January 27, 2009
THE TRAVELERS INDEMNITY COMPANY, PLAINTIFF-RESPONDENT,
KENVIL STEEL PRODUCTS, INC., JOHN T. FAHY, MARGARET FAHY AND CATHLEEN FAHY, DEFENDANTS-APPELLANTS.
On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-1675-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 7, 2009
Before Judges Stern and Newman.
Defendant Kenvil Steel Products Inc. appeals from a judgment in the amount of $164,861 for earned premiums on workers' compensation insurance policies issued to defendant for the terms of August 1, 2002, to August 1, 2003; August 19, 2003 to August 1, 2004; and August 1, 2004, through February 11, 2005. We affirm.
By way of background, the New Jersey Compensation Rating and Inspection Bureau (CRIB), a Division of the Department of Banking and Insurance, establishes an experience modification for every workers' compensation policy issued as an assigned risk in this State based upon an insured's previous losses. The workers' compensation policy is initially issued with an estimated premium based on the insured's evaluation of their anticipated payroll and this premium is paid at the inception of the policy term. At the conclusion of the policy term, an audit is conducted of the insured's books and records to determine the actual payroll and the proper classifications for that payroll so that the actual premium can be determined. If the actual payroll is more than the estimated premium, the additional amounts owed to the insurance company is called the earned premium and are billed to the insured.
Under the policies at issue, Part Five -- premium "Section G. Audit," the following is provided: You will let us examine and audit all of your records that relate to this policy. These records include ledgers, journals, registers, vouchers, contracts, tax reports, payroll and disbursement records, and programs for storing and retrieving data . . . .
Plaintiff, Travelers Indemnity Company, (Travelers) made several attempts to conduct the audit as provided in the insurance contract in each of the policy years in question. Defendant consistently refused to cooperate and would not permit the audits to be conducted. Defendant does not dispute that it has not opened its books and records for the purpose of the audit and has breached the contract. During the time these policies were in effect, Travelers did not have the right to cancel or not renew the succeeding policy.
Based on defendant's failure to cooperate, Travelers estimated the amount due and owing for the three policy terms based upon an amount from a prior company known as United Companies located at the same address as defendant, which engaged in the same business of steel erection as defendant and was owned by the principals of defendant. United Companies was previously insured by Zurich Insurance Company. According to Lora Leyland, assistant director in Travelers residual markets division, defendant's premiums were calculated on the earned premium by way of a physical audit charged to United Companies by Zurich for whom Travelers was the administrator. In resorting to this method, Travelers relied on paragraphs thirty-six and thirty-seven of the CRIB manual because Travelers did not have its own manual for use in the assigned risk market.
Defendant did not offer any testimony even though one of its principals, John Fahy, was present throughout the proceeding.
Defendant asserted that there was a failure to prove that Kenvil was a successor company to United Companies in order to utilize their payroll experience and that the earned premium was based on an estimated premium charged to United Companies. In rejecting defendant's argument, the trial judge referred to the manual followed by Travelers in utilizing the last known information to calculate the earned premium in view of defendant's refusal to permit an audit. The trial judge quoted both paragraphs thirty-six and thirty-seven, which read as follows:
36. Estimated Payrolls. For each classification there shall be inserted in the policy an adequate estimate of payroll for the policy period, as hereinbefore defined. Estimated payroll shall approximate the actual expenditures as shown by previous records or by inspection.
37. Estimated Payrolls by a New Carrier. When a risk passes from one carrier to another the estimated payroll used by the new carrier shall in no case be less than the payroll shown on the expiring policy unless the carrier of the expiring policy shall concur upon such lesser estimate. The requirements of any carrier as to estimated payroll shall be subject to the approval of the Rating Bureau.
[NJ Workers Compensation and Employers Liability Insurance Manual, Jan 1, 2005.]
In discussing the above provisions, the trial judge had this to say:
The testimony before the Court is, albeit it could be better, I could have seen the actual documents, we didn't have them, but Ms. Leyland testified and I find her testimony to be credible. I believe she was telling the truth. I don't think she was here misrepresenting facts to this Court, and I don't believe that her underlying testimony was in any way minimized by further examination.
She testified that she personally examined the prior policy period payroll and it was, in fact, based upon the larger amount. This was this United Companies, Inc. She further testified that in her judgment there was a commonality between United Companies, Inc. and Kenvil Steel Products. That commonality related to the location of the businesses, 60 Dell Avenue, Kenvil, New Jersey, a commonality in the names of the owners, principals, officers and directors, the Fahy family as well as in the business that it was doing. Steel erections.
These are matters which to me justify and certainly allow for this initial conclusion that the payroll was not as specified by the company at $125,000 for the time - - that's the original payroll, $125,000 for the steel erectors, $80,000 for the clerical, but something far greater $800,000 to almost $900,000.
The defendant easily had it within its power to dissuade the company for this; as I said earlier, could have simply clarified the matter.
Ms. Leyland testified, and I believe her, that before the final notices went out - -that was the P-6 documents A, B and C, she had communicated and sent letters earlier warning the insured of this change. She had received how can I say it thunder of silence from the other side.
There was no effort ever made by the defendant corporation to explain its situation, to separate itself from United Companies, and so I will apply the presumption because I believe it is soundly based in the record here, and I will make a finding that the company properly applied its rights under the manual and adjusted the premiums appropriately.
On appeal, Kenvil argues that Travelers failed to produce competent evidence to support either its calculations of the premium due from Kenvil or its claim for damages. Defendant asserts that Travelers did not show that it was the successor to the risk undertaken by Zurich on behalf of United Companies, nor did they provide sufficient evidence as to how they calculated the earned premium. Defendant also contends that Travelers failed to show that it sustained any damages. We reject defendant's arguments and affirm substantially for the reasons expressed by Judge Rand in his oral decision of November 26, 2007. We add only the following brief comments.
The contention that Travelers did not establish damages is misguided. The assigned risk program provides insurance that might not otherwise be available in the free or open market to an employer who is required to provide compensation to its injured employees. N.J.S.A. 34:15.71. The initial premium is only an estimate and not based on the actual work experience which cannot be determined for the policy term until the conclusion of that policy period. The audit is part of the contractual arrangement to determine that earned premium. Thus, there are no "damages" in the conventional sense, but rather Travelers responsibility to determine the earned premium so that the insured pays its fair share based on its actual payroll.
Where an insured, as here, "stonewalls" the insurer's efforts to ascertain the actual earned premium, the insurer is entitled to an adverse inference that if the records were produced the amount due and owing for the audit would be equal to or more than the estimated earned premium calculated by Travelers. See State v. Clawans, 38 N.J. 162, 170-71 (1962); Wild v. Roman, 91 N.J. Super. 410, 413-14 (App. Div. 1966). Accordingly, the burden of proof imposed on Travelers of a preponderance of the evidence does not require a great deal of proof to tip the scales in favor of the insurer in establishing the amount of the estimated earned premium when the party against whom the adverse inference is drawn has the power to produce the documents that would be superior to those Travelers was relegated to use. O'Neill v. Bilotta, 18 N.J. Super. 82, 86 (App. Div.), aff'd, 10 N.J. 308 (1952). That burden of proof was satisfied here.
The judgment is affirmed.
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