Max Trucking, LLC v. Liberty Mut. Ins. Corp.

• Decision Date: 31 July 2014
• Docket Number: CASE NO. 1:12-CV-60
• Parties: MAX TRUCKING, LLC, Plaintiff/Counter-Defendant, v. LIBERTY MUTUAL INSURANCE CORPORATION, Defendant/Counter-Plaintiff.
• Court: U.S. District Court — Western District of Michigan

MAX TRUCKING, LLC, Plaintiff/Counter-Defendant, v. LIBERTY MUTUAL INSURANCE CORPORATION, Defendant/Counter-Plaintiff.

CASE NO. 1:12-CV-60

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

July 31, 2014

HON. ROBERT J. JONKER

OPINION

This is a dispute between Max Trucking, LLC ("Max Trucking) and LM Insurance Corporation ("Liberty Mutual") over premiums for workers compensation coverage. Liberty Mutual formerly provided workers compensation insurance to Max Trucking. Max Trucking asserts that Liberty Mutual charged it higher premiums than it should have because Liberty Mutual mistakenly determined that certain truck drivers associated with Max Trucking were employees of Max Trucking under Michigan's workers compensation insurance laws. Liberty Mutual disagrees and seeks payment of premiums it contends Max Trucking owes it. The parties agree that the dispute hinges on whether under Michigan's workers compensation insurance laws the truck drivers at issue are properly categorized as employees or independent contractors. The parties presented evidence and argued the merits of their positions at a bench trial held February 5, 2014. At the close of the bench trial, the Court took the matter under advisement. This opinion constitutes the Court's findings of fact and conclusions of law under FED. R. CIV. P. 52.

Factual Background

1. The Parties

Max Trucking transports dry goods and freight by truck throughout the United States. Max Trucking maintains a staff of six dispatchers at its headquarters in Kentwood, Michigan. Max Trucking employs or contracts with drivers throughout the United States. About twenty of these drivers are based in Michigan.

Max Trucking has a written contract with each of its drivers. The contracts for the drivers at issue in this case are part of the trial record. The contracts detail terms on which Max Trucking hires drivers to transport commodities on behalf of Max Trucking. The contracts suggest that the individuals contracting with Max Trucking may opt to hire other drivers to perform the services the contracts describe, but in actual practice, the individuals who enter these contracts with Max Trucking are the drivers themselves. The contracts provide that the drivers will use motor vehicles the drivers own or are leasing from Max Trucking to load, transport, and unload commodities that Max Trucking makes available to the drivers for this purpose. The contracts describe the terms of payment from Max Trucking to drivers for transporting commodities, outline costs the drivers will bear, and specify regulatory requirements with which the parties agree to comply. The contracts recite that the drivers are independent contractors and not employees of Max Trucking. The contracts also recite that the drivers are responsible for obtaining their own workers compensation coverage, and that Max Trucking will not cover them. There is no evidence, however, that any driver actually obtained his or her own coverage, and the Court finds as a matter of fact that no driver obtained coverage for himself or herself.

Dispatchers have regular contact with drivers associated with Max Trucking based in Michigan and other states. The dispatchers monitor reports of loads of freight available for transport and delivery. When the dispatchers identify loads they believe Max Trucking drivers are available to transport and deliver, they contact drivers and offer the opportunity to take on these loads. The drivers may accept or decline the opportunity. On accepted loads, Max Trucking and the driver divide the amount paid for each individual job, with Max Trucking taking 10% - 12% and the driver taking the remaining 88% - 90%. Drivers must pay all expenses associated with the transport, including fuel, out of the driver's share of the proceeds. Max Trucking may advance expenses from time to time, but the driver is always ultimately responsible. If expenses exceed the percentage the driver is paid for the job, the driver bears the loss. Max Trucking receives its 10% - 12 % share of the fee paid regardless of the expenses the driver incurs.

Some drivers associated with Max Trucking owned and operated their own trucks before Max Trucking. This case focuses on the 16-18 drivers in Michigan who acquired their trucks through a financing mechanism with Max Trucking. These drivers lease trucks from Max Trucking with the understanding that at the end of the lease term, they may purchase the tractor-trailers for a single dollar. The drivers pay Max Trucking - in addition to all the expenses incurred on an individual load - a monthly payment to Max Trucking for lease of the truck. A written contract governs each of these lease-purchase arrangements. The arrangement is essentially a financing vehicle in which a driver acquires a truck on the strength of Max Trucking's credit, and then bearsthe cost of acquisition through monthly lease payments to Max Trucking.¹ These drivers are effectively economically dependent on Max Trucking for their ability to operate as truckers.

Michigan's Worker's Disability Compensation Act, MICH. COMP. L. §§ 418.1-418.400 (the "WDCA"), requires employers in Michigan to maintain workers compensation insurance coverage for their employees. If an employer is unable to obtain workers compensation insurance through the voluntary market, the employer may purchase workers compensation insurance through Michigan's involuntary market. The Michigan Workers Compensation Placement Facility (the "Facility") administers the involuntary market in Michigan. Liberty Mutual, an insurance company, provided workers compensation through the involuntary market in Michigan to Max Trucking.

2. The Dispute

In approximately 2006, Max Trucking applied for workers compensation insurance in the involuntary market through the Facility. Liberty Mutual received the request from the Facility and issued a policy to Max Trucking. Liberty Mutual renewed the policy annually for several years. Effective December 5, 2010, Liberty Mutual issued a renewal policy with coverage dates from December 5, 2010 through December 5, 2011 (the "WC 010 Policy"). When the WC 010 Policy expired on December 5, 2011, it was renewed for an additional year (the "WC 021" Policy").

Around this time, Liberty Mutual audited Max Trucking and determined that the Michigan-based drivers who leased trucks from Max Trucking (hereafter referred to as the "drivers") wereemployees, not independent contractors, for purposes of Michigan's workers compensation laws. Based on this determination, Liberty Mutual increased Max Trucking's policy premium. Max Trucking disputes the propriety of the premium increase and has not paid Liberty Mutual amounts associated with the premium increase. Late in 2011, Liberty Mutual cancelled the WC 021 Policy. Early in 2012, Max Trucking filed this lawsuit seeking a declaratory judgment that determines the drivers are not employees of Max Trucking but are independent contractors for purposes of the WDCA. Max Trucking also seeks declaratory judgment that Liberty Mutual is not entitled to increased premiums associated with the drivers and that Max Trucking is not obligated to carry workers compensation insurance for the drivers under the WDCA. Liberty Mutual seeks unpaid premiums it claims Max Trucking owes it under the WC010 and WC021 Policies.

Legal Standards and Analysis

MICH. COMP. L. § 418.161(1) defines "employee" to include, among others:

(l) [e]very person in the service of another, under any contract of hire, express or implied[;] and

(n) Every person performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury, if the person in relation to this service does not maintain a separate business, does not hold him or herself out to and render service to the public, and is not an employer subject to this act.

A special panel of the Michigan Court of Appeals recently concluded that all three of the statutory criteria in subsection (n) must be shown for an individual to avoid the "employee" classification. Auto-Owners Ins. Co. v. All Star Lawn Specialists Plus Inc., 303 Mich. App. 288, 845 N.W. 2d 744 (2013) (overruling Amerisure Ins. Co. v. Time Auto Transp. Inc., 196 Mich. App. 569, 493 N.W.2d 482 (1992)). Accordingly, an individual is an employee for statutory purposes if he or she works forhire, unless the individual in relation to the service (1) maintains a separate business; (2) holds him or herself out to and renders service to the public; and (3) is an employer subject to the WDCA. Section (n) of the statute states further that

[o]n and after January 1, 2013, services are employment if the services are performed by an individual whom the Michigan administrative hearing system determines to be in an employer-employee relationship using the 20-factor test announced by the internal revenue service of the United States department of treasury in revenue ruling 87-41.

MICH. COMP. L. § 418.161(1)(n). Under this provision, if the Michigan administrative hearing system treats an individual as an employee for Internal Revenue Service purposes, he or she is automatically treated as an employee for WDCA purposes.

1. Employment Status

The Court concludes that the Michigan drivers at issue in this case are employees, not...