determined to be due is as of the date of the hearing

and represents payments made through January 2009. The amount

herein determined to be due should be adjusted to credit

payments made since January 28, 2009.

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 Petitioner failed to fully secure the payment

of workers' compensation for its employees in the manner

prescribed by the above-referenced authority and that a penalty

in the amount of $73,402.91 is due, less a credit of $60,232.16

already paid, and with credit applied to the above amount for

penalty payments made since January 28, 2009.

DONE AND ENTERED this 5th 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] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 5th day of May, 2009.

COPIES FURNISHED :

Robert L. Dietz, Esquire

Zimmerman, Kiser & Sutcliffe, P.A.

Post Office Box 3000

Orlando, Florida 32802

Thomas H. Duffy, Esquire

Douglas D. Dolan, Esquire

Department of Financial Services

Division of Legal Services

200 East Gaines Street

Tallahassee, Florida 32399

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

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.