IVAN MIRONENKO, Employee, v. GROUNDED AIR, INC., UNINSURED, and DAVID HERZOG, INDIVIDUALLY, UNINSURED, Employers/Appellants, and LIFE MED., P.A., Intervenor, and SPECIAL COMP. FUND.
WORKERS’ COMPENSATION COURT OF APPEALS
DECEMBER 3, 2012
CRAIG DRIER, Employee v. GROUNDED AIR, INC., UNINSURED, and DAVID HERZOG, INDIVIDUALLY, UNINSURED, Employers/Appellants, and EAU CLAIRE G.I. ASSOCS. S.C., CASTLEBERG CLINIC S.C., and CHIPPEWA VALLEY HOSP., Intervenors, and SPECIAL COMP. FUND.
WORKERS’ COMPENSATION COURT OF APPEALS
DECEMBER 3, 2012
INSURANCE - COVERAGE; EMPLOYMENT RELATIONSHIP - JOINT EMPLOYERS; STATUTES CONSTRUED - MINN. STAT. § 176.071. In joint employment cases an employee may look to one or the other or to both employers for compensation. While Minn. Stat. § 176.071 allows joint employers, as between themselves, to contractually agree which employer will pay the compensation for which they are liable, the statute does not permit a joint employer to contract away its liability for compensation benefits imposed by Minn. Stat. § 176.021, subd. 1. Where, as here, one party fails to obtain agreed upon workers’ compensation insurance coverage, both employers are uninsured, and the Special Compensation Fund is liable for benefits to the injured employee. The compensation judges, therefore, properly held that the SCF was entitled to reimbursement from the uninsured employer, Grounded Air, pursuant to Minn. Stat. § 176.183.
SPECIAL COMPENSATION FUND; STATUTES CONSTRUED - MINN. STAT. § 176.183, SUBD. 1. An uninsured employer includes any owner or officer of a corporation who directs and controls the activities of employees. The compensation judges properly held the president and sole owner of Grounded Air personally liable for reimbursement to the SCF where he directly supervised the vice president and office manager of the company.
Determined En Banc
Jane Gordon Ertl
Bradley J. Behr
Attorneys: Devin J. Murphy and Andrew M. Grimsrud, Forde, Gray, Munson & Hager, Minneapolis, MN, for the Appellants. Laura B. Zajak, Department of Labor & Industry, Office of General Counsel, St. Paul, MN, for the Special Compensation Fund.
THOMAS L. JOHNSON, Judge
Grounded Air, Inc., appeals the compensation judges’ orders requiring it to reimburse the Special Compensation Fund for benefits paid to Craig Drier and Ivan Mironenko. David Herzog appeals the judges’ orders finding him personally liable to the Special Compensation Fund for the corporate debt. We affirm.
Grounded Air, Inc., is a transportation business incorporated in the State of Minnesota solely owned by David Herzog, its president. Effective July 1, 2006, Grounded Air entered into an employee-leasing agreement with Pay Source, Inc. (PSI), wherein PSI agreed to provide staffing services to Grounded Air, handle its payroll and taxes, and provide workers’ compensation insurance. As part of this contract, Grounded Air agreed to pay to PSI a service fee which covered, among other things, workers’ compensation premiums. Despite its contractual obligation, PSI failed to procure workers’ compensation insurance covering either of the employees.
Craig Drier sustained a work-related injury on October 24, 2007, and filed a claim petition seeking workers’ compensation benefits from Grounded Air and the Special Compensation Fund (SCF). The SCF then filed a petition seeking reimbursement from Grounded Air and David Herzog for any benefits payable to the employee together with a 65 percent penalty pursuant to Minn. Stat. § 176.183. At the hearing, the parties stipulated that the employee and the SCF had agreed to a settlement of the employee’s claims but no settlement agreement had yet been filed. The parties reserved the SCF’s potential claims for reimbursement of benefits paid to the employee and agreed to litigate only the SCF’s claim for reimbursement of disbursements in the amount of $ 6,558.99. Following a hearing Judge Behr found that Grounded Air was uninsured for workers’ compensation liability on October 24, 2007, and was liable to reimburse the SCF. The judge further found that David Herzog directed and controlled the activities of Grounded Air employees and found Mr. Herzog personally liable to reimburse the SCF. The judge ordered Grounded Air and David Herzog to reimburse to the SCF the sum of $ 6,558.99. Grounded Air and Mr. Herzog appeal the findings and order of the compensation judge.
Ivan Mironenko sustained a personal injury on April 15, 2007, and filed a claim petition against Grounded Air and the SCF seeking workers’ compensation benefits. Thereafter, the SCF reached a settlement with the employee and then filed a reimbursement claim against Grounded Air and David Herzog. Following a hearing, Judge Gordon Ertl found that Grounded Air was uninsured on April 15, 2007, and was liable to reimburse the SCF for any benefits payable as a result of Mr. Mironenko’s personal injury. The judge further found that David Herzog directed and controlled the activities of Grounded Air workers and found Mr. Herzog was personally liable to reimburse the SCF. Grounded Air and Mr. Herzog appeal the findings and order of the compensation judge.
1. Liability of Grounded Air, Inc.
Minn. Stat. § 176.021, subd. 1, provides: “Every employer is liable for compensation according to the provisions of this chapter and is liable to pay compensation in every case of personal injury or death of an employee arising out of and in the course of employment . . . .” Every employer liable under chapter 176 to pay workers’ compensation “shall insure payment of compensation with some insurance carrier authorized to insure workers’ compensation liability in this state, or obtain a written order from the commissioner of commerce exempting the employer from insuring liability for compensation and permitting self-insurance of the liability.” Minn. Stat. § 176.181, subd. 2(a). When an employer is uninsured, the Special Compensation Fund is statutorily obligated to pay the benefits to which the employee is entitled. Further, the SCF is statutorily required to commence an action against the “liable employer” to recover the benefits paid unless the commissioner determines that no recovery is possible. Minn. Stat. § 176.183, subd. 1.
When an employee is employed by a labor pool or agency and assigned to work for another employer, Minnesota cases apply the “loaned servant doctrine,” under which the employee is generally deemed to be simultaneously employed by both employers. The labor pool or agency is considered the general employer, and the employer whose work the employee actually performs is considered the special employer. In general/special employment cases, “the employee may look to one or the other or to both employers for compensation since he is at the same time under a general and a special employment relationship.” Danek v. Meldrum Mfg. & Eng’g Co., Inc., 252 N.W.2d 255, 258, 29 W.C.D. 438, 441-42 (Minn. 1977). Thus, where an employee is injured performing the work for which his services were loaned, both the general and the special employer are liable for workers’ compensation benefits. The special employer is primarily liable, because it controls the employee in the workplace, while the general employer is secondarily liable. See, e.g. Sorenson v. Metro Stucco Sys., 49 W.C.D. 216 (W.C.C.A. 1993); Aultman v. Search Resources, Inc., 58 W.C.D. 89(W.C.C.A. 1997).
In these companion cases, the compensation judges found that Grounded Air was uninsured on the dates of the employees’ personal injuries, and ordered Grounded Air to reimburse the SCF. Grounded Air contends the compensation judges misinterpreted the relevant statutory provisions and case law to arrive at a legally erroneous decision.
The appellants agree that the employees were jointly employed by Grounded Air and PSI. Minn. Stat. § 176.071 governs joint employers’ obligations for workers’ compensation coverage. That statute provides:
When compensation is payable under this chapter for the injury or death of an employee employed and paid jointly by two or more employers at the time of the injury or death these employers shall contribute to the payment of the compensation in the proportion of their wage liabilities to the employee. If any such employer is excluded from the provisions of this chapter and is not liable for compensation, the liability of those employers who are liable for compensation is the proportion of the entire compensation which their wage liability bears to the employee’s entire wages. As between themselves such employers may arrange for a different distribution of payment of the compensation for which they are liable. (Emphasis added.
This statute, the appellants assert, explicitly allows joint employers to contractually determine their respective obligations for workers’ compensation coverage. In this case, PSI agreed to procure coverage for all Grounded Air employees in exchange for which Grounded Air made specific payments to cover those premiums. Accordingly, the appellants argue, Grounded Air legally contracted away its workers’ compensation liability and is not a “liable employer” under Minn. Stat. § 176.183. Rather, appellants contend that when a contractual shift of liability to obtain workers’ compensation coverage occurs, the party that assumes all liability is the only “liable employer” under Minn. Stat. § 176.183. Accordingly, the appellants contend they have no liability for reimbursement to the SCF and argue that that liability belongs exclusively to PSI.
In support of their argument, the appellants cite Bilotta v. Labor Pool of St. Paul, 321 N.W.2d 888, 35 W.C.D. 31 (Minn. 1982). In Bilotta, the employee was hired by Labor Pool, a temporary employment agency. Safelite, a different employer, then contracted with Labor Pool to hire Bilotta on a short-term basis. Customers of Labor Pool, including Safelite, were informed that their temporary workers were covered by a workers’ compensation policy carried by Labor Pool. After the employee sustained a personal injury, he received workers’ compensation benefits from Labor Pool and its insurer, Travelers. Travelers then brought a claim for reimbursement against Safelite contending that, as the special employer, Safelite was primarily liable for benefits. On appeal, the court rejected this argument because Labor Pool and Travelers had agreed to be responsible for workers’ compensation coverage pursuant to Minn. Stat. § 176.071. In such case, Safelite was entitled to the benefit of its bargained agreement and was not liable to reimburse Travelers.
The appellants assert the only distinguishing fact between the Bilotta case and the present cases is that PSI failed to procure coverage. The appellants argue that it defies logic to judicially enforce the contractual shift in workers’ compensation liability only in the event that the obligation to procure coverage is performed. Such a conclusion, the appellants contend, is inconsistent with the Bilotta decision. We cannot agree.
Minn. Stat. § 176.071 allows joint employers, as between themselves, to contractually agree which employer will pay the compensation for which they are liable. We conclude this statute does not abrogate an employer’s liability for compensation benefits statutorily imposed under Minn. Stat. § 176.021, subd. 1. Rather, the statute merely permits joint employers to contractually agree between themselves which employer will be primarily liable for payment of the compensation benefits for which they are jointly liable. Where such a contract is in effect and one employer obtains insurance, the other employer is not liable for compensation. See Rackow v. Kujak Transport, 44 W.C.D. 388 (W.C.C.A. 1991). Further, so long as one of the jointly liable insurers is insured, the SCF has no liability for benefits, even though one of the employers is uninsured. Benner v. Essential Nursing Servs., Inc., 63 W.C.D. 58 (W.C.C.A. 2002). Where, however, as here, one party fails to obtain the agreed upon insurance, both employers are uninsured. The SCF is then statutorily liable for all benefits to which the employees are entitled subject to its right of reimbursement from both joint employers.
Grounded Air acknowledges that compensation insurance is compulsory for employers in the State of Minnesota. But the appellants argue that, under Minn. Stat. § 176.071, an employer is permitted to operate without insurance. It cannot be true, the appellants argue, that an employer can at the same time be required to carry insurance and also be permitted to operate without insurance. The appellants argue that the only explanation for this seeming conflict is that employers who contract with another party to obtain workers’ compensation insurance are not “liable employers” under Minn. Stat. §§ 176.181 and 176.183. We do not agree.
Employers in the State of Minnesota are statutorily obligated to insure payment of compensation with an insurance carrier or obtain an exemption permitting self-insurance. Minn. Stat. § 176.181, subd. 3(a), empowers the Commissioner of Labor and Industry to order an employer to obtain insurance and to assess a penalty for failure to do so. Arguably, Minn. Stat. § 176.071 may relieve an employer from its obligation to obtain insurance and may be a defense to a claim for penalties by the commissioner. That issue is not, however, before us, so we need not decide it. We hold here that a joint employer cannot under Minn. Stat. § 176.071 contract away its liability to pay compensation imposed by Minn. Stat. § 176.021, subd. 1.
The appellants complain that they were innocent in this case and did all they could to comply with Minn. Stat. § 176.071. The compensation judge’s imposition of liability on Grounded Air, the appellants contend, essentially requires all employers that lease employees to obtain back-up workers’ compensation policies to protect themselves from the possibility of a default by the general employer. Such a result, the appellants argue, renders the statute meaningless.
We acknowledge that imposing liability on an employer that was uninsured through no fault of its own may be a harsh result. It is a result, however, which is mandated by statute and is consistent with case law. In Olsen v. Kling, 363 N.W.2d 310, 37 W.C.D. 497 (Minn. 1985), Olsen sustained a personal injury and brought a claim for benefits. Kling, the employer, contended it had a policy of insurance in effect with Western National Mutual Insurance, but the insurer denied coverage existed. Kling filed an action in district court to determine whether Western was obligated to furnish insurance coverage to Kling. That case had not been decided at the time the employee’s claim for benefits was heard. The compensation judge awarded benefits to the employee, but deferred payment of compensation pending resolution of the district court action to determine coverage. On appeal, the supreme court reversed the judge’s deferred payment order and held that at the time the benefits were awarded, the employer was not insured within the meaning of Minn. Stat. § 176.183, subd. 1. Accordingly, the SCF was liable to pay the benefits to which the employee was entitled. The court went on to state that the legislative intent of Minn. Stat. § 176.183, subd. 1, was to require the SCF to pay compensation both to an injured employee whose employer is not insured because the employer never attempted to obtain coverage and to an employee whose employer was not insured because the alleged insurer denies that coverage exists.
All employers are liable to pay compensation in every case of personal injury and an employer is either insured for that liability or it is not. In this case, Grounded Air was not insured. That it may have been uninsured through no fault of its own is not a defense. Regardless of the innocence of Grounded Air, it was uninsured on both dates of injury and is, therefore, liable for reimbursement to the SCF.
2. Liability of David Herzog
An uninsured employer includes “any owners or officers of a corporation who direct and control the activities of employees.” Minn. Stat. § 176.183, subd. 1. In both cases, the compensation judges found that David Herzog directed and controlled the activities of Grounded Air employees, and found Mr. Herzog liable to reimburse the Special Compensation Fund. Mr. Herzog appeals these findings, contending the compensation judges misapplied the statute. The appellant concedes that, as the president and sole owner of Grounded Air, he had supervisory capacity over Nick Ehret, a vice-president, and Pat Nichols, the office manager. The appellant contends he did not directly supervise any employee’s daily activities, and the compensation judges’ finding of liability confused direction with oversight. Further, the appellant contends that the judges’ finding of liability makes the phrase “direct and control the activities of employees” to be unnecessary and redundant, for every owner or officer of a company will have some degree of oversight and communication with upper management, as Mr. Herzog did with Grounded Air. For these reasons, the appellant contends the findings that he has personal liability to the SCF should be reversed. We are not persuaded.
Mr. Herzog testified that truck drivers, such as Mr. Drier and Mr. Mironenko, were directed by the dispatchers, who in turn were supervised and directed by Nick Ehret and after October 2007 by Pat Nichols. If a question or problem arose that a dispatcher could not resolve, the dispatcher would go to Mr. Ehret and later to Ms. Nichols. If they could not resolve the problem, they would take the issue to Mr. Herzog. Mr. Herzog agreed that as the owner of Grounded Air, he supervised both Mr. Ehret and Ms. Nichols.
Words and phrases in a statute are to be construed according to the rules of grammar and according to their common and approved usage. Minn. Stat. § 645.08. When the words of a statute are unambiguous, the court must give effect to the plain meaning of the statute. ILHC of Eagan, LLC v. County of Dakota, 693 N.W.2d 412 (Minn. 2005). The dictionary meaning of “direct” is to “conduct or regulate the affairs of; manage” and “control” means to “exercise authority or dominating influence over; direct; regulate.” The American Heritage Dictionary, 319, 400 (2nd college ed. 1985).
It is undisputed that Mr. Herzog supervised both Mr. Ehret and Ms. Nichols and both were employees of Grounded Air. We do not believe the statute should be read as narrowly as argued by the appellants. Supervisory control over upper management and company officers does constitute direction and control of employees within the dictionary definition. The statute does not distinguish between or among any particular group or class of employees. The decisions of the compensation judges holding Mr. Herzog liable to the SCF are, accordingly, affirmed.
 Where, after a hearing, a liable employer is found not to be insured, “the compensation judge shall assess and order the employer to pay all compensation benefits to which the employee is entitled, the amount for actual and necessary disbursements expended by the Special Compensation Fund, and a penalty in the amount of 65 percent of all compensation benefits ordered to be paid.” Minn. Stat. § 176.183, subd. 2.
 The commissioner may issue an order directing an uninsured employer to obtain insurance, to refrain from employing anyone until the insurance is obtained, and to pay a penalty of up to $1,000 per employee per week during which the employer has not obtained insurance. Minn. Stat. § 176.181, subd. 3(a); State, Dep’t of Labor & Indus. v. Wintz Parcel Drivers, Inc., 555 N.W.2d 908 (Minn. App. 1996).
 Mr. Ehret left Grounded Air in October 2007, and Ms. Nichols then took over his duties.