Advanced Welding, LLC v. LM Ins. Corp.
| Decision Date | 28 January 2020 |
| Docket Number | No. 3:18-cv-197 (JAM),3:18-cv-197 (JAM) |
| Parties | ADVANCED WELDING, LLC, Plaintiff, v. LM INSURANCE CORPORATION, Defendant. |
| Court | U.S. District Court — District of Connecticut |
In May 2016, an employee of plaintiff Advanced Welding, LLC, was very seriously injured on the job. About one year earlier, Advanced Welding had purchased a workers' compensation insurance policy from defendant LM Insurance Corporation. But LM Insurance cancelled the policy as of November 2015 because Advanced Welding had failed to cooperate with respect to an audit conducted by LM Insurance to ascertain the nature and risk level of work activities in which Advanced Welding's employees engaged.
Advanced Welding has now filed this lawsuit against LM Insurance, principally alleging that LM Insurance assured Advanced Welding that it would reinstate the policy and that it should be equitably estopped now from declining to reinstate the policy. LM Insurance has moved for summary judgment on the ground that there is no genuine fact issue to support Advanced Welding's argument for equitable estoppel. I agree and therefore will grant LM Insurance's motion for summary judgment.
The following facts are drawn from the parties' summary judgment statements as submitted pursuant to D. Conn. L. R. 56(a). LM Insurance has submitted a detailed factual statement (Doc. #29-2) that has not been controverted by Advanced Welding's fact statement (Doc. #32-1) except to the extent that Advanced Welding has adduced additional facts in its statement. Accordingly, I deem the facts as stated in LM Insurance's statement to be true, and the factual record before me is largely undisputed, notwithstanding Advanced Welding's statement of additional facts. See D. Conn. L. R. 56(a)(1) ().
The parties and the workers' compensation insurance policy
Advanced Welding is a Connecticut limited liability company. Doc. #29-2 at 1 (¶¶ 1-2). LM Insurance is a Massachusetts corporation, with its principal place of business in that state, and LM Insurance is authorized to issue workers' compensation policies in Connecticut. Id. at 2 (¶ 7).
The National Council on Compensation Insurance ("NCCI") is licensed by Connecticut and designated as the plan administrator of state's workers' compensation "assigned risk program." This program makes workers' compensation insurance available to those who cannot obtain it through the private market.1 The NCCI also publishes rules and performance standards that govern the assigned risk program and is referred to as a "rating organization." Doc. #29-1 at 3, 22.
Employers seeking coverage through the state's assigned risk program file an application with the NCCI, which evaluates it and assigns the coverage obligation to an insurer authorized to issue workers' compensation policies in Connecticut. See Doc. #29-1 at 2-3. The NCCI application requires employers to identify the employees who would be covered under the workers' compensation policy and to specify the type of work in which employees engage. The type of work in which an applicant's employees engage is highly relevant to determining the applicant's premium for workers' compensation insurance. For example, the workers' compensation rate for employees classified under code 5059 ("steel erectors") is $89.74 per $100 of remuneration, while the rate for employees classified under code 5535 ("sheet metal workers") is $0.72 per $100 of remuneration. Id. at 2 (¶ 6).
In May 2015, Advanced Welding applied through the NCCI for a workers' compensation policy. Doc. #29-2 at 1 (¶ 3). In its NCCI application, Advanced Welding described its operations as involving "Prefab Building Erection" and listed 10 full-time employees to be covered, specifying some as performing "sheet metal work," which has a lower-cost classification code of 5535. Id. at 1-2 (¶¶ 4-5). Based on the submitted employee classification codes, the estimated workers' compensation policy premium for Advanced Welding was $68,448. Id. at 2 (¶ 6).
After receiving Advanced Welding's application, NCCI assigned the coverage obligation to LM Insurance. Ibid. (¶ 7). In May 2015, LM Insurance issued a one-year workers' compensation policy to Advanced Welding on the basis of the application information that Advanced Welding had submitted to NCCI. Ibid. (¶ 10).
In a "Policyholder Information Packet" that accompanied the policy, LM Insurance advised Advanced Welding that an on-site audit might be conducted for the purpose of reviewing classifications of employees and payroll records. Id. at 3 (¶ 12). The NCCI rules obligate an employer to maintain detailed payroll records, and if an employer fails to do so, the highest applicable classification code is applied. Id. at 13 (¶ 34). LM Insurance further advised that if any requested information was not made available, Advanced Welding's premium might be altered or its policy cancelled. Id. at 3 (¶ 12).
The efforts of LM Insurance to conduct an audit
Shortly thereafter, LM Insurance commenced a Preliminary Physical Audit ("PPA") because some of Advanced Welding's employees had been classified under the low-cost code 5535 ("sheet metal work"). Id. at 5-7 (¶¶ 20-24). LM Insurance assigned the PPA to one of its auditors, Keshia White. Id. at 13 (¶ 35).
In July 2015, White contacted Advanced Welding about the PPA, and she was referred to Advanced Welding's insurance agent, Tracy Driscoll Co., Inc. Id. at 13-14 (¶¶ 35-45). In August 2015, White met with Robert McFadden of the Tracy Driscoll company to discuss the PPA and to obtain some needed documentation. Id. at 14 (¶¶ 44-45). White did not obtain all the required information before she submitted an initial Premium Audit Report on the PPA, in which she noted, "Test Audit Conducted as Consultation with insured [Advanced Welding] and insured has been informed o[f] documents needed to complete final audit." Doc. #29-9 at 7 (Ex. A); see also Doc. #29-2 at 14 (¶ 46).
In August 2015, White continued her efforts to complete the PPA of Advanced Welding. Id. at 14 (¶¶ 47-48). At White's request for additional information, Tracy Driscoll emailed White a "Payroll Summary," which purported to report the nature of each employee's job and the category for their pay, such as sales, clerical, or sheet metal. Id. at 15 (¶¶ 50-52). But Advanced Welding's Payroll Summary did not present the employees' work by classification code, as was required by LM Insurance and the NCCI guidelines. Id. at 15 (¶ 52).
In September 2015, White called, left a voicemail, and emailed Tracy Driscoll, stating that she still needed more information about Advanced Welding. Ibid. (¶ 53). In that email, White advised that because the Payroll Summary did not sufficiently detail the employees' work, "all the payroll would go to the highest rated code which will result in a large premium increase," in accordance with NCCI rules. Ibid. (¶¶ 53-54). In light of this possible consequence, White went on to write, "I would like to visit you onsite so we can try to come up with a correct estimate looking over your previous contracts and work performed in the previous year." Ibid. (¶ 54).
The next day, Tracy Driscoll's McFadden responded to White's email, indicating that the Payroll Summary had already been submitted to White. Id. at 16 (¶ 55). White replied to reiterate that Advanced Welding's Payroll Summary did not provide the necessary information. As White explained by email, Ibid. (¶ 56). After Tracy Driscoll still failed to provide the needed information, White then sent a letter directly to Advanced Welding, informing Advanced Welding of the documentation requests and relaying her attempts to contact the company. Id. at 17 (¶ 60).
In October 2015, Tracy Driscoll's Marissa Sylvester responded to White, again indicating that Advanced Welding's Payroll Summary had already been provided, notwithstanding White's repeated explanations of the document's inadequacies. Ibid. (¶ 61).
On October 12, 2015, White completed a second Premium Audit Report for the PPA, in which she reported that, because Advanced Welding "was not able to provide a payroll break down by job, all payroll exposures other than bookkeeper were being classified to 5059," which corresponds to "steel erectors." Ibid. (¶ 63). White's report also identified other discrepancies in payroll records. Id. at 17-18 (¶ 64). The PPA of Advanced Welding was then terminated as a "partial closeout" because White had still not been provided with the requested records. Id. at 18 (¶¶ 66-67). The change in the classification codes for Advanced Welding's employees, from 5535 ("sheet metal workers") to 5059 ("steel erectors"), resulted in an enormous increase in the policy premium, rising from $68,448 to $582,305. Ibid. (¶¶ 68-69).
The cancellation of Advanced Welding's insurance policy
On October 22, 2015, LM Insurance issued a Notice of Cancellation of Insurance, which was received by Advanced Welding and its agent Tracy Driscoll. Id. at 18-19 (¶¶ 70, 73).2 In the Notice of Cancellation, LM Insurance stated that Advanced Welding's policy was cancelled effective November 11, 2015 "due to your failure to comply with Plan underwriting rules and your failure to respond to our requests for additional information." Id. at 18-19 (¶ 71). The Notice of Cancellation further stated, "Once your policy is cancelled for any reason, you are not eligible for reinstatement or replacement...
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