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Zimmerman v. Uninsured Employers' Fund

Court of Workers Compensation of Montana

October 23, 1997

R. ZIMMERMAN, INOCO INCORPORATED/ BIG Z TRUCKING/ZIMMERMAN TRADING COMPANY Appellants
v.
UNINSURED EMPLOYERS' FUND/ STATE COMPENSATION INSURANCE FUND Respondents.

          Submitted: June 4, 1997

          ORDER ON APPEAL

          MIKE McCARTER JUDGE

         Summary: Trucking company appealed decision of the Department of Labor and Industry finding it did not have workers' compensation insurance for a specific period and assessing a penalty of $14, 659.86. In addition to arguing that it should not have been governed by the Montana Workers' Compensation Act, the trucking company argued it did in fact have a workers' compensation policy through the Montana State Compensation Insurance Fund, which was issued in another name, but allegedly for the same company.

         Held: To the extent the Department of Labor's order assessed a penalty against the individual owner, the decision below is reversed. The hearing officer's decision did not find reasons to ignore the protections against individual liability afforded through incorporation under Montana law. While evidence indicated several associated companies, one of which may have had a policy with State Fund, there was only one company employing the individuals in question during the time period at issue. The "new" policy with State Fund had not been purchased to cover those individuals, who had been employed previously. Under 39-71-118, MCA (1993), the individuals in question were employees for whom the employer should have purchased Montana workers' compensation insurance where they were residents of Montana and their work was controlled from Montana. The penalty assessment against the corporate entities is upheld.

         Topics:

Employment: Montana employment. Under 39-71-118, MCA (1993), truck drivers were employees for whom the employer should have purchased Montana workers' compensation insurance where they were residents of Montana and their work was controlled from Montana. A penalty assessment issued the Department of Labor is upheld against specific corporate entities.
Penalties: Uninsured Employers. To the extent the Department of Labor's order assessed a penalty against the individual owner of a corporate uninsured employer, the hearing officer's decision affirming the order is reversed. The hearing officer's decision did not find reasons to ignore the protections against individual liability afforded through incorporation under Montana law, but merely appeared to find liability against the individual as well as corporate entities.

         This is an appeal from a decision of the Montana Department of Labor and Industry (Department) determining that the appellants did not have workers' compensation insurance, as required by law, for the period December 21, 1992 to May 2, 1994. Based on that determination, the Department assessed a penalty against appellants in the amount of $14, 659.86. Appellants disagreed with the determination and sought judicial review by this Court. After carefully reviewing the record below, this Court affirms the decision of the Department with respect to the Montana corporation known as Inoco, Inc., which was formerly known as Big Z, Inc. Insofar as the decision below may purport to impose joint or several liability for the penalty upon Robert Zimmerman and Zimmerman Trading Company, it is reversed.

         Factual Background

         A. Big Z Inc.

         Robert Zimmerman operates a number of businesses. As pertains to this case, the evidence shows that he is the principal shareholder of a Montana corporation incorporated in 1982 as Roosevelt Disposal, Inc. (Tr. at 16.) In 1986 the corporate name was changed to Big Z, Inc. (id.) which shall hereafter be referred to as "Montana Big Z." In October 1993 the Montana corporation again changed its name, this time to Inoco, Inc., by which name it continues to be known. While there was some initial confusion of names during the hearing below, it is clear that Montana Big Z and Inoco are the same corporation. The different names were used during different time periods. For convenience, the Court will refer to the corporation as "Montana Big Z." (Id. at 16, 22.)

         Montana Big Z is a trucking company. In 1991 the company employed 68 truck drivers and had a payroll in excess of $250, 000. (Uninsured Employers Fund [UEF] Ex. B at 15.)

         In early 1992 Zimmerman incorporated a second, separate corporation in the State of Utah using the name "Big Z, Inc." (Tr. at 17.) To avoid confusing the two corporations, the Utah company will be referred to as "Utah Big Z."

         Utah Big Z listed its office in Salt Lake City. (See UEF Ex. G at 1-3.) Like Montana Big Z, it was a trucking company. (Tr. at 18; UEF Ex. G.) It operated refrigerated trucks.[1] (Tr. at 21.) The operation was short-lived and Utah Big Z was sold in August 1992. (Id. at 18.)

         Following Utah Big Z's cessation of business in August 1992, Montana Big Z did business in Utah. That business primarily involved trucking oil from refinery sites in Utah to construction projects in Utah, although a handful of loads were hauled in Montana and Wyoming. Montana Big Z conducted trucking operations in Utah throughout 1993.

         B. Montana Policies Covering Montana Big Z.

         Montana Big Z obtained workers' compensation insurance through the Montana State Compensation Insurance Fund on January 24, 1987.[2] (State Fund [SF] Ex. 4.) That policy was canceled on December 21, 1992, for non-payment of premium. (SF Ex. 7.) Montana Big Z was thereafter uninsured until May 3, 1994, when it reinsured with the State Fund under its new name, Inoco, Inc. (UEF Ex. F at 10.) Thus, between December 21, 1992 and May 3, 1994, Montana Big Z lacked Montana workers' compensation insurance coverage.

         C. Utah Coverage.

         "Big Z, Inc." was covered by the Utah State Compensation Fund for the period March 28, 1992 to September 16, 1994. (UEF Ex. C at 5; Inoco Ex. 1 at 1-2.) Which Big Z was covered -- Montana Big Z or Utah Big Z -- is debatable. The initial application to the Utah Fund listed a Salt Lake City office for the corporation, which suggests that Utah Big Z was to be the insured. The office address was changed in April 1993 at the request of the bookkeeper for Zimmerman's various businesses. She wrote on the April Utah Fund billing, "Please change my address." (UEF Ex. G at 4.) She then wrote in the Billings address used by various Zimmerman businesses, including Montana Big Z. (Id.) Later on, at least by November 1993, the Utah Fund was notified that the name of the corporation had been changed to Inoco, Inc.

         Kim Aaberg was hired as Big Z's bookkeeper in February 1992. (Tr. at 41-42) In April 1992 she was transferred to the payroll of Zimmerman Trading Company but continued to do the bookkeeping for Big Z. She also dispatched Montana Big Z truckers in 1993 (id. at 22-23) and prepared workers' compensation information submitted to the Utah Fund. (Id. at 31; Inoco Ex. 2.)

         During 1992 and 1993, Aaberg was unaware of the fact that there were two Big Z corporations. (Tr. at 59.) Aaberg testified:

I didn't know there was a separate corporation with articles and the whole shebang set up in the state of Utah. I thought it was the Montana corporation at that time. I mean, I am aware now that there is a Utah corporation but I wasn't [then]. I thought it was all one corporation because it all had the same name.

(Id.)

         If the Utah policy was intended to, and in fact, covered Utah Big Z, then Montana Big Z had no coverage either in Utah or Montana between December 21, 1992 to May 3, 1994. The record contains no information indicating that the Utah Fund ever addressed the matter, or was ever even aware there were two different corporations. (UEF Ex. C at 5-6). Neither the UEF nor the State Fund has contended that Montana Big Z was uninsured in Utah, so the matter is academic.

         D. Wesley Long's Accident and Workers' Compensation Claim.

         On September 1, 1993, Wesley Long (Long) was injured in a truck accident in Utah. At the time of the accident he was driving a truck for Montana Big Z. (Utah Big Z had ceased to exist more than a year prior to the accident.) Long was being paid by Montana Big Z and his wages were being reported for unemployment and workers' compensation purposes by Montana Big Z. (UEF Ex. G at 19.)

         Long submitted a claim for compensation to the Utah Fund. The Utah Fund initiated benefits pending further investigation. (UEF Ex. C at 1.) After investigation, the Utah Fund denied liability for the claim, finding that Long was not a Utah employee. (Id. at 5-6.) In a January 6, 1995 letter to Long's attorney, the Utah Fund listed its reasons for determining that Long was not a Utah employee. According to the letter:

         Please be advised that the Workers Compensation Fund has denied further payment of Mr. Long's claim for the following reasons:

-The police report for the September 1, 1993 accident lists Mr. Long as being a Montana resident.
-The medical bills received list Mr. Long with a Montana address.
-Mr. Long's driver's license is a Montana driver's license.
-At the time of Mr. Long's accident, there was not a terminal office located in Utah for quite a length of time.
-The employer's report infers that Mr. Long was supervised controlled by the dispatcher out of Billings, Montana.
-It was determined that premium was not paid for Mr. Long.
I quote Workers Compensation Fund's attorney, Shaun Howell's February 25, 1994 letter to Big Z Inc., "On April 5, 1993, our office received notification to change the insured's mailing address to a post office box in Billings, Montana, as it appears that you were closing your Salt Lake City operations and relocating the company back to Billings in late 1992 or early 1993. According to the reported payrolls that we received in our office, the payroll dropped dramatically during that period. In July 1993, the reported trucking payroll was $2, 025. In August 1993, the reported trucking payroll was $1, 502 and for September 1993 the reported trucking payroll was $1, 507. On the employer's report submitted for Wesley Long, you reported that his payroll was approximately $800/week (a monthly wage of $3, 467). Our office also verified wages of this amount with you over the phone. The employer's report indicated that Wesley Long was employed by the insured for at least 2 1/2 years. Given the low payrolls reported in the months of August and September, it is clear that Wesley Long's wages were not reported to us. This is also supported by the fact that there was no significant change in the report of September 1993 payroll when Wesley Long was not working. That Wesley Long's payroll was not being reported to us, indicates to us that you, the insured, did not believe Wesley Long to be a Utah employee or covered under the Utah Workers Compensation Fund's policy."
As to the issue of a potential third party claim, an initial letter was sent to Brad Ragan, Inc. the seller of the tires. When it was determined that this claim should not have been paid, no further investigation or follow up was done.
Please call me if you have any further questions.
Sincerely,
WORKERS COMPENSATION FUND OF UTAH
Dianne Madsen DIANNE MADSEN Legal Adjuster (801) 288-8052

(Id. at 7-8.)

         E. The Montana UEF Audit and Penalty.

         Following denial of Long's claim by the Utah Fund, Long sought workers' compensation benefits in Montana. Since there was no Montana coverage, the Montana UEF accepted liability for the claim. That acceptance triggered an audit of Big Z.

         An audit was conducted by both the UEF and the Unemployment Insurance Division (UI) of the Department. During the course of the audit, the auditors obtained wage and other information pertaining to Big Z, as well as another Zimmerman owned company known as Zimmerman Trading Company. The Big Z information was not delineated as between Utah Big Z or Montana Big Z, and indeed none of the filings submitted by Big Z ever distinguished between the two corporations.

         As a result of its audit, the UEF determined that between December 21, 1992 and May 2, 1994, Montana Big Z paid $29, 722.89 in wages. (UEF Ex. A at 6.) The wages were for five employees: Long, Joel Sparrow, Scott Johnstone, Loren Stern, and Martin Comber. (Tr. at 94; UEF Ex. A at 6.) Based on documentary evidence, the UEF auditor determined that all five employees were Montana residents. She further determined that Montana Big Z was uninsured in Montana and assessed a penalty in the amount of $14, 659.86, which is double the amount of the premium Montana Big Z would have paid for Montana coverage during the audit period. (Id. at 5)

         The calculation of wages was based on wages Big Z reported to the Utah Uninsurance Division for 1993, on W-2 and W-3 statements for 1993 and the first quarter of 1994, and on payroll checks from Big Z to its employees for the period April 1, 1994 to May 1, 1994. (UEF Ex. B at 6-9.) Copies of payroll checks or ledgers were not introduced at hearing. However, the wage figures determined by the UEF are corroborated in significant part by independent documentation from the Utah State Fund and the Utah Unemployment Insurance Division. (UEF Exs. G; Inoco Exs. 2 and 3.) The Utah Fund information shows that Big Z reported wages of $21, 576.29 for the calendar year 1993. (UEF Ex. G at 6.) The Utah unemployment insurance reports for the fourth quarter of 1992 and the second and fourth quarters of 1993 show wages of $18, 107.35 for the three quarters. The appellant did not offer evidence disputing the accuracy of the wages calculated by the auditor.[3]

         F. Residency.

         UEF's determination concerning the residency of the five Big Z employees was based on the addresses Big Z listed for the five drivers, unemployment insurance records, and the determination concerning Long's residence. In her report, the UEF auditor stated in relevant part:

I determined Wesley Long, Joel Sparrow, Scott Johnstone, Loren Stern and Martin Comber to be Montana residents controlled and directed from Montana. . . . My determination was based on the Montana addresses Big Z/Inoco listed for the employees in their employee earnings records; information obtained from unemployment insurance records . . .; and WCF's [Utah Fund's] determination that Long was a Montana resident. The Utah Highway Patrol accident report listed Long as a Montana resident with a Montana driver's license. Long's address on the accident report was 26 West Meadows Drive, Billings. The medical bills received by WCF also showed Long as having a Montana address.

(UEF Ex. A at 2.) The Court notes that the auditor requested other information from Zimmerman and Montana Big Z that would have assisted her in making her residency determination.[4] (Id.) Zimmerman and Montana Big Z did not comply with her request for specific information concerning the drivers. (UEF Ex. D at 6.) Indeed, Zimmerman and Montana Big Z did not cooperate with other requests made by the UEF and UI's auditors during their audits. (Id. at 5-6; H at 2.) Similarly, at hearing, Zimmerman and Montana Big Z presented their case through a bookkeeper who testified based on hearsay and her review of certain company records. Zimmerman and ...


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