Opinion
0602308/2006.
September 3, 2008.
Plaintiff moves for summary judgment on its claim for an unpaid premium.
Plaintiff, an insurance company, issued a workers' compensation policy to defendant, a contractor, for the term January 2, 2004 to January 2, 2005. The estimated annual premium was $8,280, subject to an audit after completion of the term. On July 6, 2005, plaintiff audited defendant's records to determine the actual payroll accrued during the year. Plaintiff determined that the total adjusted premium was $84,749, of which defendant paid $10,425 and received a refund of $897. The unpaid premium is $75,231, for which amount plaintiff sent defendant an invoice dated August 4, 2005. What happened after defendant received the invoice is not clear, except that defendant did not pay and plaintiff commenced this action on June 29, 2006. The first cause of action states merely that it is for the amount due on the premium. The second is for an account stated.
The dispute here is over plaintiff's classification of defendant's employees. As explained by the parties, the workers' compensation premiums charged to an employer are based on the risk classification of each employee's occupation. An audit of a company's books is performed to determine the risk classification of each employee and to establish the payroll amount attributable to each risk classification. The payroll amount is then multiplied by a percentage corresponding to the risk associated with the particular classification and the figures totaled to arrive at the premium charge.
Initially, the insurance policy classified defendant's employees as masonry, wallboard, and painting workers (Motion, Ex. C). In the audit, plaintiff classified all the employees, except for the office manager, as a masonry worker. Defendant contends that only some of its employees are masonry workers and that others are engaged in painting, drywall installation, and tiling. Defendant says that the premium that an employer must pay for a masonry worker to be covered by workers' compensation insurance is higher than the premium for these other kinds of workers. Plaintiff does not deny this. Defendant contends that if plaintiff had applied the correct classifications, the premium would have been significantly less.
Plaintiff's report of the audit states that its auditor conducted an exit interview with a CPA at the office (Motion, Ex. D). Subsequently, the auditor made two phone calls a week apart to defendant and left messages, but defendant did not call back. The audit report further states that, therefore, the auditor was unable to obtain the job descriptions for each employee and, for that reason, the auditor classified all the employees, including the president, as masonry workers. A Document entitled "Audit Advice" reveals that all but one of the employees, a clerical worker, were classified as masonry workers (Motion, Ex. E).
In response to discovery requests, defendant sent plaintiff a notice, dated March 1, 2007, signed by defendant's president, listing the job descriptions, such as tiling, drywall installation, painting, and masonry, with the attendant classification codes. The notice also included a list of the employees by name providing the job title for each. The notice states that the president was on vacation overseas at the time that the audit was performed, and could not get in touch with the auditor in time to provide him or her with the required information.
The party moving for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact ( Alvarez v Prospect Hosp., 68 NY2d 320, 324). "Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers" ( id.). On a motion for summary judgment, the court draws all reasonable inferences in favor of the opponent of the motion ( Fravezzi v Koritz, 295 AD2d 290, 290 [1st Dept 2002]).
Plaintiff contends that defendant may not challenge employee classifications before this court, and must ask for an inspection or review by the New York Workers' Compensation Insurance Rating Board (the Rating Board), a rate service organization pursuant to Insurance Law § 2313. The Rating Board establishes classifications and rates for workers' compensation insurance. As authorized by Insurance Law § 2306, all insurers issuing policies of workers' compensation insurance, because they are members of or subscribe to the services of the Board, have delegated to it their obligation to classify and rate risks (Ops Gen Counsel NY Ins Dept No. 04-03-06 [March 2004] [2004 NY Insurance GC Opinions LEXIS 58]). Plaintiff submits that it is governed by the rules of the Rating Board and that it is a member of the Board.
Plaintiff is correct that the defense of improper classification is not within the jurisdiction of this court and must be subject to administrative action ( Investors Ins. Co. of Am. v Karbel Wholesale Autos, Inc., 148 Misc 2d 933, 933 [App Term, 1st Dept 1990]; Commissioners of State Ins. Fund v Regenstreif, 27 Misc 2d 1049, 1050 [App Term, 1st Dept 1960]; Commissioners of State Ins. Fund v Arben Corp., Index No. 07207/97, J. Donald Kitson, Sup Ct, Suffolk County, March 26, 2001). The issue of classification must be disposed of by an appeal to the Rating Board and then to the Superintendent of Insurance ( see Matter of Buffalo Civic Auto Ramps, Inc. v Serio, 21 AD3d 722, 722 [1st Dept 2005]; Investors, 148 Misc 2d at 933; see also Commissioners of State Ins. Fund v Netti Wholesale Beverage Co., Inc., 245 AD2d 48, 49 [1st Dept 1997]; Commissioners of State Ins. Fund v Kenneth Yesmont Assoc., Inc., 226 AD2d 147, 147 [1st Dept 1996]). Plaintiff does not submit any copy of the rules established by the Rating Board that pertain to how or when an insured may challenge the insurer's classification of its employees. Case law indicates that any such challenge must be lodged with the Rating Board within 12 months after expiration of the rating term ( Netti, 245 AD2d at 49; Commissioner of State Ins. Fund v Southern Tier Career Consulting, Inc., Sup Ct, NY County, August 28, 2002, Freedman, J., index No. 406427/96; Commissioners of State Ins. Fund v Mascali-Robke Co., 208 Misc 316, 318 [Sup Ct, NY County 1955] affd 1 AD2d 945 [1st Dept 1956]). Assuming this information remains valid, defendant's opportunity to complain to the Rating Board has passed, as the rating term ended when the policy term did, in January 2005.
Defendant argues that plaintiff, as an insurer, may not classify employees. However, no authority is cited for this and case law reveals otherwise.
A question was raised regarding which party should have brought the proceeding in front of the Rating Board and whether plaintiff should have given defendant notice of its right to bring the proceeding. As indicated by the case law cited here, the party challenging the classifications is responsible for contacting the Rating Board. Case law also says that the insurer has no obligation to notify the insured of the proper means for pursuing its rights ( Investors, 148 Misc 2d at 933; see also Netti, 245 AD2d at 49 [defendant was put on general notice of existence of rule that challenge to insurance classification must be lodged within 12 months after expiration of the rating term]). The insurance policy at issue in this case contains several references to the Rating Board. The policy states that the Rating Board determines classifications. Several sections of the policy give the name and address of the Board, not specifically in connection with challenging classifications assigned by the insurer, but in other contexts concerning classifications. Therefore, it could be argued that defendant had a general notice that the Rating Board was available to review the insurer's classifications.
Despite the foregoing, plaintiff's motion must be denied because this case does not present a question of classification. Plaintiff did not examine defendant's records and then determine that all employees were masonry workers. Plaintiff states that it applied the masonry classification to all of the employees, because it did not have the records to determine the real nature of the employees' work.
Insurance Law § 2319 (b) provides that every insurer must provide "reasonable means whereby any person aggrieved by the application of its rating system may be heard, in person or by an authorized representative, on written request to review the manner in which such rating system has been applied in connection with the insurance afforded or offered." Whether defendant was afforded "reasonable means" to challenge plaintiff's determinations is not clear. For this reason, summary judgment is denied.
In addition, although plaintiff states that it sent defendant an invoice for the premium, it does not state that it sent defendant an explanation of how the premium was determined. An account stated must be rendered ( see CIT Group/Business Credit, Inc. v Renee Intl. Inc., 265 AD2d 251, 251 [1st Dept 1999]). The invoice states the premium amount that is due and does not provide the employee classifications on which the premium is based (Motion, Ex. G). While plaintiff submits a document entitled "Audit Advice" that does provide a breakdown of the classifications, it is not clear whether this document was sent to defendant (Motion, Ex. E). Therefore, it is not clear that the account was rendered.
The court is aware that defendant may not be able to produce records showing the nature of its employees' work. Discovery has been had and defendant has not yet produced such information applicable to the time period of the policy. The list noted above was apparently prepared for litigation. Nonetheless, it is plaintiff's burden to establish the correctness of its account and it has not done so.
To conclude, it is
ORDERED that plaintiff's motion for summary judgment is denied.