Insurance Reconstruction Services, Inc. v. Beacon Mutual Insurance Co.
| Decision Date | 26 April 2012 |
| Docket Number | C.A. PB 10-2490 |
| Court | Rhode Island Superior Court |
| Parties | INSURANCE RECONSTRUCTION SERVICES, INC. v. THE BEACON MUTUAL INSURANCE COMPANY; MASTORS & SERVANT, LTD.; and STARKWEATHER & SHEPLEY INSURANCE BROKERAGE INCORPORATED |
DECISION
Before the Court is Plaintiff Insurance Reconstruction Services Inc.'s (IRS) Motion for Partial Summary Judgment (Motion), pursuant to Super. R. Civ. P. 56, on the issue of liability. IRS avers that there are no genuine issues of material fact and moves the Court to enter judgment as a matter of law that IRS paid excess premiums to and is entitled to refunds from its workers' compensation insurer, The Beacon Mutual Insurance Company (Beacon Mutual). Beacon Mutual opposes the Motion, arguing, among other things, that refunds of overpaid premiums are limited to the current policy period.
IRS is a contractor specializing in property damage mitigation reconstruction, remediation, and restoration following disasters such as fires and floods. IRS purchased a Beacon Mutual workers' compensation insurance policy in October 2002 through Mastors & Servant, Ltd. (Mastors), a registered insurance agent. (Compl. ¶ 6.) IRS continued purchasing yearly workers' compensation policies from Beacon Mutual from October 2002 until October 2008. Id.; Anderson Aff. ¶ 5. Beginning in the 2005-2006 policy year, Starkweather & Shepley Insurance Brokerage Incorporated (Starkweather) replaced Mastors as the insurance agent for the policy from Beacon Mutual. (Compl. ¶ 11.)
Workers' compensation premiums are determined by assigning employers classifications that correspond to an estimate of the employees' exposure to risk during the policy period. (Anderson Aff. Ex. A (hereinafter Policy).) The Workers' Compensation and Employers' Liability Policy (the Policy) issued by Beacon Mutual provides that a final premium is determined at the end of the policy period based on the actual, not estimated, premium basis and classifications.[1] Id. Adjustments from the estimated premium to the final premium are charged or credited, as appropriate, to the insured. Id.
Beacon Mutual assigned the classifications used to determine the premiums charged to IRS. (Anderson Aff. ¶ 8.) However, the premium rates and the classifications used by Beacon Mutual were established by the National Council on Compensation Insurance, Inc. (NCCI). (Anderson Aff. ¶ 6.) Beacon Mutual asserts that it is required by Rhode Island law to adhere to the rating and classification system established by NCCI. (Robert G. DeOrsey Aff. ¶ 1, Mar. 19, 2012.) It further asserts that it is governed by NCCI's Basic Manual and NCCI's Scopes Manual, which establish the classification categories and the rules relating to classification. Id.
In the autumn of 2008, IRS became aware that some of its employees may have been misclassified, and IRS notified Beacon Mutual of this potential misclassification in December 2008. (Compl. ¶¶ 14-15; DeOrsey Aff. ¶ 8.) In response, Beacon Mutual conducted an audit of IRS' payroll on January 22, 2009 and produced a Premium Audit Report. (Anderson Aff. ¶ 14, Ex. C.) The report findings indicate that, following the audit, Beacon Mutual reclassified a total of eleven IRS employees and removed one from coverage for the policy period of October 1, 2007 to October 1, 2008.[2] (Anderson Aff. Ex. C.) The changes in classifications resulted in a decrease in the premium charged to IRS, but the Premium Audit Report findings stated that the premium could only be revised for that policy period. See id. Accordingly, Beacon Mutual refunded the overpaid premium for the 2007-2008 policy period, but refused to refund prior years.
To attempt to recover any overpayment in the prior policy periods, IRS filed its original Complaint in this action on April 28, 2010. Amended Complaints were filed on May 19, 2010 and on November 10, 2010. The Second Amended Complaint (Complaint) alleges negligent misrepresentation by Mastors (Count I) and Beacon Mutual (Count II), unjust enrichment by Beacon Mutual (Count III), negligence by Starkweather (Count IV), and breach of contract by Beacon Mutual (Count V). Essentially, the claims relate to alleged misclassification of several IRS employees throughout prior policy periods from 2002 to 2007.
Summary judgment is proper when "no genuine issue of material fact is evident from the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, and the motion justice finds that the moving party is entitled to prevail as a matter of law." Smiler v. Napolitano, 911 A.2d 1035, 1038 (R.I. 2006) (quoting Rule 56(c)). On consideration of a motion for summary judgment, this Court must draw "all reasonable inferences in the light most favorable to the nonmoving party." Hill v. Nat'l Grid, 11 A.3d 110, 113 (R.I. 2011) (quoting Fiorenzano v. Lima, 982 A.2d 585, 589 (R.I. 2009)). However, the burden lies on the nonmoving party to "prove the existence of a disputed issue of material fact by competent evidence, " rather than resting on the pleadings or on mere legal opinions and conclusions. Hill, 11 A.3d at 113. The opposing party has "an affirmative duty to set forth specific facts showing that there is a genuine issue of material fact." Lynch v. Spirit Rent-a-Car, Inc., 965 A.2d 417, 424 (R.I. 2009) (quoting Providence Journal Co. v. Convention Ctr. Auth., 774 A.2d 40, 46 (R.I. 2001).
Where it is concluded "that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law, " summary judgment shall properly enter. Malinou v. Miriam Hosp., 24 A.3d 497, 508 (R.I. 2011) (quoting Poulin v. Custom Craft, Inc., 996 A.2d 654, 658 (R.I. 2010)); see Holliston Mills, Inc. v. Citizens Trust Co., 604 A.2d 331, 334 (R.I. 1992) ( "summary judgment is proper when there is no ambiguity as a matter of law"). Conversely, "if the record evinces a genuine issue of material fact, summary judgment is improper." Shelter Harbor Conservation Soc'y, Inc. v. Rogers, 21 A.3d 337, 343 (R.I. 2011) (citations omitted). "Summary judgment is an extreme remedy that should be applied cautiously." Hill, 11 A.3d at 113 (quoting Plainfield Pike Gas & Convenience, LLC v. 1889 Plainfield Pike Realty Corp., 994 A.2d 54, 57 (R.I. 2010)).
IRS presents in its Motion that Beacon Mutual's Premium Audit Report reclassifying several employees constitutes an admission that Beacon Mutual was misclassifying IRS employees in violation of State law. IRS argues that whether an insurer must refund overpaid premiums for past policy periods is an issue of first impression in this State, and this Court should require a workers' compensation insurance carrier to refund all prior overpayments. Conversely, Beacon Mutual proffers that the Premium Audit Report does not constitute an admission of any liability, as Beacon Mutual merely offered to reclassify certain employees for the 2007-2008 policy period in response to IRS' inquiry. Accordingly, Beacon Mutual argues there are substantial disputes whether any employees were misclassified from 2002-2007. Furthermore Beacon Mutual asserts that the NCCI Basic Manual controls here and limits refunds of overpaid premiums to the current policy period. The IRS, however, counters that the Basic Manual rules—if controlling—do not limit retroactive corrections in classifications to the current policy period.
Whether employees were misclassified under the five policy periods preceding the audit may be an issue of fact that the Court need not address. If, as Beacon Mutual claims, the Basic Manual controls and limits recovery to the current period, then whether there were any overpayments of premium under the prior policies is of no moment. Therefore, the first—and perhaps only—issue before the Court is whether the rules of the Basic Manual govern the workers' compensation policies between Beacon Mutual and IRS and prevent the insured, IRS, from recovering overpaid premiums from past policy periods.
Generally, workers' compensation insurance rates must be approved by the Rhode Island Department of Business Regulation (DBR). See G.L. 1956 §§ 27-7.1-1, 27-7.1-2, 27-7.1-5.1. Under the statutory scheme, there may exist "one or more advisory organizations licensed in accordance with § 27-9-22 . . . ." Sec. 27-7.1-9.1(a). No advisory organization can provide any service relating to workers' compensation rates without a license under § 27-9-22. Sec. 27-7.1-8.1 (). Further, "each workers' compensation insurer shall be a member of an advisory organization" and "[e]ach workers' compensation insurer may adhere to the policy terms filed by the advisory organization." Sec. 27-7.1-9.1(b).
It is undisputed that NCCI is an advisory organization licensed for insurance rating by DBR, pursuant to G.L. 1956 § 27-9-22. See § 27-9-22 (); see, e.g. Nat'l Council on Comp. Ins. Loss Costs Level Change Workers' Comp., DBR No. 06-I-0168, at 4 (Dep't of Bus. Regulation Sept. 5, 2006) (providing description of NCCI common in DBR decisions). Carriers of workers' compensation insurance have the option of adopting the rates approved by DBR for NCCI rather than filing for approval of their own rates. See Heritage Healthcare Servs., Inc. v Marques, No. PB 06-4420, 2007 WL 2405917 (R.I. Super. Aug. 9, 2007) (Silverstein, J.) (...
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