Dakota Trailer Mfg., Inc. v. United Fire & Cas. Co., No. 27138.

• Court: Supreme Court of South Dakota
• Writing for the Court: ZINTER, Justice.
• Citation: 866 N.W.2d 545
• Parties: DAKOTA TRAILER MANUFACTURING, INC., Appellee, v. UNITED FIRE & CASUALTY COMPANY, Appellant.
• Docket Number: No. 27138.
• Decision Date: 01 July 2015

866 N.W.2d 545

DAKOTA TRAILER MANUFACTURING, INC., Appellee
v.
UNITED FIRE & CASUALTY COMPANY, Appellant.

No. 27138.

Supreme Court of South Dakota.

Considered on Briefs March 24, 2015.
Decided July 1, 2015.

866 N.W.2d 546

J.G. Shultz, Caleb J. Veldhouse of Woods, Fuller, Shultz & Smith, PC Sioux Falls, South Dakota, Attorneys for appellee.

Daniel K. Brendtro, Dennis L. Duncan of Zimmer, Duncan & Cole, LLP Sioux Falls, South Dakota, Attorneys for appellant.

Opinion

ZINTER, Justice.

¶ 1.] As a part of Dakota Trailer Manufacturing's business, it makes radiator components for an unrelated company. The component work is performed in one of Dakota Trailer's locations that the National Council on Compensation Insurance (NCCI) originally classified as a “machine shop” for workers compensation insurance rating purposes. After an inspection, NCCI changed the location's classification to “welding or cutting.” Dakota Trailer appealed, and both the Workers' Compensation Appeals Board (Board) and the South Dakota Department of Labor (Department) affirmed the new classification. The circuit court, however, reversed. United Fire & Casualty Company, Dakota Trailer's workers' compensation insurer, appeals. We affirm the circuit court.

Facts and Procedural History

[¶ 2.] Dakota Trailer manufactures trailers at its plant in Yankton. It also manufactures component parts (radiator subassemblies) for L & M Radiators at a separate location. The radiator subassemblies are manufactured in a portion of L & M Radiators' shop that Dakota Trailer subleases.

[¶ 3.] NCCI is a rating organization that establishes statewide workers' compensation rates in South Dakota and thirty-seven other states. It gathers payroll and loss data from insurance companies and uses that information to create risk classifications (codes) and insurance rates for the codes. NCCI publishes a guidebook called the “Scopes Manual” that aids in interpretation and selection of the appropriate codes. NCCI also performs random inspections to make sure classification codes are properly applied.

[¶ 4.] NCCI determined that Dakota Trailers had both a primary operation (trailer manufacturing) and a secondary operation (production welding) that were conducted at three locations.¹ The issue in this case involves the work performed at “Location 3,” where employees make the radiator subassemblies. Employees at this location cut, form, bend, shape, drill, weld, and turn raw materials into the subassemblies. Upon completion, the subassemblies are taken to L & M Radiators' adjacent room where its employees finish and incorporate the subassemblies into radiators.

[¶ 5.] After a 2011 inspection, NCCI assigned the classification code 3365, “Welding or Cutting NOC [ (not otherwise classified) ] & Drivers,” for Location 3. Before the inspection, the classification code was 3632, “Machine Shop NOC.” The actual NCCI codes (the Basic Manual of

[866 N.W.2d 547

Workers Compensation Insurance ) are not part of the record. The case was decided on the language of the NCCI Scopes Manual, which describes and explains the codes.

¶ 6.] The Scopes Manual for Code 3365 provides in relevant part:

Code 3365 applies to all types of contract welding or cutting operations that are not otherwise classified. This classification contemplates welding or cutting operations performed by specialist contractors doing both shop work or [sic] outside work.

...

Code 3365 is applicable to specialist contractors engaged exclusively in all testing or inspection of oil or gas pipes provided that the testing or inspection is performed in conjunction with the construction of the oil or gas pipeline....

Testing or inspection operations performed by employees of insureds also engaged in construction operations shall be assigned to the appropriate construction classification.

....

Code 3365 is restricted to insured specialist contractors or separate subsidiaries engaged solely in welding or cutting operations who do not engage in the operations specified in this classification's footnote.²

Code 3365 is a construction classification .... It should be noted that Code 3365 also includes shop operations. We distinguish between Code 8227 operations and Code 3365 shop operations in the following manner. Code 8227 operations consist of labor that maintains, repairs and stores an insured's materials and equipment. Shop operations assigned to Code 3365 consist of labor (usually skilled) that engages in operations that are specifically related to the work contemplated by the construction or erection code applicable to the business ....

(Emphasis added.) The Scopes Manual for Code 3632 provides in relevant part:

Code 3632 applies to the manufacture or repair of machines as well as general job machining. It must be emphasized that Code 3632 is an NOC classification and is applied to operations only when such operations are not specifically contemplated by another manual classification(s).

Metal castings, forgings, bars, rods, flats, tubing, angles, pipe and pipe fittings, chains, sockets, gears, shafting, pulleys, hardware, sheet metal and some lumber and paint may be used. A variety of processes may be involved such as boring, turning, planning, shaping, milling, drilling, punching, grinding, tapping, threading, shearing, bending, forming, riveting, welding, painting, inspecting and testing ....

The machining operations are typical machine shop operations consisting of sawing, centering, turning, boring, facing, reaming, shaping the nose (i.e., “Nosing In” as specified in the class phraseology), heat treating, thread milling, application of copper bands, washing, painting and packing....

(Emphasis added.)

[¶ 7.] Dakota Trailer disagreed with the classification change and notified NCCI. After reviewing the decision internally, NCCI adhered to its code 3365 classification. Dakota Trailer then sought review before the South Dakota Workers

[866 N.W.2d 548

Compensation Appeals Board, which affirmed the change. Dakota Trailer appealed that decision to the Office of Hearing Examiners. After a contested case hearing, a hearing examiner issued recommended findings of fact and conclusions of law supporting the change. The Department accepted the recommendation and approved the change.

¶ 8.] Dakota Trailer then appealed to the circuit court, which reversed and reinstated machine shop...