Avant v. Willowglen Academy

ANDERSON, J.

(dissenting):

I respectfully dissent. I disagree with the reasoning and analysis of the majority. The holding of the majority misconstrues and misapplies the law extant in regard to the identity of a proper carrier for a Workers’ Compensation claim. I VOTE to AFFIRM the order of the circuit court judge.

LAW/ANALYSIS

Travelers Property Casualty Company (Travelers) contends the circuit court erred in finding Travelers was the proper carrier in the Workers’ Compensation claim. Travelers conceded, before the Appellate Panel, that it had an assigned risk policy with Willowglen Academy (Willowglen) with the effective dates of August 24, 1997 through August 24, 1998. However, Travelers claims that, pursuant to the National Council on Compensation Insurance (NCCI) rules, its policy covering Willowglen was canceled automatically when Willowglen secured a voluntary policy with United Heartland, which had an effective date of July 1,1997. I disagree.

I. APPLICABILITY OF SOUTH CAROLINA WORKERS’ COMPENSATION ACT

Initially, Travelers maintains the court erred in finding the South Carolina Workers’ Compensation Commission’s regulations are inconsistent with and supersede the rules of the NCCI and in refusing to apply the NCCI rules. This assertion is without merit.

The South Carolina Workers’ Compensation Act (the Act) governs coverage issues in Workers’ Compensation cases. South Carolina Code Ann. § 42-5-60 (1985) provides:

Every policy for the insurance of the compensation provided in this Title or against liability therefor shall be deemed to be made subject to provisions of this Title. No corporation, association or organization shall enter into any such policy of insurance unless its form shall have been approved by the Chief Insurance Commissioner of South Carolina.

Neither § 42-5-60 nor another provision of the South Carolina Code suggests that Workers’ Compensation policies are subject to the rules or regulations of any non-governmental advisory body.

The only mention of NCCI in the law of South Carolina is found in Regulations 67-404, 67-406, and 67 — 410. Pursuant to Regulation 67-406(A), NCCI is the Workers’ Compensation Commission’s “authorized agent” for filing a report of Workers’ Compensation coverage and notice of termination. 25A S.C.Code Ann. Reg. 67 — 406(A) (Supp.2002). In its capacity as filing agent, NCCI requires that certain forms be used by insurance carriers. Regulations 67 — 404 and 67-410 merely mention NCCI. See 25A S.C.Code Ann. Reg. 67-404, -410 (1990). NCCI has no additional power or authority by virtue of these regulations. Regulations 67-404, 67-406, and 67-410 do not bestow NCCI with any power or authority to promulgate binding regulations in South Carolina.

While NCCI has compiled its own “Basic Manual” for Workers’ Compensation and Employers Liability insurance and a “South Carolina Workers’ Compensation Insurance Plan,” neither of these documents, nor any of the rules contained therein, have been formally adopted as regulations in accordance with the Administrative Procedures Act (APA). According to the APA, NCCI, by definition, is not authorized to promulgate regulations and any guidance it may provide the Commission “does not have the force or effect of law.” Section 1-23-10 states in pertinent part:

(1) “Agency” or “State agency” means each state board, commission, department, executive department or officer ... authorized by law to make regulations or to determine contested cases;

(4) “Regulation” means each agency statement of general public applicability that implements or prescribes law or policy or practice requirements of any agency. Policy or guidance issued by an agency other than in a regulation does not have the force or effect of law.

S.C.Code Ann. § 1-23-10(1), (4) (Supp.2002) (emphasis added); cf. S.C.Code Ann. § 1-23-40 (1986) (requiring that “[a]ll regulations promulgated or proposed to be promulgated by state agencies which have general public applicability and legal effect” must “be filed with the Legislative Council and published in the State Register.”); S.C.Code Ann. § 1-23-120 (Supp.2002) (mandating that “[a]ll regulations except those specifically exempted ... must be submitted to the General Assembly for review”). The NCCI has no power or authority to promulgate regulations that have the force or effect of law. In fact, not even NCCI claims this authority. Instead, it is a self-described “rating organization or advisory organization licensed in this state to make and file rates, rating values, classifications, and rating plans for workers’ compensation insurance.” NCCI Basic Manual, South Carolina Workers’ Compensation Insurance Plan, effective January 1, 1999 (emphasis added).

Travelers asserts the NCCI’s rules should control the instant case. Travelers cites a paragraph in an “Assigned Risk Supplement” issued on January 1, 1998, which reads: “Any employer having voluntary coverage or an offer thereof in a state is ineligible for Plan coverage. The assigned risk coverage terminates at the effective date of the voluntary insurance.” Travelers fails to reconcile the above statements with the NCCI South Carolina Workers’ Compensation Plan, Section III. Paragraph 6 of that section provides in pertinent part:

[A]ny insurer that wishes to insure an employer as voluntary business may do so at any time. If such insurer is not the assigned carrier, the assigned carrier shall cancel its policy pro rata and the assignment shall automatically terminate as of the effective date of the voluntary insurer’s policy. (Emphasis added).

Paragraph 2 of Section III of the Plan declares in relevant part:

If, after the issuance of a policy, the assigned carrier determines that an employer is not entitled to insurance, ... the assigned carrier shall initiate cancellation and inform the Plan Administrator and appropriate state organization of the reason for such cancellation. (Emphasis added).

Therefore, despite Travelers’ contentions, the NCCI advisory provisions do not militate against a finding that Travelers is the proper carrier with coverage in this case.

When an insured with an assigned risk policy obtains Workers’ Compensation insurance on the voluntary market, Section III, Paragraph 6 of NCCI’s South Carolina Workers’ Compensation Insurance Plan provides for two separate and distinct results: (1) termination of the assignment agreement between the assigned carrier and the assigned risk pool; and (2) cancellation of the insurance policy. Essentially, NCCI advises that, before the assigned risk policy is “cancelled,” the assigned carrier must be relieved of its duty to insure the assigned risk by the assigned risk pool with which it is associated. In his treatise on Workers’ Compensation law, Professor Larson explained that if the assignment agreement is not terminated before the assigned carrier cancels the assigned risk policy, the cancellation of the policy would constitute a breach of the carrier’s assigned risk agreement. See 9 Arthur Larson & Lex K. Larson, Larson’s Workers’ Compensation Law § 150.05[3] (2000). The NCCI has suggested that the assigned risk carriers’ obligations under the assigned risk agreement should automatically terminate when an insured obtains Workers’ Compensation insurance on the voluntary market. Yet, as indicated in Section III, Paragraph 2 of NCCI’s South Carolina Workers’ Compensation Insurance Plan, the assigned risk policy itself must be properly cancelled in accordance with the procedures outlined in the Workers’ Compensation Act and corresponding regulations.

The proper procedures for canceling a Workers’ Compensation insurance policy in South Carolina are found in Regulations 67-405 and 67 — 406. These regulations require that when an insurer wishes to cancel a policy, the insurer shall immediately notify the Workers’ Compensation Commission by filing a Policy Cancellation Notice, Form WC-89-06-09-A, with the NCCI. The Workers’ Compensation insurance policy is deemed continuous until the cancellation notice is duly filed and, even then, cancellation is not effective until after thirty days from the date NCCI receives the Form WC-89-06-09-A. See 25A S.C.Code Ann. Reg. 67-406(E)-(F) (Supp.2002). No state law or regulation provides for automatic cancellation of a Workers’ Compensation policy.

Even considering NCCI’s Insurance Plan and Assigned Risk Supplement, Travelers is the proper carrier. No advisory opinion of the NCCI has the force or effect of a law or regulation in South Carolina. The NCCI rules do not supersede the South Carolina Workers’ Compensation Act or the regulations promulgated thereunder. NCCI is subjugated to the law in South Carolina. The NCCI rules relied on by Travelers do not have the force or effect of law in South Carolina.

The majority opinion is infected with expository error. Because the NCCI rules have been approved by the Chief Insurance Commissioner, the majority elevates the NCCI rules to co-equal status with the regulations approved by the South Carolina General Assembly in the field of Workers’ Compensation. The imprimatur of the Chief Insurance Commissioner is nonefficacious when juxtaposed to approval of a regulation by the South Carolina General Assembly. Is there a factual or legalistic harmonious nexus inter sese the NCCI rules and legislatively approved regulations? In fact, it is not a vel non because the NCCI rules inevitably occupy an inferior status.

The applicable statutory and regulatory provisions of the South Carolina Workers’ Compensation Act govern the determination of coverage in this case.

II. IDENTITY OF PROPER CARRIER

A. Travelers had not Canceled Policy at Time of Accident

Travelers issued an assigned risk policy to Willowglen with the effective dates of August 24, 1997 through August 24, 1998. Travelers accepted the September 6, 1997 claim of Marty Avant and began paying benefits under the Workers’ Compensation Act. Substantial evidence in the record indicates that Travelers had not initiated cancellation of the assigned risk policy covering Willowglen at the time of the September 6,1997 accident.

Only Travelers’ obligations under the assignment agreement would have automatically terminated when Willowglen obtained Workers’ Compensation insurance on the voluntary market. This did not occur on July 1, 1997 as found by the Commissioner. When Willowglen renewed its voluntary coverage with United Heartland on July 1,1997, the only holdings covered under the policy were its Wisconsin holdings.

Amy Gilland testified that Travelers issued a renewal quotation on June 19, 1997. On July 3, 1997, Travelers received a partial renewal payment from Willowglen in the amount of $466.03. The quoted premium was $46,603.00. According to Gilland, the partial payment was intended to be a full payment, but the check was mistakenly written for the wrong amount. On August 13, 1997, Willowglen issued a second check for the balance of the full premium to renew the policy insuring Willowglen. Subsequently, Travelers issued the renewal policy with effective dates of August 24, 1997 to August 24, 1998. The timing is significant. Willowglen did not decide to add South Carolina as an endorsement to its United Heartland policy until after Willowglen had already renewed the assigned risk policy with Travelers and fully paid the premium. According to Paul Hindtgen at United Heartland, notice of the new endorsement was sent to the NCCI on or about August 27, 1997. The effective date of this endorsement was July 1, 1997. Travelers was not notified of the endorsement and did not cancel the assigned risk policy covering Willow-glen.

To cancel the policy with Willowglen, Travelers was required to follow the explicit cancellation procedure set out in Regulations 67-405 and 67 — 406. According to Regulation 67-405(E), “[i]f the employer fails to renew its insurance, or the insurer cancels the policy, the employer’s insurer shall immediately notify the Commission that it no longer insures the employer by filing a notice of termination with the Commission.” 25A S.C.Code Ann. Reg. 67 — 405(E) (1990). Regulation 67-406 provides in pertinent part:

B. The insurance carrier shall file a ... notice of termination directly with the NCCI. The date of receipt by the NCCI is deemed the date of filing with the Commission.

E. Workers’ compensation insurance is deemed continuous until notice of termination is filed according to R. 67-405 and as provided in F below.

F. To cancel workers’ compensation insurance coverage, ... the insurance carrier shall file with the NCCI an NCCI Form WC 89 06 09 A.

(2) Insurance expiration, termination or cancellation shall not be effective until after thirty days from the date of receipt by NCCI of the NCCI Form WC 89 06 09 A.

25A S.C.Code Ann. Reg. 67-406 (Supp.2002). NCCI acknowledges that cancellation of a Workers’ Compensation insurance policy is regulated by state law. See NCCI Basic Manual, Rule X(A).

Travelers did not file a notice of cancellation form with the NCCI at any time prior to the September 6, 1997 accident. Travelers became aware of the existence of voluntary coverage as early as January 5, 1998. The testimony from Amy Gilland and Joel Scott shows that notice of cancellation was received by the Commission on February 13, 1998, with an effective date of cancellation of March 19, 1998. This unequivocal notice that Travelers’ policy was canceled effective March 19, 1998 is contained in the record. On April 2, 1998, Travelers sent a second notice of cancellation to Willowglen confirming the policy was cancelled effective March 19, 1998. Travelers did not, at any time prior to May 7, 1999, notify Willowglen or United Heartland that it intended to contest coverage for the Avant claim, even though Travelers was aware as early as January 5, 1998, that there was duplicate coverage. While Travelers later attempted to change the effective cancellation date to August 24, 1997, by sending a subsequent notice of cancellation on June 5, 1998, the second notice is null and void because the earlier notice had already cancelled the policy. Travelers was attempting to cancel a policy that had been canceled three months earlier. An insurance policy cannot be cancelled twice. Moreover, Regulation 67-406(F)(2) states that cancellation “shall not be effective” until thirty days after the proper notice of cancellation form is filed with the NCCI.

Additionally, Travelers issued a new policy to Willowglen after Willowglen had been insured by United Heartland on the voluntary market. Therefore, even if Travelers had cancelled the policy in effect at the time Willowglen obtained a voluntary policy in July 1997, the new Travelers policy issued in August 1997 would have been in effect on September 6, 1997.

The Travelers policy had not been canceled and was in effect at the time of Avant’s September 6,1997 accident. The Travelers policy remained in effect until March 19, 1998.

B. Travelers Policy had Later Effective Date

When Avant was injured on September 6, 1997, Willowglen was seemingly covered by two insurance policies. The Travelers policy became effective on August 24, 1997 and remained in effect until March 19, 1998. The record reveals United Heartland issued a policy covering Willowglen, with an effective date of July 1, 1997. In such cases, Regulation 67-409 determines which carrier is liable for benefits. See 25A S.C.Code Ann. Reg. 67-409 (1990). Pursuant to Regulation 67-409(A), “[w]hen duplicate or dual coverage exists by reason of two different insurance earners issuing two policies to the same employer securing the same liability, the Commission shall presume the policy with the later effective date is in force and the earlier policy terminated on the effective date of the later policy.” (Emphasis added). This mandatory language creates an irrebuttable presumption that the Travelers policy with the effective date of August 24, 1997 was in force on September 6,1997, not the United Heartland policy.

This presumption is supported by the fact that Travelers accepted Avant’s claim for the September 6,1997 accident and paid benefits in excess of $40,000, even after discovering the dual coverage issue in early January 1998. Travelers did not pursue legal action until May 7, 1999, when Travelers filed a motion requesting the Workers’ Compensation Commission to identify the proper carrier for the Avant claim. Willowglen continued to pay and Travelers continued to accept premiums after issuing the August 1997-98 renewal policy.

Because the renewal policy issued by Travelers effective August 24, 1997 has a later effective date than the United Heartland policy issued July 1, 1997, the law presumes the United Heartland policy was terminated after August 24,1997. Therefore, by virtue of Regulation 67-409, only the Travelers policy was in effect on September 6, 1997. The Act and the regulations clearly presume the Travelers policy covers Avant’s accident on September 6,1997.

C. Retroactive Cancellation of Workers’ Compensation not Permitted Under these Facts

Travelers argues the “circuit court erred in finding that retroactive cancellation of a policy is not permissible under any circumstances.” This is a misstatement of the judge’s order. The judge held: “South Carolina law does not permit retroactive cancellation of workers’ compensation insurance except in one limited circumstance: where there are dual policies with the same effective date.” (emphasis in judge’s order). This is a correct statement of law. The only provision for retroactive cancellation of a Workers’ Compensation insurance policy is found at 25A S.C.Code Ann. Reg. 67-409(B) (1990). “When both policies carry the same effective date, one policy may be cancelled by filing a notice of termination retroactive to the date of the policy’s inception.” 25A S.C.Code Ann. Reg. 67-409(B) (1990).

The general rule is found at 25A S.C.Code Ann. Reg. 67-406(F)(2) (Supp.2002): “Insurance expiration, termination or cancellation shall not be effective until after thirty days from the date of receipt by NCCI of the NCCI Form WC 89 06 09 A.” Travelers cites no statute, regulation, or case that would permit Travelers to retroactively cancel a Workers’ Compensation insurance policy under any other circumstance.

The Travelers policy and the United Heartland policy at issue do not have the “same effective date.” Accordingly, the law does not permit Travelers to cancel its policy retroactively-

Furthermore, public policy dictates that retroactive cancellation of Workers’ Compensation insurance be the exception, not the rule. Professor Larson articulated: “In view of the essential role of insurance in the compensation process, and the serious potential effects of noninsurance on both employer and employee, requirements for cancellation of insurance are generally exacting, and are strictly construed and applied.” 9 Arthur Larson & Lex K. Larson, Larson’s Workers’ Compensation Law § 150.03[1] (2000) (emphasis added). Thus, South Carolina’s regulations on cancellation should be strictly construed and applied. These regulations cannot be circumvented by an advisory policy. Cancellation of a Workers’ Compensation insurance policy is regulated by state law.

CONCLUSION

Travelers is the proper carrier with coverage. United Heartland has no liability for benefits in this case under the South Carolina Workers’ Compensation Act. I VOTE to AFFIRM the order of the circuit court judge finding that Travelers is solely responsible for providing coverage of Avant’s claim.