08-004630 Department Of Financial Services, Division Of Workers&Apos; Compensation vs. Gary The Carpenter Construction, Inc. Status: Closed Recommended Order on Tuesday, March 31, 2009.

Summary: Respondent is liable for workers` compensation insurance for two subcontractors who were not exempt from coverage and had failed to obtain coverage.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Petitioner, )

)

vs. ) Case No. 08-4630

)

GARY THE CARPENTER )

CONSTRUCTION, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

before Larry J. Sartin, an Administrative Law Judge of the

Division of Administrative Hearings, on January 28, 2009, in Key

West, Florida.

APPEARANCES

For Petitioner: Kristian E. Dunn

Assistant General Counsel

Division of Legal Services

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399-4229

For Respondent: Jerry D. Sanders, Esquire

Vernis & Bowling, P.A.

uman Avenue, Suite 3

Key West, Florida 33040

STATEMENT OF THE ISSUES

The issues in this case are whether Respondent, Gary the

Carpenter Construction, Inc., failed to comply with the

requirements of Sections 440.10, 440.107, and 440.38, Florida

Statutes, and, if so, the appropriate amount of penalty which

should be assessed against Respondent.

PRELIMINARY STATEMENT

Petitioner, the Department of Financial Services, Division

of Workers’ Compensation, as a result of a March 25, 2008, on-

site inspection of Respondent’s, Gary the Carpenter

Construction, Inc., worksite and business location and review of

business records produced by Respondent, determined that

Respondent had committed violations of Section 440.107(2),

Florida Statutes, by “failing to obtain coverage that meets the

requirements of chapter 440, F.S., and the Insurance Code . .

. .”

On August 6, 2008, Petitioner served by certified mail

Order of Penalty Assessment No. 08-258-D8OPA, informing

Respondent of its determination and the amount of the penalty to

be assessed due to the alleged violation.

Through counsel, Respondent contested the Petitioner’s

proposed penalty assessment, by filing a Petition for Hearing on

Order of Penalty Assessment, dated August 21, 2008.

A copy of the Order of Penalty Assessment and the Petition

for Hearing on Penalty Assessment were filed with the Division

of Administrative Hearings by letter dated September 19, 2008,

requesting assignment of the matter to an administrative law

judge. The request was designated DOAH Case No. 08-4630, and

was assigned to the undersigned.

By Notice of Hearing entered October 2, 2008, the final

hearing was initially scheduled for December 3, 2008. The

hearing was subsequently continued and rescheduled for

January 28, 2009, upon the granting of an Unopposed Motion to

Continue Hearing filed by Petitioner.

On January 26, 2009, the parties filed a Joint Response to

Order of Pre-Hearing Instructions. This pleading contains facts

agreed to by the parties which have been included in this

Recommended Order to the extent relevant.

At the final hearing, Petitioner presented the testimony of

Russell Gray and had eight Exhibits admitted. The record was

left open to give Petitioner an opportunity to present the

testimony of one additional witness and for Respondent to

present evidence in response to that testimony. Respondent

presented the testimony of Gary Burchfield and had seven

Exhibits admitted. Those Exhibits were to be filed at the time

for filing of post-hearing argument. Respondent did not file

post-hearing argument. Nor did Respondent file Respondent’s

exhibits.

On February 6, 2009, Petitioner filed a Report of Status

Conference in which it was represented that the parties had

concluded that no additional testimony would be presented. It

was also represented that an Unopposed Motion to Amend the

Penalty Assessment would be filed. That Motion was filed on

February 18, 2009, and was granted by Order entered February 20,

2009.

The one-volume Transcript of the final hearing was filed on

February 17, 2009. On February 18, 2009, a Notice of Filing

Transcript was entered informing the parties that the Transcript

had been filed and that proposed recommended orders were,

therefore, due on or before March 9, 2009. Petitioner filed

Department of Financial Services’ Proposed Recommenced Order on

March 9, 2009. Respondent has not filed any post-hearing

argument. Petitioner’s Proposed Order has been fully considered

in issuing this Recommended Order.

All references to Florida Statutes in this Recommended

Order are to the 2008 version.

FINDINGS OF FACT

1. The Department of Financial Services (hereinafter

referred to as the “Department”), is the state agency charged

with the responsibility of enforcing the requirement of Section

440.107, Florida Statutes, that employers in Florida secure

workers' compensation insurance coverage for their employees.

§ 440.107(3), Fla. Stat.

2. Respondent, Gary the Carpenter Construction, Inc.

(hereinafter referred to as “GTC”), is a Florida corporation,

which at the times relevant employed subcontractors in the

performance of its general contracting business located in Key

West, Florida. GTC and its subcontractors, at the times

relevant, were performing construction activities in the State

of Florida.

3. On March 25, 2008, GTC was renovating a structure at

1300 Virginia Street, Key West, Florida. An investigator of the

Department’s Division of Workers’ Compensation (hereinafter

referred to as the “Division”), conducted a compliance check at

the construction site, determining that GTC was the general

contractor and that it was using an out-of-state business

entity, Pryjomski Construction (hereinafter referred to as

“Pryjomski”), as a subcontractor. A Stop-Work Order was issued

to Pryjomski. Pryjomski is a Michigan corporation.

4. As a result of the Division investigator’s findings

with regard to Pryjomski, on or about April 22, 2008, a Business

Records Request was made by the Division to GTC. In response to

the records request, GTC provided documentation of its workers’

compensation coverage. Those records were reviewed by Russell

Gray, the Department’s “Penalty Calculator.”

5. Based upon his review of GTC’s records, it was found

that GTC’s employees were covered for workers’ compensation

insurance through an employee leasing service.

6. The records provided by GTC also indicated, however,

that GTC utilized the services of numerous subcontractors. A

review of Department records concerning the subcontractors

revealed that four of the subcontractors utilized by GTC did not

meet coverage requirements: Christian Construction, Perez

Painting, Pryjomski, and Tiles Etcetera.

7. The accuracy of the penalty assessment proposed by the

Department attributable to Christian Construction and Perez

Painting was stipulated to by the parties, and GTC did not

contest that amount of the penalty assessment attributable to

those two subcontractors.

Pryjomski

8. As to Pryjomski, it was discovered that it had two

Certificates of Liability Insurance (hereinafter referred to as

“Certificates”), both with issuance dates after March 25, 2008,

the date the Division’s investigator conducted the compliance

check at GTC’s construction site. A 2007-2008 workers’

compensation policy was issued two days after March 25, 2008,

and a 2006-2007 workers’ compensation policy was issued

September 29, 2009. Obviously, these policies were obtained by

Pryjomski because it had no coverage for 2006-2007 and 2007-

2008, as of March 25, 2008.

9. Even if the policies obtained by Pryjomski had been

effective prior to March 25, 2008, the policies were written by

an out-of-state insurance company not licensed to write policies

in Florida, and the policies did not have a Florida Endorsement

under “Item 3A” of the declaration page of the policies. Any

policy issued to an out-of-state business like Pryjomski must

have an endorsement indicating that the foreign entity is paying

Florida rates for Florida classification codes. This

endorsement is found under “Item 3A” of the declaration page of

a policy. The Pryjomski policies did not have the appropriate

endorsement.

10. At the times relevant to this matter, Pryjomski was

not listed by the Department as a business with appropriate

workers' compensation coverage in Florida. GTC could not,

therefore, have exercised due diligence in an effort to ensure

that Pryjomski had the required insurance coverage when it

utilized Pryjomski’s construction services. If due diligence

had been exercised, GTC would have been aware of Pryjomski’s

lack of appropriate coverage.

11. Based upon documentation provided by GTC, the Division

GTC was responsible. Absent any receipts for materials for

which the payments were made by GTC to Pryjomski, the Division

treated 20 percent of the payments as non-payroll pursuant to

Florida Administrative Code Rule 69L-6.035(1)(i).

12. Payroll for 2007, less materials, was determined to be

$22,106.00. For 2008, payroll, less materials, was determined

to be $10,811.93. Utilizing the “finish carpentry”

classification code (number 5437) and the approved manual rate

therefore of the National Council on Compensation Insurance of

13.01, the penalty for 2007 was determined to be $4,313.99. The

rate for 2008 was determined to be 10.47, and the penalty was

determined to be $1,698.02.

Tiles Etcetera

13. Tiles Etcetera had previously been issued a

Certificate of Exemption from coverage for Gregory Veliz, the

president of Tiles Etcetera. That Certificate, however, expired

on August 23, 2007. Any contract amounts paid to Tiles Etcetera

by GTC while the Certificate was in effect are not subject to

assessment and have not been included in the penalty assessment

in this matter. Amounts paid by GTC to Tiles Etcetera while the

Certificate of Exemption had expired are subject to penalty.

14. Based upon documentation provided by GTC, the Division

calculated the total amount of “payroll” paid to Tiles Etcetera

for which GTC was responsible. Absent any receipts for

materials for which the payments were made by GTC to Tiles

Etcetera, the Division treated 20 percent of the payments as

non-payroll pursuant to Florida Administrative Code Rule 69L-

6.035(1)(i).

15. Payroll for the period from August 24, 2007, to

October 19, 2007, less materials, was determined to be

$22,269.17. Utilizing the tile installation classification code

(number 5438) and the approved manual rate therefore of the

National Council on Compensation Insurance of 8.34, the penalty

for 2007 was determined to be $2,786.88.

CONCLUSIONS OF LAW

16. The Division of Administrative Hearings has

jurisdiction over the subject matter of this proceeding and of

the parties thereto pursuant to Sections 120.569 and 120.57(1),

Florida Statutes (2008).

17. Because the administrative fines sought by the

Department are penal in nature, it must prove by clear and

convincing evidence that GTC failed to comply with the

requirements of Chapter 440, Florida Statutes, and that the

Department’s proposed civil and administrative penalties

assessed are correct. See Department of Banking and Finance,

Division of Securities and Investor Protection v. Osborne Stern,

Inc. , 670 So. 2d 932, 935 (Fla. 1996).

18. Every “employer” is required to secure the payment of

compensation for the benefit of its “employees.”

the duty of enforcing the employer's compliance with the

requirements of the workers' compensation law. § 440.107(3),

Fla. Stat.

19. An "employer" is defined as "every person carrying on

means any service performed by an employee for the person

employing him or her." § 440.02(17)(a), Fla. Stat.

20. Relevant to this matter, an "employee” is defined in

Section 440.02(15)(c)2., Florida Statutes, to include:

All persons who are being paid by a

construction contractor as a subcontractor,

unless the subcontractor has validly elected

an exemption as permitted by this chapter,

or has otherwise secured the payment of

compensation coverage as a subcontractor,

consistent with s. 440.10 , for work

performed by or as a subcontractor.

21. Based on the findings of fact herein, the Department

carried its burden of proving by a clear and convincing evidence

Florida Statutes, and that it engaged in activities of

employment as that term is defined in Section 440.02(15)(c)2.,

Florida Statutes.

22. The Department also proved that GTC utilized

subcontractors who did not have any exemption permitted by

Chapter 440, Florida Statutes, and had not otherwise secured the

payment of compensation coverage as a subcontractor, consistent

with Section 440.10, Florida Statutes.

23. As to Tiles Etcetera, the Department proved that,

while it had obtained an appropriate exemption for part of the

relevant time period, it did not have an exemption for the

period from August 24, 2007, to October 19, 2007.

24. As to Pryjomski, the Department proved that Pryjomski

did not have coverage from March 9, 2007, to December 21, 2007,

and from January 11, 2008, to March 21, 2008. The coverage

ultimately obtained by Pryjomski were acquired too late and did

not have the endorsement required by Florida Administrative Code

Rule 69L-6.019.

25. The Department is required by Section 440.107(7)(d)1.,

Florida Statutes, to:

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.

26. The Department is authorized by Section 440.107(9),

Florida Statutes, to enact rules to implement Section 440.107,

and it has done so in Florida Administrative Chapter 69L-6.

Rule 69L-6.015 requires employers in Florida to "maintain

employment records pertaining to every person to whom the

employer paid or owes remuneration for the performance of any

work or service in connection with any employment" for "the

current calendar year to date and for the preceding three

calendar years" and to "produce the records when requested by

the division pursuant to Section 440.107." Fla. Admin. Code R.

69L-6.015(1), (3), and (11).

27. Florida Administrative Code Rule 69L-6.015 also

requires that “[e]very employer shall maintain all invoices

received from a subcontractor for work or service performed by

the subcontractor for the employer” and that “[e]very contractor

shall maintain evidence of workers’ compensation insurance of

every subcontractor and for every subcontractor that is a

corporation or limited liability company that has an officer or

a member who elects to be exempt from the coverage requirements

of the workers’ compensation law the contractor shall maintain a

valid certificate of election to be exempt issued to the officer

or member under Section 440.05, F.S.”

28. Section 440.107, Florida Statutes, authorizes the

Department to impose upon any employer who has failed to

maintain workers’ compensation insurance “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 . . . .”

29. The Department has established procedures to be used

in imputing payroll in its rules. Where an employer is unable

to prove the amount of a payment to a subcontractor attributable

to the costs of materials, as opposed to salary, Florida

Administrative Code Rule 69L-6.035(i) specifies that “eighty

percent of the total contract price shall be the employer’s

payroll.”

30. The Department has proven by clear and convincing

evidence that it correctly calculated the imputed payroll for

subcontractor of GTC for the period at issue herein. The total

penalty is $11,122.74.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Department of Financial

Services, Division of Workers' Compensation, enter a final

order:

1. Finding that Respondent, Gary the Carpenter

Construction, Inc., failed to secure the payment of workers’

compensation for its employees, in violation of Section 440.107,

Florida Statutes; and

2. Assessing a penalty against Gary the Carpenter

Construction, Inc., in the amount of $11,122.74.

DONE AND ENTERED this 31st day of March, 2009, in

Tallahassee, Leon County, Florida.

LARRY J. SARTIN

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 31st day of March, 2009.

COPIES FURNISHED :

Kristian E. Dunn, Esquire

Department of Financial Services

Division of Workers' Compensation

200 East Gaines Street

Tallahassee, Florida 32399-4229

Jerry D. Sanders, Esquire

Vernis & Bowling of Key West, P.A.

uman Avenue, Suite 3

Key West, Florida 33040

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 these cases.