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CWCO v. Super. of Insurance
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MAINE SUPREME JUDICIAL COURT				Reporter of Decisions
Decision:		1997 ME 226
Docket:		Ken-97-93
Argued:		October 10, 1997
Decided :		December 1, 1997

Panel:	WATHEN, C.J., and  ROBERTS, CLIFFORD, RUDMAN and LIPEZ, JJ.




CWCO, INC., et al. v. SUPERINTENDENT OF INSURANCE, et al.




CLIFFORD, J.

	[¶1]  CWCO, Inc. and Commercial Welding, Inc. appeal from a
judgment of the Superior Court (Kennebec County, Mills, J.) affirming in
substantial part a decision rendered by the Superintendent of Insurance.{1} 
The Superintendent concluded that Maine Employers Mutual Insurance
Company (MEMIC) had properly combined the loss experience of CWCO and
Commercial Welding in determining the premiums for their workers'
compensation insurance.  The companies contend that the Superintendent's
decision combining their loss histories unfairly results in their paying
excessive premiums.  Because the factual findings of the Superintendent
compel a conclusion that the companies had common majority ownership at
the time when the loss experiences were determined, and the applicable
statutory law and administrative rules provide for combining the experience
of companies with common majority ownership in setting workers'
compensation insurance rates, we affirm the judgment.
	[¶2]  Commercial Welding is a South Portland construction company
that as of January 1, 1993 had not done business outside of Maine.  CWCO,
Inc. is a Georgia construction company and did not do any business in Maine
until 1993.  Prior to 1993, both CWCO and Commercial Welding were
entirely owned by Lauren Engineers & Construction, Inc.  Lauren, in turn,
was owned 88% by Cleve Whitener and 12% by Michael Breed.  A projected
increase in Commercial Welding's experience rating modification factor,{2} or
"mod," for 1993 from 1.00 to 2.63 was going to result in a substantial
increase in its workers' compensation premiums and threaten the economic
viability of the business.  In order to avoid the increase in premiums,
Commercial Welding subcontracted with CWCO so that CWCO would perform
all of Commercial Welding's labor contracts for a one-year period, and the
workers' compensation premiums would be based on CWCO's much lower
mod of 1.00.{3}
	[¶3]  Although technically CWCO hired "new" craft labor employees
from the union hall, the effect of the subcontract was to move the entire
Commercial Welding payroll (including hourly paid and salaried employees)
to CWCO on a shared computer system, without changing the employees'
duties or work locations and merely having each employee sign a new hire
form and a new W-2.  Only Breed remained on Commercial Welding's
payroll.  CWCO obtained its workers' compensation policy on January 14,
1993 from appellee MEMIC, with its premiums being based on CWCO's mod
of 1.00, and Commercial Welding then canceled its insurance.
	[¶4]  On its application for workers' compensation insurance, and in
other documentation, CWCO represented that it was a new business and did
not disclose its relationship through majority ownership to Commercial
Welding.  MEMIC's inquiries into CWCO's corporate structure, however, led
it to conclude in May 1993 that CWCO and Commercial should have their
loss histories combined because of common ownership and operation. 
Accordingly, as a result of the combining of the loss histories, CWCO's mod
increased to 2.63 based on its combined history with Commercial Welding,
and MEMIC recalculated a substantially higher premium for CWCO's
insurance.  MEMIC also ultimately concluded that the loss histories of
Commercial Welding and CWCO were to be combined for purposes of
Commercial Welding's insurance premiums when Commercial Welding
applied for insurance in July, 1993.{4} 
	[¶5]  The Superintendent denied CWCO's and Commercial Welding's
requests to reverse MEMIC's decisions to combine the loss histories raising
the mods that resulted in the increased premiums.  Following denials of
motions for stay and for reconsideration, the companies appealed the
Superintendent's decision to the Superior Court pursuant to
24-A M.R.S.A. § 236 (1990), 5 M.R.S.A. §§ 11001-11007 (1989) and
M.R. Civ. P. 80C.  The court affirmed the bulk of the Superintendent's
decision,{5} and this appeal followed.  See 5 M.R.S.A. § 11008 (1989).
	[¶6]  When a decision of an administrative agency is challenged on
appeal, we review the action of the agency directly.  See Nyer v. Maine
Unemployment Ins. Comm'n, 601 A.2d 626, 627 (Me. 1992).  An
administrative decision will be sustained if, on the basis of the entire record
before it, the agency could have fairly and reasonably found the facts as it
did.  See Aviation Oil Co. v. Department of Envtl. Protection, 584 A.2d 611,
614 (Me. 1990).  The issue before us is not whether we would have reached
the same conclusion as the agency, "but whether the record contains
competent and substantial evidence that supports the result reached . . . ." 
In re Maine Clean Fuels, Inc., 310 A.2d 736, 741 (Me. 1973).  Special
deference is due when the issues subject to review lie within the scope of
the agency's technical expertise.  See Maine AFL-CIO v. Superintendent of
Ins., 595 A.2d 424, 429 (Me. 1991) (agency's interpretation of technical
statutes and regulations given due consideration).
I.
	[¶7]  Workers' compensation insurers are required to "adhere to a
uniform classification system and uniform experience rating plan." 
24-A M.R.S.A. § 2382-B (Pamph. 1996).  Workers' compensation insurance
premiums are determined based on the experience rating of the insured,
and the experience rating is, in turn, based on the insured's safety record. 
See 24-A M.R.S.A. § 2381-C(4).  Title 24-A M.R.S.A. § 2382-D(1)(D) (Pamph.
1996) requires that the experience plan used to rate companies for
workers' compensation insurance premiums contain "[p]rovisions for
reasonable and equitable limitations on the ability of policyholders to avoid
the impact of past adverse claims experience through change of ownership,
control, management or operation."  The Maine Experience Rating Plan,
Part III provides in relevant part:

A.  COMBINATION OF ENTITIES
1.  The combination of two or more entities for purposes of this Plan
requires common majority ownership.  Two or more entities shall be
combined only if:

a.  the same person, group or persons or corporation owns more than
50% of each entity.

	[¶8]  In upholding the premiums assessed by MEMIC and based on
the combined experience rating of CWCO and Commercial Welding, the
Superintendent concluded that the companies' histories were combinable
on the basis of common majority ownership.  CWCO and Commercial
Welding  argue that the Superintendent erred in his conclusion that their
histories were combinable because, they contend, they changed the
corporate structure of CWCO and Commercial Welding, eliminating common
majority ownership effective January 1, 1993.  They claim this was
accomplished by oral agreements, and evidenced by the execution of
documents in mid-1993 that were effective January 1, 1993.  The
documents reflect that Breed redeemed his interest in Lauren and that
Breed purchased 80% of Lauren's interest in Commercial Welding.  This left
Breed with no ownership in Lauren, and Lauren with a 20% ownership in
Commercial Welding.  The companies contend, therefore, that there was no
common majority ownership within the meaning of Part III of the rating
plan, and that CWCO and Commercial Welding were separate and should
have been treated separately for purposes of their experience ratings in
January, 1993.{6}  We disagree.
	[¶9]  The Superintendent found that the restructuring of CWCO and
Commercial Welding that the companies contend was effective in January,
1993, in fact did not take place until August of 1993.  The finding is well
supported in the evidence.  Although the companies claim that Breed
resigned as president of CWCO on December 31, 1992, as part of the
transfer, later-dated documents listed him as president, including the
Corporation's annual report filed with the Secretary of State on March 29,
1993.  There is no documentation of any activity pertaining to the
restructuring prior to May, 1993.  The stock purchase agreement and
redemption agreement were executed in June 1993 or later, to be effective
January 1, 1993.  The stock share transfer did not take place until August,
1993, and Breed did not pay for his shares in Lauren until late August, 1993. 
The certificates of capital stock were issued in December, 1993.  Although
the companies presented evidence of an oral agreement to change the
corporate structure on or before January 1, 1993, the Superintendent was
justified in relying on the documentary evidence that substantially
contradicted the self-serving testimony of the companies' witnesses to
conclude that the transactions did not take place until much later.
	[¶10]  The companies argue that because the Superintendent's
finding that the restructuring did not occur until August of 1993 was
unnecessary to his decision,{7} it should not be relied on to conclude that the
histories of CWCO and Commercial Welding are combinable because of
common majority ownership.  We disagree.
	[¶11]  Although the Superintendent did state that the date of the sale
accomplishing the restructuring was not critical to his decision, he
nevertheless clearly concluded that the ownership of the companies did not
change prior to August of 1993.  On the date of the issuance of CWCO's
policy, January 14, 1993, Lauren owned more than 50% of each of the two
companies.  The same ownership existed in July of 1993, when Commercial
Welding's policy was issued.  Pursuant to the Maine Experience Rating Plan
their loss histories were clearly combinable and based on the experience
rating mod of the combined companies, the insurance premiums were
correctly assessed.  See Oliver v. Secretary of State, 489 A.2d 520, 524 n.4
(Me. 1985) (decision below will be affirmed on appeal if its ultimate
conclusion is correct in law).
II.
	[¶12]  The companies also contend that MEMIC's adjustments of the
experience rating modification factor came too late, in violation of Chapter
450 of the Bureau of Insurance Rules, and that MEMIC is estopped from
increasing the premiums because the companies relied on the initial lower
mods.  
	[¶13]  Chapter 450 of the Bureau of Insurance Rules implementing
the rating system provides:

§ 2.  Effective date of experience rating modification

B.	Limitation.  An insurer shall not implement an increase in
the experience rating modification factor more than 90 days
after the policy effective date.  An insurer or rating
organization may appeal to the Superintendent for an
extension of the 90-day limitation period if there are unusual
circumstances which legitimately delay the availability of the
experience modification factor.

D.	Lack of employer cooperation.  The restrictions, in
subsections A and B above shall not apply if the rating
organization is unable to calculate the modification factor for an
employer solely because the employer has failed to cooperate
in an audit affecting the modification calculation or solely due
to the fault of the employer or an agent of the employer.

(Emphasis added).
	[¶14]  The policy for CWCO became effective on January 14, 1993.  It
wasn't until May 24, 1993 that MEMIC notified CWCO that its experience
rating was being combined with Commercial Welding and that the premium
would increase.  The Superintendent relied on section 2(B) of Chapter 450
to determine that unusual circumstances made it unfair to restrict MEMIC
to the 90 day limit because CWCO had not provided MEMIC with accurate
information.  Even though MEMIC had not filed a formal appeal, the fact that
CWCO misrepresented to MEMIC that it was not related through common
majority ownership to any entity, and that MEMIC did not discover the
actual common ownership circumstances until much later, justifies the
Superintendent's action.  See In re Maine Clean Fuels, Inc., 310 A.2d 736,
744 (Me. 1973) (administrative agency has inherent power to alter its
administrative rules when necessary or helpful to achieve objectives and
purposes of agency).
	[¶15]  MEMIC's request to the Superintendent to suspend the 90-day
limit on policy increases as to the Commercial Welding policy was made
more than 90 days after the effective date of the policy.  A hearing was held
within the 90 day period before the Maine Appeals Board, however, to
determine that additional information was needed before making a
determination on the mod for Commercial Welding, and MEMIC had
requested a ruling from NCCI on the increase within the 90 days.  The
Superintendent found that Commercial Welding had sufficient notice that
there was a dispute about the issue and the 90 day rule could be suspended. 
That ruling was within the discretion of the Superintendent.  See Sabattus
School Comm'n. v. Department of Education, 644 A.2d 1380, 1382
(Me. 1994) (agency entitled to considerable deference in interpretation of
its own regulations).  
	[¶16]  Moreover, MEMIC is not estopped from increasing the mod
factors and the premiums in either case.  CWCO, because of its conduct in
withholding information concerning its common majority ownership, cannot
successfully contend that MEMIC should be estopped from increasing the
rating modification factor applied to CWCO.  Because Commercial Welding
was fully aware of the issue of common ownership and whether the
experience ratings of CWCO and Commercial Welding should be combined
within 90 days of the effective date of its policy, MEMIC is not estopped
from seeking relief from the 90 day rule in regard to the experience rating
used for Commercial Welding.
	The entry is:
		Judgment affirmed.

Attorneys for plaintiffs: Thomas V. Laprade, Esq., (orally) John Lambert, Esq. Lambert, Coffin, Rudman & Coffin P O Box 15215 Portland, ME 04112-5215 Attorneys for defendants: Andrew Ketterer, Attorney General Jeffrey Frankel, Asst. Atty. Gen., (orally) 6 State House Station Augusta, ME 04333-000 (for the Superintendent) James D. Poliquin, Esq., (orally) Norman, Hanson & DeTroy P O Box 4600 Portland, ME 04112-4600 (for MEMIC) Mark B. LuDuc, Esq. Preti, Flaherty, Beliveau & Pachios, LLC P O Box 1058 Augusta, ME 04332-1058 (for NCCI)
FOOTNOTES******************************** {1} Other defendants in this action are Maine Employers Mutual Insurance Company (MEMIC) and the National Council of Compensation Insurance (NCCI). NCCI did not file a brief since its position overlapped with that of the Superintendent and MEMIC, and because NCCI's calculation of the experience ratings has not been challenged on appeal. {2} Experience rating modification factors are assigned by the National Council on Compensation Insurance (NCCI) based on whether a company's past losses make it a better or worse-than-average risk for future losses. A company's mod is multiplied by the basic workers' compensation premium to arrive at the company's estimated and final premiums. A mod of 1.00 results in no adjustment, while a mod of 2.63 nearly triples the resulting premium. See Maine Workers' Compensation Experience Rating Plan at p. 2; 24-A M.R.S.A. § 2382-B (Supp. 1996) (requiring all insurers to adhere to a uniform rating plan designated by the superintendent). {3} CWCO appeared to qualify for a low mod because it had never done business in Maine and thus had no accident history. {4} Later in 1993 CWCO transferred the salaried and other managerial employees back to Commercial Welding, and Commercial Welding applied for its own insurance. Presumably because Commercial Welding had no employees in the first half of 1993, NCCI initially ruled that Commercial Welding would have a mod of 1.00 until it had sufficient history to recei