Eep Workers' Comp. Fund v. Fun & Sun Inc., A10–913.

• Decision Date: 01 February 2011
• Docket Number: No. A10–913.,A10–913.
• Citation: 794 N.W.2d 126
• Parties: EEP WORKERS' COMPENSATION FUND, Respondent,v.FUN & SUN, INC., Defendant,Carol A. Wagner n/k/a Carole Hanish, Appellant.
• Court: Minnesota Court of Appeals

794 N.W.2d 126

EEP WORKERS' COMPENSATION FUND, Respondent,

v.FUN & SUN, INC., Defendant,Carol A. Wagner n/k/a Carole Hanish, Appellant.

No. A10–913.

Court of Appeals of Minnesota.

Feb. 1, 2011.

Syllabus by the Court

1) A former employer-member of a workers' compensation self-insurance group is liable to reimburse the group for benefits paid to its employee after the employer-member has withdrawn from the group for an injury that occurred prior to withdrawal.

2) A workers' compensation self-insurance group may be equitably estopped from recovering reimbursement from an employer-member if the group fails to keep the employer-member apprised of outstanding claims and the employer-member's negative individual fund balance upon and subsequent to its withdrawal from the fund.

Scott J. Hoss, Michael S. Dietz, Dunlap & Seeger, P.A., Rochester, MN, for respondent.Stephen F. Rufer, Pemberton, Sorlie, Rufer & Kershner, P.L.L.P., Fergus Falls, MN, for appellant.Considered and decided by SHUMAKER, Presiding Judge; PETERSON, Judge; and MINGE, Judge.

OPINION

MINGE, Judge.

A business that was a member of a workers' compensation self-insurance group challenges the district court's grant of summary judgment in favor of the group for payments of workers' compensation benefits. The business argues that it is not liable to reimburse the group for benefits paid to an employee after the business withdrew from the group on a claim that was initially approved during its membership in the group. We conclude that the district court did not err by construing the group documents as establishing liability for such payments. But because there are issues of material fact with regard to the defenses of equitable estoppel and breach of contract, we reverse and remand for further consideration of those matters.

FACTS

In 1997, appellant F & S Concrete Paving, Inc. (F & S) considered switching from traditional commercial workers' compensation insurance to respondent EEP Workers' Compensation Fund (EEP), a self-insurance group fund for contractors. EEP's solicitation materials indicated that EEP was composed of 20 Minnesota construction employers, that it met the employers' statutory obligation for workers' compensation coverage, and that the program was regulated by the Minnesota Department of Commerce. The materials explained that self-insurance allows employers to manage and reduce the risk of employee injuries and claims, and to obtain “a return of the premium not needed to pay claims and administrative costs—a dividend or surplus.” The materials stated, “The premium dollar is retained because of the long payout profile,” with payout on large losses “spread out over time.” The materials further explained that a third-party administrator managed the fund, providing a variety of services including: assistance with the approval process by the Commissioner of the Minnesota Department of Commerce (commissioner), “placement of specific and aggregate excess insurance,” investigations, pursuit of recovery from third parties, and provision of “comprehensive safety services,” such as injury prevention, loss control, and risk management services. The program was labeled “GROUP SELF–INSURANCE” and the materials emphasized, “We never lose sight of the fact that it is your program, and your funds! ”

In April 1997, F & S joined the EEP group self-insurance program after the commissioner approved its membership. As a member, F & S agreed to be bound by the Minnesota Workers' Compensation Act, the attendant administrative rules, and EEP's bylaws, and “to be jointly and severally liable for all claims and expenses of all the members of EEP Workers' Compensation Fund arising in any fund year in which F & S ... is a member of the group.” (Emphasis added.)

F & S was a family business originally operated by the father of Carol Wagner n/k/a Carol Hanish. From 1997, Hanish was the principal shareholder of F & S and, with her late husband, was a director and officer. Her husband managed the business and made the decision that F & S should join EEP. In 2003, after her husband's death, Hanish sold the assets of the operating business but kept the corporate shell with certain assets and liabilities.¹ At that time, F & S withdrew from EEP. This litigation concerns financial liability for workers' compensation benefits paid by EEP, after that asset sale and withdrawal, to a person who had been an F & S employee, was injured, had submitted an earlier workers' compensation claim, and had first been paid benefits prior to the sale.

F & S paid a premium to EEP every year from 1997 through 2003. The premium increased each year, starting at $8,540 in 1997, with a final full premium of $31,401 in 2002. The premium calculation was based on three factors: (1) F & S's history of claims; (2) F & S's estimated payroll; and (3) a pro rata share of the costs of managing the fund. After a payroll audit at the end of each year, the premium was adjusted for actual hours worked. During its membership in the fund, F & S paid a total of $116,379 in premium payments: $38,560 of this amount went to F & S's share of the fixed costs of managing the fund and $77,819 went to the loss fund. Payments made from this loss fund covered the cost of claims by F & S employees for workers' compensation benefits up until the time F & S left the group, the final audit was performed, and the “final” bill was paid.

By the end of 2007, four years after F & S's withdrawal, EEP had paid an additional $60,486.71 for workers' compensation claims by F & S employees. Most significant for the dispute on appeal is a serious work-related injury of an F & S employee that occurred in 1999. EEP accepted the employee's 1999 claim and paid him benefits from December 1999 through July 2000, while F & S was a member. Additional benefits were paid to him from December 2003 through April 2007, subsequent to F & S withdrawing from EEP.

In August 2005, Hanish and F & S received a letter from EEP stating that F & S had “an individual negative fund balance” attributable to the additional claims arising out of the 1999 employee injury. In March 2008, EEP filed suit against F & S and Hanish, alleging claims of breach of contract, contribution/indemnification, unjust enrichment, and with regard to Hanish, shareholder/director liability based on improper distributions by F & S to her. F & S and Hanish filed an answer, asserting, among other defenses, laches, equitable estoppel, EEP's own breach of contract, and failure to mitigate damages.

In January 2009, EEP moved for summary judgment, submitting documents setting forth the premiums paid by F & S, claims paid by EEP to F & S employees, and the fixed costs of operating the fund. EEP also submitted the indemnity agreement signed by F & S and copies of the two sets of EEP's bylaws that were in effect between 1997 and 2003. F & S and Hanish opposed EEP's motion, submitting an affidavit by Hanish regarding her understanding of the fund, EEP's solicitation materials, and premium invoices. Hanish averred that she was never aware that F & S would be separately responsible for all workers' compensation benefits paid to its employees by EEP, that “[t]here was never any remote suggestion that EEP was somehow different than commercial insurance,” and that she had no personal liability.

In June 2009, the district court granted EEP's motion for summary judgment against F & S, awarding EEP the “uncontroverted amount” of $60,487. This amount represented the negative balance still remaining after subtracting F & S's premium payments from its share of fixed costs while it was a member and benefits paid to F & S employees. Specifically, the district court relied on the language of the indemnity agreement and found that appellant's “conceptualization of the issue evinces a misunderstanding of self-insurance liability and indemnification.” The district court denied F & S's equitable-estoppel claim on the basis that EEP did not have a duty to inform F & S of outstanding claims upon F & S's withdrawal, and that EEP did not intend for F & S to act on the alleged omission.

In March 2010, the district court granted Hanish's motion to dismiss claims against her on the ground that EEP lacked standing to bring suit against her personally under Minn.Stat. §§ 302A.557, .559 (2008). The district court also denied EEP's motion to amend its complaint to add a claim that Hanish's shell corporation made fraudulent transfers to her on the basis that the motion was untimely. This appeal by F & S followed.²

ISSUES

I. Did the district court err by granting summary judgment for EEP based on the determination that F & S is liable to reimburse EEP for workers' compensation benefits paid to its employees after it withdrew from the fund for an injury that occurred prior to withdrawal?

II. Did the district court err in granting EEP summary judgment dismissal of F & S's defense of equitable estoppel?

III. Does F & S have a meritorious defense of laches to EEP's claims?

IV. Did the district court err in dismissing F & S's breach-of-contract defense?

ANALYSIS

I.

The first issue in this appeal is whether the district court erred by determining that F & S is liable to reimburse EEP for benefits paid by EEP on an existing claim by an F & S employee after F & S withdrew from membership. On appeal from summary judgment, this court asks whether there are any genuine issues of material fact and whether the district court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990). “The construction and effect of a contract are questions of law for the court, but where there is ambiguity and construction depends upon extrinsic evidence and a writing, there is a question of fact for the jury.” Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn.1979). A contract is ambiguous if its language is subject to more than one reasonable interpretation. Brookfield Trade Ctr., Inc. v. Cnty....