Acuity Mut. Ins. Co. v. Olivas
| Decision Date | 25 January 2007 |
| Docket Number | No. 2005AP685.,2005AP685. |
| Citation | 2007 WI 12,726 N.W.2d 258 |
| Parties | ACUITY MUTUAL INSURANCE COMPANY, Plaintiff-Appellant-Petitioner, v. Miguel A. OLIVAS, Defendant-Respondent. |
| Court | Wisconsin Supreme Court |
For the plaintiff-appellant-petitioner there were briefs by Samuel C. Wisotzkey, Jordan B. Reich, and Kohner, Mann & Kailas, S.C., Milwaukee; William R. Sachse, Jr., and Peterson, Johnson & Murray, S.C., Milwaukee, and oral argument by Samuel C. Wisotzkey.
For the defendant-respondent there was a brief by Ness Flores, Paul Bugenhagen, Jr., and Flores & Reyes, Waukesha, and oral argument by Ness Flores.
An amicus curiae brief was filed by James A. Friedman, Jennifer Cotner, and LaFollette Godfrey & Kahn, Madison, on behalf of The Wisconsin Insurance Alliance and The Wisconsin Compensation Rating Bureau.
¶ 1
This is a review of a published decision of the court of appeals affirming a judgment of the Circuit Court for Sheboygan County, James J. Bolgert, Judge.1 The circuit court ruled that the workers at issue satisfied the nine-part test for independent contractors set forth in Wis. Stat. § 102.07(8)(b) (2003-04) of the Worker's Compensation Act (the Act).2 Accordingly, the circuit court dismissed Acuity Mutual Insurance Company's complaint against Miguel Olivas, holding that Olivas did not owe additional premiums for his worker's compensation insurance policy.
¶ 2 The court of appeals affirmed the order of the circuit court, basing its decision on different reasoning. According to the court of appeals, Acuity Insurance presented a "garden-variety breach-of-contract claim."3 Consequently the court of appeals applied common-law criteria to distinguish between independent contractors and employees and concluded that Acuity Insurance failed to demonstrate that the workers at issue4 were employees rather than self-employed contractors under the common law.
¶ 3 This case is not a traditional worker's compensation case in which the parties disagree whether an injured applicant qualifies for worker's compensation. This is a dispute between an insurance company and a policyholder about the calculation of the premium for the worker's compensation insurance policy.
¶ 4 This review requires the court to determine whether the workers at issue are, for purposes of setting a premium under Olivas' worker's compensation insurance policy, independent contractors or employees of Olivas. The test to determine whether the workers at issue are employees or independent contractors is found in Wis. Stat. § 102.07(8)(b), not in common-law criteria used to distinguish employees and independent contractors.
¶ 5 If the workers at issue are independent contractors under Wis. Stat. § 102.07(8)(b), they are not employees under the Act and they do not receive worker's compensation; Olivas would not owe any additional premiums to Acuity Insurance.
¶ 6 If the workers at issue are not independent contractors under Wis. Stat. § 102.07(8)(b), they are employees under the Act pursuant to Wis. Stat. § 102.07(8). The court must then address whether an employment relationship exists under the Act between these worker-employees and Olivas, the alleged employer. If such an employment relationship exists, the workers at issue are covered by Olivas' worker's compensation insurance policy and Acuity Insurance may recover additional premiums from Olivas.
¶ 7 For the reasons set forth, we affirm the decision of the court of appeals affirming the order of the circuit court. We agree with both parties and the nonparties who filed a brief that the Act, not the common law, governs whether the workers at issue are independent contractors or Olivas' employees.5 We further agree with Acuity Insurance that the workers at issue do not satisfy the nine-part test for independent contractors set forth in Wis. Stat. § 102.07(8)(b). Accordingly, the workers at issue are employees under Wis. Stat. § 102.07(8) of the Act.
¶ 8 We agree, however, with Olivas that the workers at issue are not employees in his service in the course of his trade, business, profession, or occupation. In other words, no employment relationship exists between the workers at issue and Olivas. Accordingly, Acuity Insurance could not take them into account in setting the premium for Olivas' worker's compensation insurance policy. We therefore affirm the decision of the court of appeals that the complaint must be dismissed.
¶ 9 First we set forth the facts (Part I), the standard of review (Part II), the allocation of the burden of proof (Part III), and the application of the policy, the Act and the common law (Part IV). There are two parts to resolving the merits of the issue presented: whether the workers at issue are independent contractors (Part V), and whether an employer-employee relationship exists between Olivas and the workers at issue (Part VI).
¶ 10 Both the relevant facts derived from the testimony and the circuit court's findings of fact are essentially undisputed.
¶ 11 Steve Tenpas, the owner of a drywall contracting and painting business named Tenpas Drywall, contracted with Olivas, a drywall installer, for Olivas to do drywalling. Desiring to minimize his own liability, Tenpas informed Olivas that before he would hire him as a subcontractor, Olivas would first have to secure his own worker's compensation and liability insurance.
¶ 12 To satisfy Tenpas, Olivas purchased a liability and worker's compensation insurance policy from Acuity Insurance in 2001. Olivas was a "named insured" in his capacity as a sole proprietor; no employees were named as additional insureds. Acuity Insurance initially calculated Olivas' annual premium payment to be $3,513, based on Olivas' estimated $25,000 annual earnings. Under the policy, Acuity Insurance reserved the right to conduct an audit and adjust the premium according to Olivas' actual remuneration.
¶ 13 When Acuity Insurance audited Olivas in April 2003, the auditor discovered that Olivas had received approximately $190,000 from Tenpas. Acuity Insurance substantially increased Olivas' premiums to reflect its exposure for worker's compensation for the workers at issue. Olivas did not pay the increased premium, the policy terminated, and Acuity Insurance brings this action for unpaid premiums in the amount of $32,192.30.
¶ 14 The case proceeded to trial on the single issue of whether the workers at issue were independent contractors or employees under the Act.
¶ 15 According to the record, Olivas is a drywall installer. Olivas obtained jobs from Tenpas, which he usually completed with five men. Olivas was the only worker who spoke some English, so he alone communicated with Tenpas.
¶ 16 Tenpas paid Olivas on a "per job" basis. Tenpas alone decided the payment for each job, based on the size and the difficulty of the project. Olivas had no say about the amount of the payment. Tenpas did not use a competitive bidding process to parcel out the jobs.
¶ 17 Olivas and the workers at issue divided the payments from Tenpas among themselves, as they decided, based on the work each did and each worker's experience. Olivas asserted that he made no profit from the work of the others.
¶ 18 Olivas received one Form 1099 from Tenpas (which is in the record), and each worker received a Form 1099 from Olivas. These latter forms are not in the record.
¶ 19 Olivas testified that he and Tenpas entered this arrangement because the other five workers did not have "papers." An inference can be made from the testimony that the five workers at issue are undocumented aliens. Tenpas testified that he required all subcontractors to get their own liability and worker's compensation policies because he wanted to avoid large premiums on his own worker's compensation policy.
¶ 20 Tenpas testified that he knew that Olivas had a "crew" assisting with the jobs and saw these workers at the job sites but otherwise had little interaction with them. Tenpas acknowledged that he did not check whether the workers had proper INS documentation. He stated that he investigates the backgrounds of the workers on his payroll but avoids investigating the backgrounds of others who work with the subcontractors.
¶ 21 Olivas testified further that he was not in control of the work group; that he did not control the hours that each person worked; and that he did not have the power to hire or fire any worker. Each worker was responsible for his own tools.
¶ 22 One of the workers, Jose Mireles, testified at trial and corroborated Olivas' testimony.
¶ 23 The circuit court found that each of the workers owned his own equipment; that each received a Form 1099 for tax purposes; that the workers agreed among themselves how Tenpas' payments would be distributed; that the payments were distributed according to the agreement; that each worker was equally responsible to complete the job satisfactorily; that each ran the same risk of nonpayment by Tenpas; and that the risk was minimal because Tenpas provided the supplies. On the basis of these findings of fact, the circuit court reached the legal conclusion that the workers were independent contractors under Wis. Stat. § 102.07(8)(b) and dismissed Acuity Insurance's complaint with prejudice.
¶ 24 The standard of review is not disputed. We review findings of fact made by the circuit court under Wis. Stat § 805.17(2): "Findings of fact shall not be set aside unless clearly erroneous . . . ." The relevant historical facts set forth above essentially are not in dispute.
¶ 25 The parties disagree about the law and the application of the law to the facts. This case therefore requires us to interpret the insurance policy, the Act, and case law and apply them to the facts of the present case. Interpretation and application of an insurance policy, the Act, and case law are ordinarily...
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