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I. PROCEDURAL HISTORY
Superintendent Mila Kofman delegated all legal authority to Bureau of Insurance attorney Benjamin Yardley to act in the Superintendent’s name as the hearing officer in this proceeding.
The parties to the proceeding are Jenkins, Inc. (the “Petitioner”) and Maine Employers’ Mutual Insurance Company ("MEMIC"). The Petitioner contests MEMIC’s attempted cancellation for not cooperating with a premium audit. The Petitioner also contests MEMIC’s attempt to charge premium based in part on payments to workers whom the Petitioners considered to be independent contractors. The purpose of the hearing is to determine whether MEMIC may cancel the policy and charge premium for those workers.
In a December 30, 2008 Notice of Hearing, the Hearing Officer set the hearing for January 8, 2009, with an intervention deadline of 5:00 p.m. January 7, 2009. The Hearing Officer did not receive any applications for intervention. The hearing took place as scheduled at the Bureau’s Gardiner, Maine office. Present at the hearing were the Hearing Officer, Cathy Jenkins for the Petitioner; and Craig Reynolds and Daniel Montembeau for MEMIC. The hearing was recorded and in public session. The Hearing Officer conducted the proceeding in accordance with the provisions of the Maine Administrative Procedure Act, 5 M.R.S.A. chapter 375, subchapter IV; 24-A M.R.S.A. §§ 229 to 236; Bureau of Insurance Rule Chapter 350; and the Notice of Hearing. All parties had the rights to present evidence, and to examine or cross-examine witnesses, and exercised those rights. Mrs. Jenkins testified for the Petitioner. Mr. Reynolds testified for MEMIC. Petitioner’s Exhibit 1 was offered and admitted into evidence. The parties also had the right to be represented by counsel, but no attorneys appeared on behalf of either party.1
The Hearing Officer continued the hearing with the parties’ consent to give them an opportunity to ask the Maine Workers’ Compensation Board for approved predeterminations as to the workers whose employment status is in question. On February 25, 2009, the Hearing Officer held a telephone conference to discuss the status of the case. As a result of this discussion, the Hearing Officer issued a Procedural Order on March 3, 2009 resetting the hearing for May 4, 2009 at 1:30 p.m. That Order also addressed three discovery items:
On Sunday, May 3, 2009 at 2:45 p.m., the Bureau received an e-mail from Mrs. Jenkins as follows:
On the morning of May 4, 2009, the Hearing Officer’s secretary tried to contact Mrs. Jenkins at work in order to find out whether or not the Petitioner was asking to continue the hearing. She spoke to someone at the Petitioner’s answering service, who said that he would try to reach Mrs. Jenkins. The Bureau did not hear from anyone at the Petitioner. Therefore, the May 4, 2009 hearing went forward as scheduled, starting at approximately 1:40 p.m. After reviewing the status of the case and reading the May 3rd e-mail into the record, the Hearing Officer went off the record to ask his secretary if anyone from the Petitioner had contacted the Bureau. No one had done so, and the hearing resumed at 2:00 p.m. Present were the Hearing Officer, and Mr. Reynolds and Mr. Montembeau for MEMIC. Mr. Reynolds, and to a lesser extent Mr. Montembeau, testified under oath for MEMIC. MEMIC Exhibits 1 through 7 were offered and admitted into evidence.
This hearing was also recorded and conducted in public session in compliance with relevant law.
II. POSITIONS OF THE PARTIES
The Petitioner argues that its process for establishing independent contractor status is more effective than the Maine Workers’ Compensation Board’s provisional determinations under 39-A M.R.S.A. § 105 and that it therefore does not need to give MEMIC access to its remuneration information for premium audit purposes. MEMIC argues that its insurance contract gives it the right to cancel for not cooperating with a premium audit request and that MEMIC may therefore cancel the policy effective November 6, 2008. MEMIC also argues that, because the Petitioner has not given it access to remuneration records, it is unable to determine whether or not the workers at issue meet the test set forth in 39-A M.R.S.A. § 102(13).
III. FINDINGS OF FACT
After considering the hearing testimony and exhibits and the parties’ respective arguments, I find that:
IV. ANALYSIS AND CONCLUSIONS OF LAW
This case raises an important issue concerning an insurer’s right to remuneration information during a premium audit and an insured’s duty to cooperate with such an audit. A second issue is whether or not the tasks of various workers, whom the Petitioner considers to be independent contractors, exposed MEMIC during the policy period to potential liability under the Maine Workers’ Compensation Act (the “Act”) had any of them claimed a work-related injury. If so, then MEMIC would be justified in deciding as an underwriting matter that it should collect premium from the Petitioner based on the remuneration that it paid to them. A final issue is the Petitioner’s failure to comply fully with the Hearing Officer’s discovery order.
A. Audit and Duty to Cooperate.
The basis for workers’ Compensation premiums is remuneration paid to employees during the policy year. Because the total amount of remuneration is not known at the policy’s inception, the insurer estimates it. The insured gives the insurer the right, after the policy expires, to audit its relevant records to establish the final premium. MEMIC’s policy spells out the final premium process at Part Five (E):
The policy also spells out the policyholder’s obligations concerning remuneration records at Part Five (F):
Last, the policy spells out the audit process at Part Five (G):
One purpose of the retrospective audit is to learn how much remuneration the insured paid to its employees. This is because the employer’s premium is based in part on its payroll. Another purpose is to sort out the employees from the independent contractors. This information is necessary because the Act only protects employees against economic loss resulting from work-related injuries. 39-A M.R.S.A. § 201(1). The Act does not protect independent contractors because, by definition, they are not employees.
MEMIC’s policy addresses premium calculation and independent contractors, at Part Five (C):
Section (C)(2) is a catch-all because a person’s independent contractor status for workers’ compensation purposes depends on a variety of factors.2 While the factors are a guide, the outcome in each case depends on its peculiar circumstances. The Act recognizes this uncertainty by allowing a worker’s status to be predetermined voluntarily. 39-A M.R.S.A. § 105. The predetermination creates a rebuttable presumption in a later claim for benefits. A worker’s independent contractor status is not resolved as a legal matter unless he or she has a workplace injury and the parties litigate this status in a proceeding before the Board.
Mrs. Jenkins testified that the Petitioner has a process for identifying its workers who are independent contractors. The Petitioner has each such worker sign a document entitled “Independent Contractors [sic] Statement.” The statement is addressed to the Petitioner and says that the worker provides “miscellaneous construction work on various projects” for the Petitioner, is an independent contractor “in business for myself,” has no employees, works for others, and declines workers’ compensation insurance. The statement also includes a waiver of such coverage and hold harmless agreement in the Petitioner’s favor. Mrs. Jenkins testified that the Petitioner also has either a purchase order or subcontract with the worker and that the worker must have an “established business” and general liability insurance. She did not describe what factors determine whether or not the worker has established a business. She argued that, because the Petitioner brings workers in at the last minute and cannot wait the two weeks that the Act gives the Board to act on predeterminations, she cannot obtain them from the Board.3
The Petitioner’s position ignores not only the policy provisions quoted above but also the fact that the Act allows only one process for obtaining predeterminations. Neither the Act nor the Workers’ Compensation Board has sanctioned the Petitioner’s process. The Petitioner’s position also puts MEMIC in the difficult, and commercially unreasonable, position of having to accept the Petitioner’s word that these workers are actually independent and not employees. Although a Board hearing officer might find that a particular worker meets the section 102(13) eight-point test, the Petitioner’s position deprives MEMIC of the ability to make underwriting judgments and charge appropriate premium for the risk that it chooses to accept. This certainly prejudices MEMIC’s ability to function as an insurer. See, Marquis v. Farm Family Mut. Ins. Co., 628 A.2d 644, 649 (Me. 1993).
Last, the Petitioner’s position ignores how workers’ compensation functions. As the Bureau has observed in another decision, Project Staffing, Inc., et al. v. MEMIC, INS-05-101, workers’ compensation in Maine is meant to be a self-contained system, at both the claims and the policy levels. The Act is generally the sole remedy for an employee injured on the job. Workers’ compensation premiums are based on a uniform classification system and uniform experience rating plan, 24-A M.R.S.A. § 2382-B(1), as well as each insured’s safety record and resulting experience rating. Implicit in this system is the expectation that an insurer may evaluate the entire workers’ compensation risk that an employer presents, so that each insured pays premium that matches its exposure and so that other policyholders do not wind up subsidizing that insured beyond the normal expectations of pooled risk inherent to any insurance program.
Mrs. Jenkins testified that a MEMIC employee, David Lantagne, discussed the Petitioner’s process for identifying independent contractors with her and a World Wide Personnel employee. She believed that Mr. Lantagne accepted this process. She argued that MEMIC therefore waived its right to conduct the premium audit. There is no evidence other than her testimony, which I do not find credible on this point, to support this claim.
In view of the foregoing, I find that the Petitioner has not cooperated with MEMIC and therefore that the cancellation may remain in effect.
B. Independent Contractors.
In 2006, MEMIC notified its policyholders with employees in the classification code related to drywall, among other activities, that it would require those policyholders to provide it with either evidence of workers’ compensation insurance or an approved Workers’ Compensation Board predetermination form as to any worker who might be an independent contractor. The Petitioner received a copy of this notice. MEMIC Ex. 3. Mr. Reynolds testified that there is no indication in MEMIC’s file for Jenkins, Inc. that anyone from the Petitioner asked any questions about the notice or what effect failing to give MEMIC this evidence would have on its premium. The Petitioner did give MEMIC some certificates of workers’ compensation insurance for these workers, albeit not for the entire coverage period at issue. However, the Petitioner did not give MEMIC any predeterminations. MEMIC Ex 1. Ms Jenkins’ own testimony shows that she did not misunderstand the point of the predeterminations. To the contrary, her testimony implies that she considered them unnecessary.4
I therefore find that MEMIC may charge and collect premium for any worker as to whom the Petitioner did not give MEMIC either evidence of workers’ compensation insurance in effect between February 1, 2007 and November 6, 2008 or an approved Board predetermination form.
C. Discovery Order
By requesting and participating in a hearing before the Superintendent of Insurance, the Petitioner has submitted to the Superintendent’s jurisdiction and the applicable provisions of Title 24-A of the Maine statutes, the Insurance Code. This includes agreeing to comply with the Superintendent’s orders. During the February 25, 2009 status conference, the Petitioner agreed to send MEMIC (a) the name of each worker whom the Petitioner considered to be an independent contractor at any time during the policy period at issue in this case, and (b) legible copies of IRS Forms 1099 for each such worker. As noted in the Procedural History above, at the May 4, 2009 hearing, Mr. Reynolds represented that MEMIC had received nothing from the Petitioner in response to this discovery order.
I therefore find that the Petitioner must either comply with the order or explain why it has not.
IT IS HEREBY ORDERED that:
VI. NOTICE OF APPEAL RIGHTS
This Decision and Order is final agency action of the Superintendent of Insurance within the meaning of the Maine Administrative Procedure Act. Any party may appeal this Decision and Order to the Superior Court as provided by 24-A M.R.S.A. § 236, 5 M.R.S.A. § 11001, et seq. and M.R.Civ.P. 80C. Any such party must initiate an appeal within thirty days after receiving this notice. Any aggrieved non-party whose interests are substantially and directly affected by this Decision and Order may initiate an appeal within forty days after the issuance of this Decision and Order. There is no automatic stay pending appeal; applications for stay may be made as provided in 5 M.R.S.A. § 11004.
1 Mrs. Jenkins testified at the hearing that she is “very hands on in all legal matters; I like to oversee those items myself in particular.” Later, she characterized herself as not having “the benefit of legal representation.”
2 The Act defines an independent contractor as “a person who performs services for another under contract, but who is not under the essential control or superintendence of the other person while performing those services.” 39-A M.R.S.A. § 102(13). The Act also lists eight factors for the Workers’ Compensation Board, which has exclusive jurisdiction over a person’s employee or independent contractor status, to consider in deciding if a person meets the definition. The factors are: whether a contract exists for the person to perform a certain piece or kind of work at a fixed price; whether the person uses assistants with the right to supervise their activities; whether the person must furnish any necessary tools, supplies and materials; whether the person controls the progress of the work, except as to final results; whether the person’s work is part of the employer’s regular business; whether the person's business or occupation is typically of an independent nature; how much time the person is employed; and whether the person is paid by time or by the job. The Board “may not give any particular factor a greater weight than any other factor, nor may the existence or absence of any one factor be decisive … [but] shall consider the totality of the relationship” when it makes the determination of control. 39-A M.R.S.A. § 102(13).
3 She also said that the predetermination must be done annually and characterized this as a “ridiculous” requirement. Section 105 of the Act does not mention an annual requirement; the Workers’ Compensation Board has not imposed it by rule. Board decisions on appeals of predeterminations generally say that predeterminations are valid for one year from the date of the decision. MEMIC Ex. 6. The authority for this result is unclear.
4 Access to the Petitioner’s remuneration records appears to have been an ongoing issue for MEMIC. Its auditor noted that the audit for the 2007-2008 policy presented the “[s]ame issue as last year.” Mr. Reynolds explained that this referred to the Petitioner’s refusal to discuss its operations and subcontractor exposure with MEMIC.
PER ORDER OF THE SUPERINTENDENT OF INSURANCE
Last Updated: August 22, 2012
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