Travelers Indem. Co. v. Gonzalez Constr., Inc.

• Decision Date: 03 September 2019
• Docket Number: No. A-18-249.,A-18-249.
• Parties: TRAVELERS INDEMNITY COMPANY, APPELLANT, v. GONZALEZ CONSTRUCTION, INC., APPELLEE.
• Court: Nebraska Court of Appeals

TRAVELERS INDEMNITY COMPANY, APPELLANT, v. GONZALEZ CONSTRUCTION, INC., APPELLEE.

No. A-18-249.

NEBRASKA COURT OF APPEALS

September 3, 2019

MEMORANDUM OPINION AND JUDGMENT ON APPEAL

(Memorandum Web Opinion)

NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. APP. P. § 2-102(E).

Appeal from the District Court for Sarpy County: WILLIAM B. ZASTERA, Judge. Affirmed.

CeCelia C. Ibson, of Ibson Law Firm, for appellant.

Robert J. Kirby and Steven G. Ranum, of Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger, L.L.C., for appellee.

MOORE, Chief Judge, and RIEDMANN and BISHOP, Judges.

MOORE, Chief Judge.

INTRODUCTION

Travelers Indemnity Company (Travelers) appeals from the order of the district court for Sarpy County, granting partial summary judgment in favor of Gonzalez Construction, Inc. (Gonzalez Construction), and denying Travelers' motion for summary judgment. For the reasons set forth herein, we affirm.

BACKGROUND

Travelers is an insurance company authorized to do business in Nebraska with its principal place of business in Hartford, Connecticut. Pursuant to a contract with the State of Nebraska, Travelers is the contract insurer for the Nebraska Workers' Compensation Plan (the plan). The plan, established under Neb. Rev. Stat. § 44-3,158 (Reissue 2010), gives the Director of the Nebraska Department of Insurance authority to enter into an agreement with one or more workers' compensation insurers to provide workers' compensation insurance to assigned risk employers. "Assigned risk employer means a Nebraska employer that is in good faith entitled to, but is unable to obtain, workers compensation insurance through ordinary methods." § 44-3,158(1). Travelers' relationship with the State as the contract insurer for the plan is memorialized in the plan agreement.

The plan agreement includes rules for eligibility, the application process, and resolution of disputes as to premiums and other matters. According to the plan agreement, a producer (i.e., properly licensed insurance professional) is responsible for forwarding a completed application form (ACORD application) to the contract insurer with an employer's or producer's check payable to the contract insurer "for the estimated annual or deposit premium." Coverage is bound only after receipt of a complete signed application and the appropriate deposit or initial premium.

Gonzalez Construction is a Nebraska corporation with its principal place of business in Omaha, Nebraska. Julio C. Gonzalez (Julio) is the president and owner of Gonzalez Construction. Julio applied for workers' compensation insurance with Travelers through the plan, provided certain information on the ACORD application, and paid $750 as a deposit premium. The "APPLICANT NAME" shown on the application form is "JULIO C. GONZALEZ." On the portion of the form containing check boxes to mark whether the applicant is an "INDIVIDUAL," "PARTNERSHIP," "CORPORATION," "SUBCHAPTER 'S' CORP," or "LLC," an "X" is marked next to the designation of "INDIVIDUAL." On the application, Julio did not affirmatively indicate that he had any employees or subcontractors and marked "NO" in response to various questions about employees and subcontractors. There is a section of the application for "INDIVIDUALS INCLUDED/EXCLUDED," which provides spaces for the applicant to fill-in information about "PARTNERS, OFFICERS, RELATIVES TO BE INCLUDED OR EXCLUDED." The only individual listed in this section is Julio who is identified as the owner of 100 percent of the operation with duties of "DRYWALL CONSTRUCTION" and remuneration of "30,000." Under the space in this section to identify whether the individuals listed are "INC/EXC," Julio is marked "E."

Travelers issued a policy of workers' compensation insurance (the policy) to Julio for the policy period of October 22, 2009 to October 22, 2010. The named insured was Julio, and the policy indicates that "Insured is AN INDIVIDUAL." Part five of the policy contains provisions with respect to premium and in paragraph A states, "All premium for this policy will be determined by our manuals of rules, rates, rating plans and classifications." Part five, paragraph E, under the title "Final Premium," provides that "[t]he premium shown on the Information Page, schedules, and endorsements is an estimate." This provision further explains that "[t]he final premium will be determined after this policy ends by using the actual, not the estimated, premium basis and the proper classifications and rates that lawfully apply to the business and work covered by this policy." The policy also contains provisions giving Travelers the authority to perform audits to determine the correct premium to be charged. Part five, paragraph G, under the title "Audit," states that "[y]ou [Julio] will let us examine and audit all your records that relate to this policy" and "[w]e [Travelers] may conduct the audits during regular business hours during the policy period and within three years after the policy period ends." This paragraph further explains that the "[i]nformation developed by audit will be used to determine final premium."

Travelers sent a "Supplementary Underwriting Information Request," dated November 13, 2009, to Regency Insurance, the producer for the policy, asking certain information about the insured, i.e., Julio. Specifically, Travelers asked for "a completed detailed description of the insured[']s operations" and verification of the correct "entity name and entity type" for the insured (i.e. whether the insured entity was "Gonzalez, Julio C dba Gonzalez Construction," a "Sole Proprietor/Individual," or whether the insured entity was "Gonzalez Construction Inc[.]," a corporation. Travelers also requested the provision of tax returns and specifically asked what relationship the insured had with "Gonzalez Construction Inc."

On December 1, 2009, Travelers received correspondence in response to the request for supplementary information. This unsigned correspondence indicated that Julio had incorporated his business in 2007 and that he was the sole shareholder and only employee of Gonzalez Construction, an S corporation, which was in the business of drywall installation. Attached to the communication was a corporate tax return for Gonzalez Construction, showing that the company had $371,793 in subcontract labor during the 2008 tax year.

After receipt of this information, Travelers unilaterally changed the name of the insured on the policy. The copy of the policy in the record includes certain documents issued on December 11, 2009. There is a "CHANGE DOCUMENT" page, reflecting the insured's name of "GONZALEZ CONSTRUCTION, INC." The change document page states, "This change is issued by the Company or Companies that issued the policy and forms a part of the policy. It is agreed that the policy is amended as follows." The page states, "The absence of an entry in the premium spaces below means that the premium adjustment, if any, will be made at time of audit." No dollar amounts are reflected on that portion of the page. The page also states, "THIS POLICY CHANGE WAS PROCESSED PER A REQUEST RECEIVED FROM YOU OR YOUR PRODUCER." There are also two "POLICY INFORMATION PAGE ENDORSEMENT" documents, one of which states that "[t]he Insured's Name is changed to read: GONZALEZ CONSTRUCTION, INC." and another which states that "[t]he Insured's Legal Status is changed to read: A CORPORATION."

On April 22, 2010, Travelers wrote a letter to Gonzalez Construction, stating:

Our records indicate that you operate a contracting business. To gain a better understanding of your business the enclosed questionnaire needs to be completed and returned to my attention.

Please note that the payroll for uninsured subcontractors will be included in your premium basis unless you provide evidence that the subcontractor is not subject to state workers compensation statutes and that all appropriate forms have been completed and filed with the state and with our office.

A questionnaire included with the letter stated, "Please note that payroll for uninsured Sub contractors will be included in your premium basis if you can not [sic] provide evidence of a valid workers' compensation insurance certificate."

On June 14, 2010, Travelers wrote to the producer for the policy, via fax, stating:

Per our conversation today, we spoke about the $371,793 in subcontract labor listed on the insured's 2008 1120 tax form. I informed you that if the insured's contract labordoes not have their own workers compensation policies or are independent contractors, we should be picking up the payroll on his workers compensation policy.

The insured will need to collect certificates of insurance from the contract labor that show they have their own workers compensation insurance coverage or be deemed independent.

Gonzalez Construction's accountant completed a "POLICYHOLDER AUDIT REPORT," which was returned to Travelers in November 2010. The report indicates that Gonzalez Construction is in the business of drywall installation and has no employees other than Julio. In the section of the report for "NON-EMPLOYEE LABOR," there is a checkmark in the box next to "Yes" in response to the inquiry, "Did you use anyone other than an employee to perform work, or a portion of a job, on your behalf?" A subcontractor worksheet included in the report lists eight individuals along with one business. Insurance policy information is given for each subcontractor on the worksheet, but the coverages listed are identified as "General Liability" and not "Work Comp."

On December 29, 2010, Travelers issued a premium adjustment notice to Gonzalez Construction in the amount of $56,620. On January 3, 2011, Travelers issued a bill to Gonzalez Construction for $55,870 (the amount of the adjusted premium less the $750 deposit).

On January 25, 2011, the attorney for Gonzalez Construction responded:

As you are aware the Policy has been

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