annointed construction company, llc v auto owners ...r-18 placement facility worksheet 2/19/13: 1...

V

STATE OF MICHIGAN DEPARTMENT OF INSURANCE AND FINANCIAL SERVICES

Before the Director of Insurance and Financial Services

Annointed Construction Company, LLC

Petitioner, Case No. 17-1015-WC

Auto Owners Insurance Company,

Respondent.

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For the Petitioner: For the Respondent:

David J. Berman (P32656) Lori McAllister (P39501) Attorney at Law Dykema Gossett PLLC 25239 Southfield Road 201 Townsend Street, Suite 900 Southfield, Ml 48075 Lansing, Ml 48933 (248) 229-2388 (517) 374-9150 Fax (248) 281-3704 Fax (517) 374-9191 [email protected] [email protected]

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Issued and entered this ~ ay of November 2018

by Patrick M. McPharlin Director

FINAL DECISION

I. BACKGROUND

This case concerns adispute regarding the calculation of premiums under worker's compensation

policies issued by Respondent to Petitioner between September 15, 2012 through February 15, 2016.

Petitioner argued that Hugo de Alba, who performed work for Petitioner, could not have posed a risk of

liability under the worker's compensation policies issued by Respondent and thus should not have been

accounted for in Respondent's premium calculations. Petitioner sought a refund of $31,408.15 in allegedly

excessive premiums.

Respondent argued that its premiums were correctly calculated because they were based on the

risk of liability a particular person posed, not whether an actual liability existed. Respondent also argued

that, if Petitioner had provided it with proof that an independent contractor's own employer provided

worker's compensation coverage, that Respondent would have recalculated Petitioner's premiums. It is

undisputed that Petitioner did not provide such proof to Respondent at any time.

On Order Referring Complaint for Hearing and Order to Respond was issued by Special Deputy

Director Randall S. Gregg on October 17, 2017. The Order cited the authority of the Director with regard to

workers compensation insurance rates and rate-making under Section 2458 of the Insurance Code, MCL

500.2458, and the Petitioner's right to acontested case hearing pursuant to Section 212(3) of the Code,

MCL 500.212(3). A hearing was held on March 6, 2018, and, after post-hearing briefing was concluded,

the record was closed on June 4, 2018.

Administrative Law Judge Peter L. Plummer issued a Proposal for Decision (PFD) dated August

15, 2018. He recommended that the Director issue a final decision consistent with the Findings of Fact

and Conclusions of Law as outlined in the PFD. Neither party filed exceptions.

II. ISSUE

The issue in this appeal is whether Respondent correctly determined Petitioner's worker's

compensation premiums.

Ill. FINDINGS OF FACT

The PFD contains 49 numbered Findings of Fact. The Findings of Fact in accordance with the

preponderance of the evidence and are adopted .

IV. CONCLUSIONS OF LAW

The PFD makes the following Conclusions of Law:

• Under the insurance contracts issued by Respondent to Petitioner, the determinative issue for

calculating premium was whether a particular person is a person engaged in work that could

make Respondent liable under the worker's compensation policies issued to Petitioner.

• Respondent reasonably concluded that Mr. de Alba was a person engaged in work that could

make Respondent liable under the worker's compensation policy issued to Petitioner.

• Respondent properly rated and charged the appropriate premium to Respondent for the policy

periods in question.

• Petitioner failed to demonstrate by a preponderance of the evidence that Mr. de Alba was not

a person engaged in work that could make Respondent liable under the worker's

compensation policies issued to Respondent.

The Conclusions of Law are well-reasoned and are adopted. In addition, Michigan courts have

long recognized that the failure to file exceptions constitutes a waiver of any objections not raised. Attorney

General v. Public Service Com'n, 136 Mich App. 52 (1984).

V. ORDER

Therefore, it is ORDERED that:

1. The PFD is adopted and made part of this final decision.

2. Petitioner's appeal is dismissed.

~+ Director

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STATE OF MICHIGAN

MICHIGAN ADMINISTRATIVE HEARING SYSTEM

IN THE MATTER OF: Docket No.: 17-024362

Annointed Construction Company, LLC, Case No.: 17-1015-WC Petitioner

Agency: Department of V Insurance and

Financial Services Auto Owners Insurance Company,

Respondent Case Type: DIFS-lnsurance

Filing Type: Appeal

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Issued and entered this / 5-fhday of August 2018

by: Peter L. Plummer Administrative Law Judge

PROPOSAL FOR DECISION

PROCEDURAL HISTORY

This is a proceeding conducted pursuant to the Michigan Insurance Code ("Code" or "Act"), 1956 PA 218, as amended , MCL 500.100 et seq, Section 212(3) of the Code and the Administrative Procedures Act (APA), 1969 PA 306, as amended , MCL 24.201 et seq.

By Order Referring Complaint for Hearing and Order to Respond entered October 17, 2017 by Special Deputy Director Randall S. Gregg and the Complaint attached thereto, this matter was referred to the Michigan Administrative Hearing System (MAHS) for a hearing " ... [T]o determine whether the Petitioner's factual allegations are true , and further to determine whether the ratings, classifications, and premium billing decisions made by the Respondent relating to Petitioner's Worker's Compensation Insurance policy comply with requirements of the policy and law."

On October 30, 2017 MAHS received a request that this matter be scheduled for a contested case hearing. On November 16, 2017, a Notice of Hearing was sent to the parties scheduling this matter for hearing December 5, 2017. November 27, 2017 MAHS received a Stipulated Order Adjourning Administrative Hearing and Scheduling

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Pretrial Conference signed by both parties. As a result, November 30, 2017, an Order Converting Hearing Date to Telephone Prehearing Conference was entered .

A telephone prehearing conference was held on December 5, 2017 and an Order Following Prehearing Conference was entered December 11 , 2017. December 15, 2017 a Notice of Hearing was sent to the parties scheduling this matter for hearing on March 5, 2018. An Order Amending Notice of Hearing was entered on December 21 , 2017 to reflect the correct hearing date of March 6, 2017. A hearing was held on the date and time noticed . March 14, 2018 an Order providing for and scheduling written closing arguments and a briefing schedule allowing the record to remain open 42 days after the receipt of transcript. Petitioner filed an unopposed Motion Requesting Extension to May 4, 2018 to file written Closing Statement. An Order was then entered allowing Petitioner to file its closing argument by May 4, 2018 and therefore extending Respondent's time to file closing argument to May 28, 2018 and Petitioner's Rebuttal to seven days thereafter, or June 4, 2018. The record was then closed.

Complaint

The Petitioner complains in this matter, in summary, that Respondent's 2012-2016 audits improperly determined that Mr. Hugo De Alba should be treated as a person for whom Petitioner could be held liable if he was injured on the job, thus potentially making a claim payable by Auto-Owners. Petitioner alleges that de Alba was a sole proprietor for whom it could not be reasonably concluded that Petitioner could be held liable for workers' compensation benefits ("WC"). If de Alba were determined to be a sole proprietor not working for Annointed or another employer, specifically De Alba Construction, LLC, and not exposing Auto-Owners to potential liability, Petitioner avers that Petitioner has been charged $31,408.15 in excessive premiums by Auto-Owners for its workers' compensation insurance.

Respondent Auto-Owners contends that the Workers' Compensation policies in effect from 9/15/2012 to February 2016 clearly stated that the work classifications were assigned on an estimate of the exposure the company could have during a policy period. It claims the policy states that the cost of coverage would be determined by multiplying a rate times the premium basis. The policy, Respondent argues, goes on to state that the rate is usually determined by the remuneration paid during the policy period for company officers and employees and "all other persons engaged in work that could make us liable" unless the company (De Alba Construction, LLC) provided proof that the employers of those persons lawfully secured their workers' compensation obligations. Finally, Respondent claims that de Alba either worked for Annointed , or as an employee of De Alba Construction , LLC and, therefore was a person engaged in work that could make Petitioner liable for WC. If this were true, the policy provides an exception if Petitioner provided Respondent with proof that the employers (De Alba

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Construction, LLC) of such persons lawfully secured their WC obligations, which it is stipulated, Petitioner failed to provide.

Appearances

David J. Berman, Esq., appeared on behalf of Petitioner Annointed Construction Company, LLC.

Dykema Gossett, PLLC, by Lori McAllister, Esq., appeared on behalf of Respondent Auto-Owners Insurance Company.

Witnesses

Witnesses for Petitioner

David Fouche

Witnesses for Respondent

Todd Mann Douglas Eveleth

Exhibits

Petitioner's Exhibits

P-A Summary of Premiums P-8 IRS 1099s P-C Independent Contractor Worksheet P-D Checks Written to De Alba P-E Audit Documents 2012-2013 P-F Audit Documents 2013-2014 P-G Audit Documents 2014-2015 P-H Audit Documents 2015-2016 P-I Emails

Respondent's Exhibits

R-1 Insurance Policy 2012-2013 R-2 Insurance Policy 2013-2014 R-3 Insurance Policy 2014-2015 R-4 Insurance Policy 2016-2016 R-5 Statement of Account

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R-6 Certified Registration of De Alba R-7 Updated Registration of De Alba R-8 Notice 12/9/13 R-9 Notice 5/9/14 R-10 Notice 12-13-14 R-11 Notice of Nonrenewal R-12 Notice of Cancellation R-13 Notice of Cancellation R-14 Statement of Account 2/24/16 R-15 Statement of Account 3/28/16 R-16 Statement of Account 4/25/16 R-17 Statement of Account 5/26/16 R-18 Placement Facility Worksheet 2/19/131

R-19 Addendum to Subcontract Agreement 6/19/13 R-20 Declaration of Commercial General Liability Insurance 5/20/13-5/20/14

Stipulations

Joint Stipulation of the Parties

The parties through counsel stipulated to the following for all purposes;

• Annointed Construction Company, LLC, also known as Annointed , is a Michigan limited liability company whose primary business is construction and property preservation .

• Auto-Owners Insurance Company, Auto-Owners is a Michigan domiciled mutual insurance company licensed to conduct business in the State of Michigan.

• Auto-Owners issued a workers' compensation insurance policy to Annointed effective as of September 15, 2012 to September 15, 2013.



1 Respondent exchanged prehearing Exhibits numbers 18-24 which were withdrawn and replaced by R. Ex. 18-20 as listed. See T pp 12-20.

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• Auto-Owners issued a workers' compensation insurance policy to Annointed effective as of September 15, 2015 to February 15, 2016, when it was cancelled for non-payment of premium.

• Annointed does not dispute that Auto-Owners complied with its regulatory filings with the Department of Financial and Insurance Services in effect during the era of September 5, 2012 through February 15, 2016.

• Annointed entered into a subcontractor agreement with Hugo de Alba dated December 12, 2011. An addendum was executed on June 19, 2013.

• Between September 5, 2012 and February 15, 2016, Annointed issued 1099s to Hugo De Alba for work performed for Annointed.

• Hugo de Alba filed articles of incorporation for the De Alba Construction, LLC with the Michigan Department of Labor and Economic Growth effective as of April 24, 2008. That department now is the Department of Licensing and Regulatory Affairs.

• De Alba Construction , LLC filed a certificate of restoration on December 7, 2015.

• Annointed did not provide a certificate of workers' compensation for Hugo de Alba or De Alba Construction, LLC to Auto-Owners at any time.

The stipulation was signed by counsel March 5, 2018.

All agree that, as Appellant, Annointed Construction Company, LLC carries the burden of proof by a preponderance of evidence that Respondent/Appellee Auto-Owners wrongly determined Petitioner's WC premium obligations under the WC liability policies in effect for the relevant periods. Pursuant to APA section 80(1)(d), MCL 24.280(1)(d) , the undersigned Administrative Law Judge (ALJ) ruled that Respondent/Appellee, AutoOwners Insurance Company, would have the burden of going forward and place its proofs on the record first. It was determined that the most efficient procedure was to have the entity that made the decision classifying an individual present its proofs as to how it made its determination and then have the entity claiming the decision was wrongly decided offer its proof to show by a preponderance of evidence that the procedure used, and the conclusion drawn was in error.

Issues and Applicable Law

The issue in this matter is whether Hugo de Alba was more likely than not a sole proprietor/independent contractor when working on Annointed's projects, relieving

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Annointed from the obligation to have WC insurance. Or, if not, was he working for De Alba Construction, LLC (without proof that De Alba Construction, LLC, held worker's compensation coverage for Mr. de Alba) or was he an employee working for Annointed Construction Company, LLC either of which could make Mr. de Alba a person engaged in work that could make Respondent liable for Worker's Compensation benefits.2

Michigan Worker's Disability Compensation Act

The Michigan Worker's Disability Compensation Act ("WCA" or "Act"), 1969 PA 317, as amended, MCL 418.101 , et seq establishes what is sometimes referred to as "no fault" worker's injury compensation. Every employer and every employee, with some exceptions, is subject to the provisions of the WCA. MCL 418.111. It is not disputed in this matter that Annointed is an employer subject to the Act.

Generally, recovery of benefits under the WCA is an employee's exclusive remedy against the employer for a personal injury. The only exception to this exclusive remedy is an intentional tort. MCL 418.131. The WCA defines employer and employee as follows; the "employee" includes the person injured ... and "employer" includes the employer's insurer .. . " MCL 418.131 (2). Employers include;

"Every person, firm, limited liability company, limited liability partnership, and private corporation, including any public service corporation, who has any person in service under any contract of hire, express or implied, oral or written, unless those employees excluded according to the provisions of section 161 (5) comprise all of the employees of the person, firm, limited liability company, limited liability partnership, or corporation." [Emphasis added]. MCL418.151(b).

MCL 418.161 (1 )(n) states that,

(1) As used in this act, "employee" means: (n) Every person performing service in the course of the trade,

business, profession, or occupation of an employer at the time of the injury, if the person in relation to this service does not maintain a separate business, does not hold himself or herself out to and

2 The parties have agreed that the terms "sole proprietor'' and "independent contractor" are interchangeable for purposes of this decision .

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render service to the public, and is not an employer subject to this act.3

MCL 418.161(1)(n) goes on to state;

On and after January 1, 2013, services are employment if the services are performed by an individual whom the Michigan administrative hearing system determines to be in an employeremployee relationship using the 20-factor test announced by the internal revenue service of the United States department of treasury in revenue ruling 87-41, 1 C. B. 296. An individual for whom an employer is required to withhold federal income tax is prima facie considered to perform service in employment under this act. If a business entity requests the Michigan administrative hearing system to determine whether 1 or more individuals performing service for the entity in this state are in covered employment, the Michigan administrative hearing system shall issue a determination of coverage of service performed by those individuals and any other individuals performing similar services under similar circumstances.

The 20 factors identified by the IRS are as follows:

1. Instructions: If the person for whom the services are performed has the right to require compliance with instructions, this indicates employee status.

2. Training: Worker training (e.g., by requInng attendance at training sessions) indicates that the person for whom services are performed wants the services performed in a particular manner (which indicates employee status).

3. Integration: Integration of the worker's services into the business operations of the person for whom services are performed is an indication of employee status.

4. Services rendered personally: If the services are required to be performed personally, this is an indication that the person for whom

3 This same section provides an opportunity for an employer to seek a determination if an individual is a "covered employee" using the Internal Revenue Service ("IRS") issued Rev. Rul. 87-41 , 1987-1 C.B. 296. Although that is not what is before th is ALJ , Michigan case law considers much that same factors in deciding this issue.

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services are performed is interested in the methods used to accomplish the work (which indicates employee status) .

5. Hiring, supervision, and paying assistants: If the person for whom services are performed hires, supervises or pays assistants, this generally indicates employee status. However, if the worker hires and supervises others under a contract pursuant to which the worker agrees to provide material and labor and is only responsible for the result, this indicates independent contractor status.

6. Continuing relationship : A continuing relationship between the worker and the person for whom the services are performed indicates employee status.

7. Set hours of work: The establishment of set hours for the worker indicates employee status.

8. Full time required : If the worker must devote substantially full time to the business of the person for whom services are performed , this indicates employee status. An independent contractor is free to work when and for whom he or she chooses.

9. Doing work on employer's premises: If the work is performed on the premises of the person for whom the services are performed, this indicates employee status, especially if the work could be done elsewhere.

10. Order or sequence test: If a worker must perform services in the order or sequence set by the person for whom services are performed , that shows the worker is not free to follow his or her own pattern of work, and ind icates employee status.

11 . Oral or written reports: A requirement that the worker submit regular reports indicates employee status.

12. Payment by the hour, week, or month : Payment by the hour, week, or month generally points to employment status; payment by the job or a commission indicates independent contractor status.

13. Payment of business and/or traveling expenses. If the person for whom the services are performed pays expenses, this indicates employee status. An employer, to control expenses, generally retains the right to direct the worker.

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14. Furnishing tools and materials: The provision of significant tools and materials to the worker indicates employee status.

15. Significant investment: Investment in facilities used by the worker indicates independent contractor status.

16. Realization of profit or loss: A worker who can realize a profit or suffer a loss as a result of the services (in addition to profit or loss ord inarily realized by employees) is generally an independent contractor.

17. Working for more than one firm at a time: If a worker performs more than de minimis services for multiple firms at the same time, that generally indicates independent contractor status.

18. Making service available to the general public: If a worker makes his or her services available to the public on a regular and consistent basis, that indicates independent contractor status.

19. Right to discharge: The right to discharge a worker is a factor indicating that the worker is an employee.

20. Right to terminate: If a worker has the right to terminate the relationship with the person for whom services are performed, at any time he or she wishes without incurring liability, then such right may be indicative of employee status.

Michigan Case Law

The case of Askew v Macomber, 398 Mich 212, 247 NW 2d 288 (1978) established the "economic realities" test for determining an employer/employee relationship in Michigan. These include the following :

• Control of the worker's duties; • Payment of wages; • The right to hire and fire and the right to discipline; • The performance of the duties as an integral part of the employer's business

toward accomplishment of a common goal.

Askew, supra, relied upon McKissic v. Bodine, 42 Mich.App. 203, 201 N.W.2d 333 (1972) for the following concept;

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Keeping in mind the purposes of the statute, the foregoing rules should be applied as a whole and on a basis of common sense. No one can be singled out as controlling . By way of illustration , an automobile mechanic usually furnishes his own tools, but if hired to work in a public garage would undoubtedly be classified as an employee.

Findings of Fact

Based upon the record , as well as the testimony, stipulations and exhibits entered into the record, I make the following findings of fact:

1. Annointed Construction Company, LLC, also known as Annointed , is a Michigan limited liability company whose primary business is construction and property preservation .

2. Auto-Owners Insurance Company, Auto-Owners is a Michigan domiciled mutual insurance company licensed to conduct business in the State of Michigan.

3. Auto-Owners issued a workers' compensation insurance policy to Annointed effective as of September 15, 2012 to September 15, 2013.



6. Auto-Owners issued a workers' compensation insurance pol icy to Annointed effective as of September 15, 2015 to February 15, 2016, when it was cancelled for non-payment of premium.

7. Annointed does not dispute that Auto-Owners complied with its regulatory filings with the Department of Financial and Insurance Services in effect during the era of September 5, 2012 through February 15, 2016.

8. Annointed entered into a subcontractor agreement with Hugo de Alba dated December 12, 2011 . An addendum was executed on June 19, 2013.

9. Mr. de Alba was variously classified as a painter and a carpenter.

10.Mr. Fouche testified that he (Annointed) is a contractor in the residential repair and preservation business. (T p 107).

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11 .He considers himself as an "agency contractor" working for municipalities, Freddie Mac, etc. His work tends to go up and down. He could have as many as 16 projects going at one time and tried to visit some of the projects each day. (T p 108).

12. Mr. Fouche testified that Mr. de Alba was on hard times and came to him looking for work. He had Mr. de Alba fill out a subcontract agreement and a W-9. (T p 111). (P. Ex. A).

13. Mr. Fouche had seen some of Mr. de Alba's work and he felt de Alba had a knack for home repairs and ultimately met Mr. de Alba through Annointed 's CPA (T p 107).

14.Between September 5, 2012 and February 15, 2016, Annointed issued 1099s to Hugo De Alba for work performed for Annointed. (P. Ex. B).

15. Annointed also paid Mr. de Alba by check without reference to De Alba Construction, LLC. (P. Ex. D) .

16. Annointed did not pay for tools or materials used by de Alba , although he would often receive a draw at the beginning of a project.

17.Annointed claimed that Mr. de Alba was chosen for work by de Alba bidding on projects Annointed would offer to contractors on a rotating basis .

18. No bids or acceptances were offered in evidence.

19. Mr. Fouche agreed that the signatures of Mr. de Alba on the Placement Facility Independent Contractor Worksheet dated 2/19/2013 (R. Ex. 18) and his signatures on the Placement Facility Independent Contractor Worksheets dated 9/2/2013, 9/27/2014, and 1/22/2015 did not look the same. (T p 148-149).

20. Mr. Fouche testified that his office "didn't get it right. .. documentation from our guys at the time. And then remember when we signed on with Auto-Owners , you all had your own worksheets. So, Addendums were attached to subcontracts. " (T p 150-1 51 ) .

21. To The three signatures dated 9/2/2013, 9/27/2014, and 1/22/2015 that "didn't look the same" as Mr. de Alba's signature on his 2/19/2013 Placement Facil ity Independent Contractor Worksheet, were all on "old" forms even though the dates of all the signatures were during the time that Auto-Owners was the insurer and had their own forms .

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22. Those same three Placement Facility Independent Contractor Worksheets did not list De Alba Construction, LLC, as the subcontractor although the earliest one did list the LLC as the subcontractor. (T p 150-151).

23.1 find that the Placement Facility Independent Contractor Worksheets dated 9/2/2013, 9/27/2014, and 1/22/2015 are not credible and, therefore, will not be relied upon in this decision.

24. Mr. de Alba did not testify.

25. Mr. de Alba was paid $16,035.00 by Petitioner between 9/1/2012 and 9/1/2013. (P. Ex. E).

26.Mr. de Alba was paid $61,428.00 by Petitioner between 9/1/2013 and 9/1/2014. (P. Ex. E).

27. Mr. de Alba was paid $11 ,044.00 by Petitioner between 9/15/2013 and 9/15/2014 of $67,259 according to Annointed's hand written entry. (P. Ex. E p 6).

28. Mr. de Alba was paid $59,183.00 by Petitioner between 9/15/2014 and 9/15/2015. (P. Ex. E).

29. "Carpentry" was paid $37,000.00 by Petitioner between 9/15/2015 and 9/15/2016. (P. Ex. H).

30. Hugo de Alba filed articles of incorporation for the De Alba Construction, LLC with the Michigan Department of Labor and Economic Growth effective as of April 24, 2008. That department now is the Department of Licensing and Regulatory Affairs.

31. De Alba Construction, LLC filed a certificate of restoration on December 7, 2015.

32. The certificate of restoration was issued after six Annual Statements for the years 2009-2015 were all filed 11/19/2015. (R. Ex. 7).

33. No testimony or exhibits were offered into evidence as to the status of De Alba Construction , LLC for the period between December 3, 2007 and December 7, 2015.

34.Annointed did not provide a certificate of workers' compensation for Hugo de Alba from De Alba Construction, LLC to Auto-Owners at any time. (Stipulations of the parties) .

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35. The policy endorsement attached to each policy titled "Michigan Notice to Policyholders Endorsement" at section 1, paragraph 3, states, "You may also submit a written request for a review of the method by which your rates and premiums were determined. If you are not satisfied with the results of the review, you may appeal to the Commissioner of Insurance at the address shown in this endorsement. "4

36. Petitioner's Exhibit A, Subcontract Agreement dated, and signed December 12, 2011 is the earliest document attempting to evidence the relationship between Annointed Construction, LLC and Hugo De Alba .

a. Paragraph 2 of that document states that the parties intend to create subcontractor independent contractor relationship between the parties and that de Alba agreed to take such steps as necessary to ensure that he will be deemed to be an independent contractor, including," payment of any and all employment, unemployment, worker's compensation, social security, and other payroll taxes, including and related to assessments or contributions required by law." (P. Ex. A).

b. While the intentions of the parties may be considered, the statutory definitions ultimately determine the party's relationship for purposes of WC.

37. The first WC insurance policy by Auto-Owners on behalf of Annointed was for the policy year September 15, 2012 to September 15, 2013.

38. Pursuant to the terms of the policy, the cost of insurance was based upon an estimate of Petitioner's exposure and then calculated as follows;

i. Premium for each work classification is determined by multiplying a rate times a premium basis. Remuneration is the most common thing in basis. This premium basis includes payroll and all other remuneration paid or payable during the policy period for the services of.

ii. And number two states, all other persons engaged in work that could make us liable under part one, workers' compensation insurance of this policy. If you do not have payroll records for these persons, the contract price for their services and materials may be used as the premium basis.

4 Counsel for Petitioner averred that Respondent failed to inform Petitioner of its right to seek review of the Respondent's method of determining Petitioner's rates and premiums. I find that notice of same was provided with each policy. No further discussion of this issue in this Proposal for Decision is necessary.

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iii. This paragraph two will not apply to give us proof that the employers of these persons lawfully secured the workers' compensation obligation. (R. Ex. 1, p 28). (Transcript ('T') p 40).

39. Once the policy year is completed , Respondent then audits that prior year to replace estimated exposure to the actual exposure experience. Adjustments to premiums owed or paid are made at the time of the Final audit. (T p 40-44) .

40. Because the next policy year began immediately after the prior policy year expired , if Respondent intended to cancel Petitioner's coverage, it would have to provide notice of intent to cancel the second policy year. (T p 41-42).

41. Todd Mann, administrator of Respondent's Michigan premium audit and inspection services department, credibly testified that Petitioner failed to cooperate with requests for documents during the first audit in September 2013. (T p 41).

42. David Fouche, presumed owner/operator of Petitioner, Annointed Construction Company, LLC, concurred that that there was difficulty getting documents from Petitioner to Respondent. (T p 150).

43.A notice of nonrenewal was sent to Petitioner on May 9, 2014 that its WC insurance coverage would cease midnight September 15, 2014. (R. Ex. 9).

44. The reason provided was Petitioner's failure to provide audit information. Because of the lack of information Respondent informed Petitioner that it would process the 2013 audit based on the original policy estimates. (R. Ex. 8) .

45.At some point Petitioner provided Respondent with a document titled "Michigan Workers' Compensation Placement Facility, Independent Contractor worksheet," with the signature of Hugo de Alba and dated 2/19/13. The document listed the subcontractor as De Alba Construction LLC. (P. Ex. 18). The parties stipulated that Annointed never provided Auto-Owners with a certificate of workers' compensation insurance from Hugo de Alba or De Alba Construction Company, LLC.

46. The only other acceptable document Petitioner could provide Respondent would be a form BWC-337, indicating that the entity or person was exempt from obligations under the Act, stamped and filed with the state of Michigan. However, such a document was never provided to Respondent. (T p 51).

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47. By a document titled "Addendum A to Subcontract agreement" dated 6/19/2013 and signed by David Fouche on behalf of Annointed Construction, LLC, and Hugo de Alba on behalf of De Alba Construction, LLC, attempting to "waive" the Workers' Compensation obligations of Annointed . (R. Ex. 19).

48. Respondent was provided a copy of "Commercial General Liability" insurance underwritten by International Insurance Company of Hannover, Ltd., for De Alba Construction, LLC, with a policy period from 5/20/2013 to 5/20/2014, with a business description of "painter" (NOT "painting"). (R. Ex. 20).

49.Although de Alba listed on his "independent contractor worksheet" two or three other companies that he also worked for during the period in question , no evidence was provided that the listed companies were contacted for confirmation by either party. Mr. Mann indicated that Auto-Owners had not contacted those on the list. (P. Ex. C, eg). Petitioner offered no evidence as to the number or amounts paid by other companies for Mr. de Alba's work from September 15, 2012, through February 15, 2016.

CONCLUSIONS OF LAW

The principles that govern judicial proceedings also apply to administrative hearings. Callaghan's Michigan Pleading and Practice §60.248, at 230 (2d ed. 1994). The burden of proof is upon the Petitioner/Appellant to prove, by a preponderance of the evidence that Respondent/Appellee Auto-Owners improperly rated Annointed's premiums due for the period from 9/15/2012 thru 2/15/2016.

The critical issue in this matter is whether Auto-Owners properly rated the work of Mr. Hugo de Alba as a "person engaged in work that could make [Auto-Owners Insurance Company] liable under Part One (Workers Compensation Insurance) of this policy." That sentence would not apply if Annointed Construction, LLC, gave AutoOwners "proof that the employers of these persons lawfully secured their workers compensation obligations. " (See page 5 of all four insurance pol icies) .

The earliest document provided to Auto-Owners regarding Mr. de Alba was dated 2/19/13. The document listed the subcontractor as De Alba Construction LLC. (P. Ex. 18). At the end of the first policy year, Auto-Owners asked for supporting documentation that the working arrangement with De Alba Construction LLC's, employee, Hugo de Alba was covered by worker's compensation insurance held by De Alba Construction, LLC. None was ever received .

It was, therefore, reasonable for Auto-Owners to consider Mr. de Alba a "person engaged in work that could make [Auto-Owners Insurance Company] liable under Part

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One (Workers Compensation Insurance) of this policy. " The position taken by AutoOwners Insurance is and was that, Annointed would need to provide WC insurance to cover Mr. de Alba because the documentation provided by Annointed supported a conclusion that Mr. de Alba was an employee of De Alba Construction, LLC. The contract of WC Insurance clearly stated that Annointed had to provide Auto-Owners with proof that the Mr. De Alba's employer held proper WC insurance covering Mr. de Alba, or they would be charged the appropriate premium for his coverage. If Mr. de Alba were to be injured on an Annointed project and his employer (De Alba Construction, LLC) did not have WC insurance, then Annointed would step into the shoes of De Alba Construction , LLC, and be held responsible for Mr. de Alba's WC coverage. That situation never changed . Annointed failed to produce any documentation to support that Mr. de Alba was covered by worker's compensation by De Alba Construction, LLC, during the audit periods at issue.

Annointed had a contractual obligation to provide support showing that De Alba Construction, LLC, had a worker's compensation insurance policy covering Mr. de Alba while he worked on Annointed 's projects once the risk of liability was created by de Alba's and Annointed 's own documents showing that Mr. de Alba was working as an employee of De Alba Construction, LLC.

Because the documentation available supported a finding that Mr. de Alba was an employee of De Alba Construction , LLC, then Auto-Owners appropriately found him to be a "person engaged in work that could make [Auto-Owners Insurance Company] liable under Part One (Workers Compensation Insurance) of this policy" and properly rated and charged the appropriate premium to Annointed for the pol icy periods in question.

No record evidence exists as to when Annointed did provide information regarding the working relationship between Annointed and Mr. de Alba. However, at some point, perhaps after a nonrenewal notice, the information listed in Petitioner's exhibits were provided to Auto-Owners.

If Mr. de Alba is an independent contractor/sole proprietor, all sides agree that Annointed had no obligations to obtain worker's compensation reiating to his work. The exact amount would need to be recalculated to include not only the excess premiums billed relating to Mr. de Alba, reducing the total owed to Annointed by the complicated discounts included in Auto-Owners' billing that Mr. Fouche and Annointed could not be expected to calculate.

Whether one uses the IRS' 20-step method of determining if a person is an independent contractor or one uses Michigan Askew's, supra , "economic real ities" test, the fundamental concept is the same. Any analysis must include the degree of control the employer has over the worker's duties, how the worker is paid , does the employer have

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the right to hire, fire or discipline the worker, are the worker's duties integral to the accomplishment of a common goal with the employer, is the worker allowed to perform work for others while involved in work with the employer, is there any restriction preventing the worker from seeking employment directly from the cl ient of the employer, and any other fact that would tend to demonstrate that the worker is independent from the employer or not.

Mr. Fouche credibly testified that Mr. de Alba was free to work for others as long as he got his work for Annointed completed in a timely manner. Mr. Fouche credibly testified that Mr. de Alba was not typically directly supervised by Annointed beyond an occasional visit by Mr. Fouche. The exhibits show that Annointed annually issued an IRS form 1099 as one would typically issue to an independent contractor and not a W-2 as one would with an employee. Checks paying de Alba for his work were made out in his name and not that of the LLC and were signed by him in his own name. Neither the issuance of a 1099 nor a check in the individual's name is determinative of the status of the worker. However, they are more consistent with an independent contractor than a direct employee.

All the above facts would tend to show that Mr. de Alba is more likely to be working as an independent contractor than an employee of Annointed. However, that is not the issue to be determined in this matter.

This matter rests on a determination as to whether Mr. Hugo de Alba has an independent contractor relationship with Annointed or is performing the exact same duties in the exact same way as an employee of De Alba Construction , LLC. The facts support a finding that, as of 2/13/2013 the relationship between Annointed and Mr. de Alba was that of a construction company having projects completed by an employee of De Alba Construction , LLC, as depicted on the worksheet signed by Mr. de Alba on 2/13/2013 (R. Ex. 18) and the Addendum to the Sub Contractor Agreement dated 6/19/13. No evidence was provided to show that such a determination changed over time. Annointed was given the opportunity to provide Auto-Owners with proof that De Alba Construction , LLC, carried worker's compensation that covered Mr. de Alba while he performed work for Annointed but none was provided . Annointed was provided an opportunity to provide a copy of a BWC-337 exclusion stamped and filed with the state. None was provided. The conflicting evidence presented only served to muddy the waters as to Mr. de Alba's status, not clarify it.

If Mr. de Alba were to be injured while working on an Annointed project under the facts as presented, there exists a very reasonable risk that Annointed could be found responsible under the Worker's Compensation Act. Confusion as to Mr. de Alba's status would increase the likelihood that Annointed and thus Auto-Owners would be found liable for Mr. de Alba's WC payments. It was reasonable for Auto-Owners to determine that Mr. de Alba , under the above circumstances was a "person engaged in

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work that could make [Auto-Owners Insurance Company] liable under Part One (Workers Compensation Insurance) of this policy." Therefore, Annointed , by contract, was required to provide documentation showing the De Alba Construction, LLC, carried appropriate WC insurance. If the documentation was not provided , as all agree it was not, by contract, Auto-Owners was allowed to charge the appropriate premium for coverage of Mr. de Alba in the WC insurance contract with Annointed . It was the RISK of liability that triggered the requirement to provide proof that De Alba Construction , LLC carried the appropriate coverage, not the FACT of liability.

Annointed Construction, LLC, has failed to demonstrate by a preponderance of evidence that Mr. de Alba, under the above circumstance, was not a person engaged in work (as an employee of De Alba Construction , LLC) that could make Auto-Owners liable as the insurer under the Workers Compensation Act. Annointed Construction, LLC, has, therefore, failed to support its demand for the return of $31,408.15 from AutoOwners Insurance Company as "excessive" premiums charged for its Worker's Compensation Insurance provided from September 15, 2012 through February 15, 2016.

RECOMMENDATION

The undersigned Administrative Law Judge, after a contested case hearing held pursuant to the Administrative Procedures Act (APA) , 1969 PA 306, as amended , MCL 24.201 et seq., as provided by Section 212(3) of the Insurance Code, MCL 500.212(3), and a finding that Petitioner has failed to meet its burden of proof by a preponderance of evidence that the ratings , classifications, and premium billing decisions made by Respondent relating to Petitioner's Worker's Compensation Insurance policy were contrary to the law made and provided in this matter, I hereby propose and recommend that Petitioner's Appeal be DENIED.

Peter L. Plummer Administrative Law Judge

EXCEPTIONS

Any exceptions to this Proposal for Decision must be filed with the Michigan Administrative Hearing System (MAHS), 611 West Ottawa Street, P.O. Box 30765, Lansing , Michigan 48909, with a copy to all parties, within 21 days after the Proposal for Decision is issued. The opposing party may file a reply within 14 days after receiving the exceptions. Copies of any documents sent to MAHS must be sent to all parties listed on the attached Proof of Service.

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PROOF OF SERVICE

I hereby state, to the best of my knowledge, information and belief, that a copy of the foregoing document was served upon all parties and/or attorneys of record in this matter by Inter-Departmental mail to those parties employed by the State of Michigan and by UPS/Next Day Air, facsimile, and/or by mailing same to them via first class mail and/or certified mail, return receipt requested , at their respective addresses as disclosed below

this /5#> day of August 2018. d~~ Christine Gibson Michigan Administrative Hearing System

David J. Berman P.O. Box 862 Walled Lake, Ml 48390

Dawn Kobus Department of Insurance and Financial Services MAHS Hearing Coordinator P.O. Box 30220 Lansing, MI 48909

Lori McAllister Dykema Gossett PLLC Capitol View 201 Townsend Street, Suite 900 Lansing, Ml 48933

William F. Woodbury, Sr. VP, Secretary & General Counsel Auto Owners Insurance Company 6101 Anacapri Boulevard Lansing, Ml 48917