City of Cleveland v. Ohio Bureau of Workers' Comp.
Decision Date | 08 March 2018 |
Docket Number | No. 105604,105604 |
Citation | 109 N.E.3d 84,2018 Ohio 846 |
Parties | CITY OF CLEVELAND, Ohio, Plaintiff–Appellee v. OHIO BUREAU OF WORKERS' COMPENSATION, et al., Defendants–Appellants |
Court | Ohio Court of Appeals |
Michael DeWine, Attorney General of Ohio, BY: James A. Barnes, Assistant Attorney General, 150 East Gay Street, 22nd Floor, Columbus, Ohio 43215–3130, BY: Mark E. Mastrangelo, Jeffrey B. Duber, Assistant Attorneys General, 615 West Superior Avenue, 11th Floor, Cleveland, Ohio 44113, David H. Wallace, Michael J. Zbiegien, Jr., Taft Stettinius & Hollister L.L.P., 200 Public Square, Suite 3500, Cleveland, Ohio 44113, David J. Butler, James D. Abrams, Taft Stettinius & Hollister L.L.P., 65 East State Street, Suite 1000, Columbus, Ohio 43215, ATTORNEYS FOR APPELLANT
Maura L. Hughes, Mitchell G. Blair, Alexander Reich, Calfee, Halter & Griswold, L.L.P., The Calfee Building, 1405 East Sixth Street, Cleveland, Ohio 44114–1607, Barbara A. Langhenry, Director of Law, BY: Lisa A. Mack, Assistant Director of Law, City of Cleveland Department of Law, 601 Lakeside Avenue, Room 106, Cleveland, Ohio 44114, ATTORNEYS FOR APPELLEE
Garry E. Hunter, 175 S. Third Street, Suite 510, Columbus, Ohio 43215, AMICI CURIAE, Attorney for The Ohio Municipal League
William R. Hanna, R. Todd Hunt, Walter Haverfield L.L.P., 1301 East 9th Street, Suite 3500, Cleveland, Ohio 44114, AMICI CURIAE, Attorneys for Northeast Ohio Law Directors Association
Chris W. Michael, Ice Miller L.L.P., 250 West Street, Suite 700, Columbus, Ohio 43215, AMICI CURIAE, Attorney for Ohio Mayors Alliance
BEFORE: E.A. Gallagher, A.J., S. Gallagher, J., and Laster Mays, J.
JOURNAL ENTRY AND OPINION
EILEEN A. GALLAGHER, A.J.:
{¶ 1} Defendant-appellant, the Ohio Bureau of Workers' Compensation (the "BWC") appeals from a judgment of the Cuyahoga County Court of Common Pleas awarding plaintiff-appellee the city of Cleveland (the "city") over $4.5 million in restitution on the city's claim that it was unlawfully charged excessive workers' compensation insurance premiums in order to subsidize overly generous premium discounts given to public employers who participated in the BWC's group-rating program. The city's unjust enrichment claim was patterned after a similar claim raised by private employers in San Allen v. Buehrer , 2014-Ohio-2071, 11 N.E.3d 739 (8th Dist.).
{¶ 2} The BWC asserts that this case is "materially different" from San Allen . It contends that "threshold legal issues" regarding the court's subject matter jurisdiction, the city's alleged failure to exhaust administrative remedies and several other affirmative defenses "independently demand dismissal" of the city's lawsuit and that the equities in this case, unlike in San Allen , do not entitle the city to restitution. The BWC argues that the trial court erred in denying its motions to dismiss and for summary judgment and in granting, in part, the city's motion for summary judgment on the issue of liability. The BWC further contends that the trial court erred in precluding the BWC from raising its affirmative defenses at trial and that the trial court's restitution award is against the manifest weight of the evidence. For the reasons that follow, we affirm the trial court's judgment.
{¶ 3} The city, a municipal corporation, is a public employer taxing district ("PEC") governed by Ohio's workers' compensation laws. The administrator of the BWC, with the approval of its board of directors, sets the premiums employers pay into the state insurance fund for workers' compensation coverage each year. Pursuant to R.C. 4123.38, the city is required to "contribute to the public insurance fund the amount of money determined by the administrator of workers' compensation." The state insurance fund is comprised of two separate funds administered by the BWC, i.e., a "public fund" consisting of the net premiums (after adjustments and dividends) contributed by public employers, and a "private fund," consisting of the net premiums (after adjustments and dividends) contributed by private employers. R.C. 4123.01(B), (H), (J) ; 4123.30. R.C. 4123.30 requires that each fund be "collected, distributed, and its solvency maintained without regard to or reliance upon the other."
{¶ 4} The BWC is designed to operate on a "revenue-neutral" basis. This means that the BWC seeks to collect from employers participating in Ohio's workers' compensation insurance program only the amount of premiums necessary to cover the BWC's projected claims costs and administrative expenses and to maintain a reasonable surplus in the state insurance fund. Each year the BWC separately estimates for each employer segment, i.e., private employers and public employers, the costs of claims and expenses expected to be incurred for that segment. Once the BWC determines the total premiums it needs to collect, the BWC then allocates that sum amongst the employers participating in the workers' compensation system. Under Ohio's workers' compensation system, employers are classified into one or more manual classes based on the type of work in which their employees are engaged and the degree of hazard of the employer's operations. After the BWC determines its total premium needs for the policy year for an employer segment, it distributes the premiums across the manual classes for that segment.
{¶ 5} There are approximately 3,800 PECs in Ohio. PECs are assigned to one or more of 14 different manual classes based on the type of entity, e.g., city, county or township. The policy year for PECs participating in Ohio's workers' compensation program begins on January 1 and ends on December 31 each calendar year. A PEC can change the plan in which it participates from one policy year to the next.
{¶ 6} Employers are either base rated or experience rated under Ohio's workers' compensation system. Base rated employers—employers that are too small to be rated on their own loss and payroll history—are charged workers' compensation premiums according to the base rates of the manual class or classes to which they are assigned, i.e., based on the projected average costs of claims expected to be filed against all employers in the manual class for the policy year for which rates are being set. For a base-rated employer, no adjustment is made for the employer's actual historical loss experience.
{¶ 7} Employers that are not base rated are experience rated. Under experience rating, an employer's past claims experience, adjusted by a credibility factor based on the statistical reliability of the employer's experience, is used to determine the employer's premium.1 With experience rating, an "experience modification factor" is applied that raises or lowers the premium from the base rate. Experience-rated employers are either credit-rated or debit-rated depending on their claims history. An employer whose loss experience is lower than average, compared with other employers in the same class, will receive a credit and pay a rate lower than the base rate. An employer whose loss experience is higher than average, compared with other employers in the same class, will receive a debit and may pay a premium higher than the base rate.
{¶ 8} The BWC determines base rates on an annual basis for each manual class by projecting the future costs of the combined loss experience of all employers in the manual class based on historical data and applying certain other factors, including a factor for catastrophic losses, a rate level factor (to reflect the overall statewide rate level), a factor to fund the operations of the division of safety and hygiene and an off-balance factor. The off-balance factor adjusts the base rate for the impact that experience rating (including group rating and the discounts given to group-rated employers under the group-rating program, discussed infra ) has on the overall expected collection of premiums.2 Before comprehensive rate reforms were implemented in 2010, the off-balance factor varied from manual class to manual class for PEC employers.
{¶ 9} Annual assessments are added to the base rate or the experience-modified base rate, as applicable, to cover administrative costs of the BWC and Industrial Commission and to fund certain relief funds for disabled workers (the "assessments"). The assessments are calculated as a percentage of premium.
{¶ 10} A base-rated employer's "pure premium" is calculated by multiplying the employer's payroll in each manual class by the base rate for each manual class. An experience-rated employer's "pure premium" is calculated by multiplying the employer's payroll in each manual class by the experience-modified rate for each manual class. The employer's "blended premium" is calculated by adding the assessments and subtracting any discounts earned by the employer for participating in the BWC's discount programs. The total of the premiums assessed for each manual class to which the employer is assigned, plus assessments, less any rebates or discounts the employer receives based on its participation in various programs offered by the BWC, is the employer's total workers' compensation premium.
{¶ 11} During the time period at issue, the BWC offered a retrospective-rating plan for individual employers. A "step closer to self insurance," retrospective rating allows employers to assume more of the risk themselves in exchange for lower upfront premiums. A retrospectively rated employer pays a reduced portion of the premium it would have otherwise paid had it chosen not to participate in the retrospective-rating plan. In exchange, the employer assumes financial responsibility for the actual paid claim costs incurred for the next ten years,3 up to individual and overall claim limits that the employer selects. Premiums are determined on an annual basis. A retrospectively...
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