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Workers Compenation - meaning of 'preceding calendar year'; excluded employees and premiums

Paradigm Enterprises, Inc.,
Westfield National Insurance Co.,
Filed September 11, 2007
Minge, Judge
Clay County District Court
File No. C2-06-760
Jeffrey R. Hannig, Hannig & Associates, P.A., 1 North Second Street, Suite 122, P.O.
Box 2707, Fargo, ND 58108-2707 (for respondent)
Richard P. Wright, Cheryl Hood Langel, McCollum, Crowley, Moschet & Miller, Ltd.,
7900 Xerxes Avenue South, 700 Wells Fargo Plaza, Minneapolis, MN 55431-1141 (for
Considered and decided by Willis, Presiding Judge; Minge, Judge; and Hudson,
1. [P]receding calendar year in Minn. Stat. 176.041, subd. 1(g) (2006), refers
to the calendar year preceding the insurance policys effective date of coverage.
2. Absent an election of coverage under Minn. Stat. 176.041, subd. 1a (2006), or
a clear policy provision, a workers compensation insurer cannot collect a premium for
employees excluded by Minn. Stat. 176.041, subd. 1(g).
MINGE, Judge
Appellant-insurer challenges the district courts grant of summary judgment in
favor of respondent-employer for claimed overpayment of respondents workers
compensation insurance premium. Because the district court did not err in interpreting
Minn. Stat. 176.041, subd. 1(g) (2006), or in construing the parties insurance contract,
we conclude that overpayment occurred, and we affirm.
Respondent Paradigm Enterprises, Inc. (Paradigm) is the employer and the
insured. Glen and Ron Morken each own at least 25% of the stock of and are executives
of Paradigm. Under the Minnesota Workers Compensation Act, respondent is required
to compensate its employees for injuries or death arising in the course of employment,
without regard to the question of negligence. Minn. Stat. 176.021, subd. 1 (2006).
Unless it elects to do so, respondent is not required to so compensate executive officers
who own 25% of the closely-held corporations stock, as long as respondent had less than
22,880 payroll hours in the preceding calendar year. Minn. Stat. 176.041, subd. 1(g).
Respondent purchased workers compensation insurance from appellant Westfield
National Insurance Company to cover its workers compensation liability. The policy
year in question began April 19, 2004, and ended April 19, 2005. No coverage was
elected for owner/executives Glen or Ron Morken. Appellant had insured respondent for
the 2003-04 policy period without including Glen or Ron Morken. In accordance with its
standard business practice, appellant first calculates a preliminary premium for its insured
employers based on the risk associated with employee work and the payroll for the
previous year. This preliminary premium is billed at the beginning of the policy period.
Then, after expiration of the policy period, appellant audits the employer and assesses a
final premium based on the actual payroll for the policy period. The final premium may
be more or less than the preliminary figure.
Consistent with this practice, appellant prepared a preliminary premium estimate
in early 2004 calculating respondents premium for the 2004-05 policy as ,359.
Because respondents payroll hours for the 2003 calendar year were less than 22,880 and
because respondent had not elected coverage for their compensation, Glen and Ron
Morken were excluded in calculating the preliminary premium for the 2004-05 policy
year. Respondent paid this preliminary premium in installments.
In the summer of 2005, after expiration of the 2004-05 policy year, appellant
conducted a final audit to determine the actual insurance premium owed by respondent
for that period. The audit revealed that respondents payroll hours were in excess of
22,880 for the 2004 calendar year. Based on this audit, appellant issued respondent a
Premium Adjustment Statement, charging respondent a premium of ,083 for the
2004-05 policy year. In contrast to the initial estimated premium, this final adjusted
premium included workers compensation coverage for and the compensation paid to
Glen and Ron Morken.
Upon receiving notice of the premium adjustment, respondent started paying the
deficiency to appellant in installments. However, after learning of the exception included
for officers of closely-held corporations in Minn. Stat. 176.041, subd. 1(g), respondent
ceased making payments and filed suit seeking reimbursement for the overpaid
premium. Respondent moved for, and the district court granted, summary judgment
awarding respondent ,557.55 plus interest for an overpaid portion of respondents
insurance premium. This appeal follows.
I. Did the district court err in interpreting Minn. Stat. 176.041, subd. 1(g)
II. Did the district court err in construing the scope of the parties insurance
contract as extending no further than the workers compensation coverage
mandated under the Minnesota Workers Compensation Act?
On appeal from summary judgment, we consider two questions: (1) whether there
are any genuine issues of material fact and (2) whether the [district] court[] erred in [its]
application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). No
genuine issue of material fact exists when the record taken as a whole could not lead a
rational trier of fact to find for the nonmoving party. DLH, Inc. v. Russ, 566 N.W.2d 60,
69 (Minn. 1997) (quotation omitted).
When there are no genuine issues of material fact, we are faced with pure legal
issues, and we need not defer to the district courts decision. Frost-Benco Elec. Assn v.
Minn. Pub. Utils. Commn, 358 N.W.2d 639, 642 (Minn. 1984). Here, because the
parties agree that there are no genuine issues of material fact, we review the district
courts interpretation of the relevant statutory provisions and the parties contract de
novo. Camacho v. Todd & Leiser Homes, 706 N.W.2d 49, 53 (Minn. 2005); Yang v.
Voyagaire Houseboats, Inc., 701 N.W.2d 783, 788-89 (Minn. 2005).
The first issue is whether the district court erred in interpreting Minn. Stat.
176.041, subd. 1(g) (2006). Before addressing this statutory-interpretation issue, we
note that on appeal appellant does not clearly challenge the district courts interpretation
of that statute. Rather, appellant focuses its appeal on the claim that the district court
erred in interpreting the insurance policy. However, because workers compensation
insurance policies are written in the context of the Minnesota Workers Compensation
Act (see Minn. Stat. 176.185, subd. 3 (2006)), the language of the Act is important to
our interpretation of the parties insurance contract.
Basic standards for statutory interpretation have been codified. See Minn. Stat. ch.
645 (2006). The goal of statutory interpretation is to effectuate the intent of the
legislature. Minn. Stat. 645.16; Educ. Minn.-Chisholm v. Indep. Sch. Dist. No. 695, 662
N.W.2d 139, 143 (Minn. 2003). If the meaning of a statute is unambiguous, we interpret
the statutes text according to its plain language. Molloy v. Meier, 679 N.W.2d 711, 723
(Minn. 2004). If a statute is ambiguous, we apply other canons of construction to discern
the legislatures intent. See Minn. Stat. 645.08, .16, .17 (2006); Gomon v. Northland
Family Physicians, Ltd., 645 N.W.2d 413, 416 (Minn. 2002).
The Minnesota Workers Compensation Act defines [e]mployee as including
an executive officer of a corporation, except those executive officers excluded by
section 176.041. Minn. Stat. 176.011, subd. 9(7). The Act further provides that the
coverage requirements of the Act do not apply to
an executive officer of a closely held corporation having less
than 22,880 hours of payroll in the preceding calendar year if
that executive officer owns at least 25 percent of the stock of
the corporation[.]
Minn. Stat. 176.041, subd. 1(g).
In the case before us, the critical question is the meaning of preceding calendar
year. Id. Appellant argues that preceding calendar year refers to the year prior to
final calculation of the insurance policy premium and that because final calculation was
made in the spring of 2005, the preceding year is the calendar year 2004. Pursuant to its
interpretation, appellant argued to the district court that because respondents payroll
hours exceeded 22,880 hours in the calendar year 2004, respondent was required to carry
workers compensation coverage for executive officers Glen and Ron Morken in the
2004-05 policy year. The district court disagreed, concluding that preceding calendar
year refers to the year 2003, which is the full calendar year preceding the April 19,
2004, effective date of policy coverage.
The context of Minn. Stat. 176.041 within the greater Workers Compensation
Act is crucial to our interpretation of preceding calendar year in subpart (g) of that
statute. Minn. Stat. 176.041 identifies who are employees for purposes of workers
compensation insurance coverage. Subdivision 1 enumerates 21 employment categories
that are excluded from the Acts requirements. Id. Subdivision 1a then goes on to
provide the means by which employers may elect insurance coverage greater than that
required under the Act. Id., subd. 1a. Specifically, subdivision 1a provides:
Notice of election of coverage or of termination of
election under this subdivision shall be provided in writing to
the insurer. Coverage or termination of coverage is effective
the day following receipt of notice by the insurer . . . . The
insurance policy shall be endorsed to indicate the names of
those persons for whom coverage has been elected or
terminated under this subdivision.
The clear purpose of Minn. Stat. 176.041 is to define the scope of mandatory
insurance coverage and provide for the means by which employers may elect greater
coverage. One would expect parties to agree to the scope of policy coverage before the
policy actually takes effect. The only reasonable interpretation of subpart (g) of
subdivision 1 is that preceding calendar year refers to the calendar year preceding the
policys effective date.
To construe preceding calendar year as the year preceding calculation of the
final insurance premium, as appellant urges, would mean that insurers, insured
employers, and employees would defer determination of the scope of policy coverage and
their corresponding insurance status until after the policy at issue has expired. This is an
awkward, if not absurd, result. The result is inconsistent with businesses interests in
predictable and efficient implementation of contractual obligations. Not knowing
whether there is workers compensation insurance coverage, the employer and the
executive employees would not know whether alternative insurance is necessary. This
could lead to purchase of duplicative insurance coverage and possibly disputes over
primary coverage and subrogation or, perhaps worse, no insurance. Although this
problem could be avoided by the employer electing optional coverage, under the law
employers and executive owners are given the flexibility to limit the reach of the
workers compensation requirement. Employers and executive employees may conclude
such coverage is not desirable. The law should be interpreted to function in a workable
In the course of this proceeding, appellant has asserted that the district courts
interpretation of preceding calendar year as the year preceding the policys effective
date undermines the insurance industrys standard method of calculating premiums.
Appellants argument is unpersuasive. The interpretation that the district court made and
with which we agree does not complicate the calculation of premiums. Here, looking
back to the 2003 calendar year should not be harder than using the 2004 calendar year. If
anything, our interpretation should simplify the calculation and make coverage more
The next issue is whether the district court erred in interpreting the scope of the
parties insurance contract to extend no further than the minimum workers compensation
coverage mandated under the Minnesota Workers Compensation Act.
We note that appellant only marginally referred to the scope of the contracts
coverage in its arguments to the district court. Generally, we will not consider matters
not argued and considered in the district court. See Thiele v. Stich, 425 N.W.2d 580, 582
(Minn. 1988). However, because: (1) the issue was mentioned; (2) we consider it
important to fully address appellants challenge to the district courts ruling; and (3) our
interpretation of the parties contract presents a legal issue for which further development
of the record is not required; we consider whether the parties insurance contract extends
coverage and premium liability beyond the minimum required under the Act.
[T]he primary goal of contract interpretation is to determine and enforce the
intent of the parties. Motorsports Racing Plus, Inc., v. Arctic Cat Sales, Inc., 666
N.W.2d 320, 323 (Minn. 2003). Where there is a written agreement, we determine the
parties intent based on the plain language of the document. Metro. Sports Facilities
Commn v. Gen. Mills, Inc., 470 N.W.2d 118, 123 (Minn. 1991). [W]hen a contractual
provision is clear and unambiguous, courts should not rewrite, modify, or limit its effect
by a strained construction. Travertine Corp. v. Lexington-Silverwood, 683 N.W.2d 267,
271 (Minn. 2004).
The parties insurance contract describes the method used to calculate the cost to
insure respondent as follows:
The premium shown on the Information Page, schedules, and
endorsements is an estimate. The 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.
(Emphasis added.) The policy states that the premium basis used to calculate estimated
and actual premiums
includes payroll and all other remuneration paid or payable
during the policy period for the services of . . . all your
officers and employees engaged in work covered by this
(Emphasis added.) Appellant relies on these policy provisions for the proposition that the
parties contracted to extend insurance coverage beyond the Acts minimum requirements
to include Glen and Ron Morken.
In analyzing these provisions, we note that the first quoted provision only
describes the process by which appellant calculates insurance premiums: assessing a
preliminary estimate followed by a final premium calculated on the insureds actual
payroll hours. This provision does not purport to define the policys scope of coverage.
Appellant asserts that the second quoted contractual provision is determinative and
that the phrase all your officers extends the liability for premiums (and presumably
coverage) beyond the minimum, default coverage required by the Workers
Compensation Act. The appellants argument begs the question. The policy language
does not simply provide that the premium includes all compensation payable during the
policy period for the services of all of respondents officers and employees. If that was
the case, our interpretation of the parties insurance contract may be different. Rather,
the policy states that its premium basis is for all your officers and employees engaged in
work covered by this policy[.] (Emphasis added.) The text of this provision does not
define the scope of the policys coverage, so appellants reliance on this provision is
misplaced. We are still left with the question of what work is covered by this policy.
The plain language of Minn. Stat. 176.041, subd. 1a, makes clear that absent the
parties election to provide workers compensation insurance coverage greater than the
Minnesota Workers Compensation Acts minimum coverage requirements, the coverage
is defined in the Act. Here, the parties contract contains no such election for Glen and
Ron Morken. In fact, the policy limits the insurer-appellants obligation to the payment
of benefits required . . . by the workers[] compensation law. Moreover, in accordance
with the law, the policy contains a special schedule that explicitly elects greater coverage
for officers Russel, Jennifer, Chris, Brianne, and Kaleb Morken, stating that the policys
premium basis includes the remuneration on such persons. By explicitly including
these officers, it implicitly excludes those not listed in the contract. Without an election
to provide coverage for Glen and Ron Morken, the Act provides the operative definition
of coverage.
As already discussed, the Act does not include coverage for officers of closelyheld
corporations who own more than 25 percent of the corporations stock, when the
corporation had less than 22,880 payroll hours in the year preceding the insurance
policys effective date of coverage. Minn. Stat. 176.041, subd. 1(g). Here, it is
undisputed that officers Glen and Ron Morken each owned more than 25 percent of
respondents corporation, that respondent-employer did not elect coverage for them, and
that respondent had less than 22,880 payroll hours in the 2003 calendar year. Also, we
have concluded that 2003 is the year preceding the effective date of policy coverage.
Accordingly, we conclude that the premium due under the 2004-05 policy period may not
be based on the compensation paid Glen and Ron Morken. We further conclude that the
district court did not err in determining that respondent overpaid premiums and that
appellant was required to repay certain amounts plus interest for the 2004-05 policy year.
Because we conclude that the district court did not err in interpreting Minn. Stat.
176.041, subd. 1(g) (2006), in construing the parties insurance contract, and in
ordering appellant to refund overpayment of premiums plus interest, we affirm.


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