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MP Livestock Trust v. Department of Labor and Industry

Court of Workers Compensation of Montana

February 4, 2005

MP LIVESTOCK TRUST/PERRY POLZIN TRUCKING Petitioner
v.
DEPARTMENT OF LABOR AND INDUSTRY, UNINSURED EMPLOYERS' FUND Respondent.

          Submitted: November 4, 2004

          DECISION AND JUDGMENT

          MIKE MCCARTER JUDGE

         Summary: Montana employer which utilized employees furnished to it by a professional employer organization (PEO), i.e., an employee leasing company, appeals a penalty imposed pursuant section 39-71-504(1), MCA (1999-2001), for being uninsured.

         Held: While the Montana employer was technically uninsured upon the lapse of workers' compensation coverage provided by a professional employer organization (PEO), the Department of Labor and Industry (DLI) is estopped from imposing a penalty since section 39-8-207(4)(c), MCA (1999-2001), required the PEO to maintain the insurance and upon lapse of its insurance the DLI had a duty to order it to cease and desist from doing business and to suspend its PEO license, or at least to notify the Montana employer of the lapse of insurance so it could secure insurance or stop doing business.

         Topics:

Employers: Insurance. A Montana business which uses employees furnished by a professional employer organization (PEO) under a "professional employer arrangement," § 39-8-102(8), MCA (1999-2001), is an "employer" for workers' compensation purposes even though the PEO is primarily responsible for furnishing workers' compensation insurance coverage. §§ 39-8-207(4)(c) and 39-71-117(3), MCA (1999-2001). However, a Montana business which uses employees furnished by a PEO under an "employee leasing arrangement," § 39-8-102(5), MCA (1999-2001), is not an employer for workers' compensation purposes. §§ 39-8-207(3) and 39-71-117(3), MCA (1999-2001).
Constitutions, Statutes, Rules, and Regulations: Montana Code Annotated: § 39-71-117(3), MCA (1999-2001). A Montana business which uses employees furnished by a professional employer organization (PEO) under a "professional employer arrangement," § 39-8-102(8), MCA (1999-2001), is an "employer" for workers' compensation purposes even though the PEO is primarily responsible for furnishing workers' compensation insurance coverage. §§ 39-8-207(4)(c) and 39-71-117(3), MCA (1999-2001). However, a Montana business which uses employees furnished by a PEO under an "employee leasing arrangement," § 39-8-102(5), MCA (1999-2001), is not an employer for workers' compensation purposes. §§ 39-8-207(3) and 39-71-117(3), MCA (1999-2001).
Employers: Leased Employees. A Montana business which uses employees furnished by a professional employer organization (PEO) under a "professional employer arrangement," § 39-8-102(8), MCA (1999-2001), is an "employer" for workers' compensation purposes even though the PEO is primarily responsible for furnishing workers' compensation insurance coverage. §§ 39-8-207(4)(c) and 39-71-117(3), MCA (1999-2001). However, a Montana business which uses employees furnished by a PEO under an "employee leasing arrangement," § 39-8-102(5), MCA (1999-2001), is not an employer for workers' compensation purposes. §§ 39-71-117(3) and 39-8-207(3), MCA (1999-2001).
Penalties: Uninsured Employers. A Montana business utilizing leased employees through a "professional employer arrangement" as defined in section 39-8-102(8), MCA (1999-2001), is liable for a penalty under section 39-71-504(1), MCA (1999-2001), where the professional employer organization (PEO) fails to maintain insurance for the employees and the Montana employer similarly fails to do so. §§ 39-8-207(3) and 39-71-117(3), MCA (1999-2001). However, a Montana business utilizing leased employees through an "employee leasing arrangement" as defined in section 39-8-102(5), MCA (1999-2001), is not liable for a penalty since it is not an employer for workers' compensation purposes. §§ 39-71-117(3) and 39-8-207(3), MCA (1999-2001).
Department of Labor and Industry: Duties. The Department of Labor and Industry has a duty to promptly order an uninsured employer to cease doing business. § 39-71-507(1), MCA (1999-2001).
Constitutions, Statutes, Rules, and Regulations: Montana Code Annotated: § 39-71-507(1), MCA (1999-2001). The Department of Labor and Industry has a duty to promptly order an uninsured employer to cease doing business.
Department of Labor and Industry: Duties. The Department of Labor and Industry has a duty to promptly suspend the license of a professional employer organization not providing workers' compensation insurance for its leased employees and to notify the Montana business to which the employees are furnished of the lapse of insurance. §§ 39-8-206 and -207, MCA (1999-2001).
Constitutions, Statutes, Rules, and Regulations: Montana Code Annotated: §§ 39-8-206 and -207, MCA (1999-2001). The Department of Labor and Industry has a duty to promptly suspend the license of a professional employer organization not providing workers' compensation insurance for its leased employees and to notify the Montana business to which the employees are furnished of the lapse of insurance.
Estoppel and Waiver: Estoppel by Silence. Estoppel by silence applies where the party to be estopped had a duty to speak but failed to do so with either the intent to deceive or a willingness that another would be deceived and where the party seeking to impose the estoppel did not have access to accurate information and was misled to its detriment by the silence.
Estoppel and Waiver: Estoppel by Silence. Where the Department of Labor and Industry has knowledge that a professional employer organization (PEO) is no longer insured as required by section 39-8-207(4)(c), MCA (1999-2001), it has a duty to promptly suspend the PEO's license and notify the Montana business using employees furnished by the PEO of the lapse of insurance. Its failure to do so estops it from seeking a penalty against the Montana business under section 39-71-504(1), MCA (1999-2001), where the Montana employer was without notice or knowledge of the lapse of insurance and relied to its detriment on such lack of knowledge by continuing to reimburse the PEO for workers' compensation premiums and failing to secure its own workers' compensation insurance coverage.
Estoppel and Waiver: Equitable Estoppel. Equitable estoppel requires proof of six elements: (1) the existence of conduct, acts, language, or silence amounting to a representation or concealment of material facts; (2) the party estopped must have knowledge of these facts at the time of the representation or concealment, or the circumstances must be such that knowledge is necessarily imputed to that party; (3) the truth concerning these facts must be unknown to the other party at the time it was acted upon; (4) the conduct must be done with the intention or expectation that it will be acted upon by the other party, or have occurred under circumstances showing it to be both natural and probable that it will be acted upon; (5) the conduct must be relied upon by the other party and lead that party to act; and (6) the other party must in fact act upon the conduct in such a manner as to change its position for the worse.
Estoppel and Waiver: Equitable Estoppel. The elements of equitable estoppel are satisfied and the Department of Labor and Industry (DLI) is estopped from seeking a penalty against an uninsured Montana employer utilizing employees furnished by a professional employer organization (PEO) where: (1) the DLI concealed a material fact (lapse of insurance) from the Montana employer; (2) the DLI had knowledge of the material fact (lapse of insurance) during the entire penalty period (the time of concealment); (3) the lack of insurance was unknown to the Montana employer; (4) the facts and circumstances known to the DLI at the time of the concealment were such that there was a natural and probable consequence that the Montana employer would act as if insurance were in effect by continuing to utilize the furnished employees without procuring its own insurance and by continuing to reimburse the PEO for insurance premiums it was supposedly paying; (5) in fact the Montana employer did act in such a manner; and (6) the Montana employer changed its position for the worse since its actions resulted in its reimbursing the PEO for premiums not incurred and exposed it to the very civil penalty the DLI seeks to impose.

         ¶1 Perry Polzin, who does business as MP Livestock Trust (hereinafter "MP Livestock"), appeals from a decision of the Department of Labor and Industry (DLI) which assessed a $26, 331.53 civil penalty against him based on a finding that he was an uninsured employer during the period February 1, 2001, through August 3, 2001. The DLI's final decision was made on July 7, 2004, by a hearing officer. The decision was based upon stipulated facts. Those same stipulated facts form the factual basis for this Court's review and are set out below.

         Stipulated Facts

         ¶2 On August 15, 2000, T.T.C., Illinois, Inc. (TTC) entered into a Service Agreement with Perry Polzin d/b/a MP Livestock Trust. (Stip. Ex. A.)[1]

         ¶3 TTC was a duly licensed professional employer organization (PEO) licensed to do business in the State of Montana from 12/29/00 to 12/29/01. (See Stip. Ex. M consisting of nine pages, including a copy of the PEO license issued by the State of Montana and the application packet submitted by TTC.)

         ¶4 Up to February 1, 2001, TTC carried a qualifying workers' compensation policy covering the employees leased to Perry Polzin d/b/a MP Livestock with Credit General Insurance Co. (Credit General).

         ¶5 MP Livestock did not ever carry its own workers' compensation coverage on the workers leased from TTC.

         ¶6 The State of Montana received notification that MP Livestock was a new client company of TTC via a letter dated August 11, 2000, which was received by the DLI on August 16, 2000. (Stip. Ex. O.)

         ¶7 TTC had a qualifying workers' compensation insurance policy with Credit General from June 5, 1992, through February 1, 2001. On February 1, 2001, Credit General filed bankruptcy and TTC became uninsured. TTC attempted to obtain coverage from Regency Insurance Company (Regency), and then Continental Casualty/CNA (Continental). However, no coverage was ever obtained from either Regency or Continental, so TTC remained uninsured from February 1, 2001, through August 3, 2001, when TTC ceased operations in Montana. (See Stip. Ex. N which consists of twenty pages, including a letter to Connie Ferriter of the DLI from TTC which was received by the DLI on July 24, 2001. The attachments to that letter were provided by TTC to the DLI as verification of their efforts to obtain valid workers' compensation insurance for Montana employees. See also Stip. Ex. P.)

         ¶8 TTC notified MP Livestock of its cessation of operations via a letter dated August 3, 2001. (Stip. Ex. B.)

         ¶9 The State of Montana suspended TTC's PEO license via an August 24, 2001 letter from Connie Ferriter, Program Officer, Carrier Compliance Unit, DLI, to TTC. (Stip. Ex. C.)

         ¶10 The PEO compliance unit became aware that TTC was seeking new workers' compensation coverage when the State received TTC's PEO license renewal on or about December 28, 2000. (Stip. Ex. M.)

         ¶11 As early as January 11, 2001, the DLI began conducting an ongoing investigation of the status of the workers' compensation coverage covering the workers leased to Montana clients. (Stip. Ex's. Q, R, S, T, and U.)

         ¶12 The DLI became aware that TTC, which was insured by Credit General for workers' compensation purposes, was no longer insured by Credit General as Credit General was no longer authorized to write workers' compensation policies in Montana effective January 1, 2001. (Stip. Ex. H.)

         ¶13 TTC notified the DLI that Credit General was placed into liquidation as of January 5, 2001, and that all policies issued by Credit General would be cancelled effective February 4, 2001. (Stip. Ex. I.)

         ¶14 On February 16, 2001, the DLI through Program Officer Lacey Culver notified TTC that she was unable to locate any workers' compensation insurance for TTC as of February 4, 2001. (Stip. Ex. J.)

         ¶15 As of May 25, 2001, TTC had still not obtained Montana certified workers' compensation coverage for its employees in the State of Montana, including those leased to MP Livestock. (Stip. Ex. K.)

         ¶16 TTC provided to MP Livestock materials or a handbook for use in conducting business under the Service Agreement. (Stip. Ex's. A and D.)

         ¶17 On a weekly basis between February 6, 2001, and August 3, 2001, TTC sent an outgoing wire request form to their local bank and the funds were wired to the Bank of America in Dallas, Texas, for payment to the leased employees. Those wire transfers consist of twenty-five pages. (Stip. Ex. E.) Included with the payment to TTC was not only the leased employees' wages, but funds sufficient to pay TTC for unemployment insurance, workers' compensation coverage, the client's share of the Social Security obligation, and a profit to TTC.

         ¶18 TTC is evidently in bankruptcy. (See letter dated January 30, 2003, to the Uninsured Employers' Fund (UEF) from Rooks Pitts at Stip. Ex. F.)

         ¶19 The State of Montana, through Terry Wilson, Compliance Specialist II, has issued a Penalty Billing Notice to MP Livestock in the amount of $26, 331.53. (Stip. Ex. G.)

         ¶20 From January 11, 2001, until TTC notified the DLI of the cessation of the operations on August 8, 2001, the DLI Compliance Unit was in regular contact with TTC. The DLI was aware of TTC's efforts to obtain workers' compensation coverage effective February 1, 2001. However, until the letter dated August 3, 2001 (Stip. Ex. B) was received by MP Livestock, MP Livestock had no notice there was any problem with the workers' compensation coverage on the leased employees.

         ¶21 MP Livestock did receive a Certificate of Liability Insurance from TTC (through the producer) showing TTC had workers' compensation insurance through April 30, 2001. (Stip. Ex. L.)

         Proceedings and Decision Below

         ¶22 As can be seen from the stipulated facts, employees working for MP Livestock were not covered by workers' compensation insurance from February 1, 2001, through August 3, 2001. Based on that lack of insurance, a compliance specialist for the DLI assessed a $26, 331.53 penalty against MP Livestock. The penalty was ...


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