Submitted: August 28, 2017
Brown, Esquire, Margolis Edelstein, Wilmington, Delaware,
Attorney for Plaintiff.
S. Green, Sr. Esquire, Seitz, Van Ogtrop & Green P.A.,
Wilmington, Delaware, Attorney for Defendant.
R. Wallace, Judge.
Liberty Mutual Insurance Corporation ("LM") filed
suit against Defendant Wilkinson Roofing and Siding, Inc.
("Wilkinson") for breach of its insurance coverage
contract with LM. LM alleges that Wilkinson owes it an
additional premium from the period it supplied Wilkinson with
workers' compensation insurance coverage for certain jobs
performed in Maryland, New Jersey, and Pennsylvania, along
with jobs in Delaware where LM claims Wilkinson
misrepresented the nature of its work in order to secure a
lower premium from LM. Wilkinson denies it owes LM any
additional premium. Wilkinson argues it had workers'
compensation coverage in Maryland, New Jersey, and
Pennsylvania, and therefore LM had no obligation under the
terms of the policy to provide coverage in those states.
Wilkinson says little of its admitted (or otherwise proven)
falsification or non-documentation of its work in Delaware
and other states.
bench trial and supplemental post-trial briefing by the
parties, the Court finds that Wilkinson is liable for the
extra premiums related to Wilkinson's failure to properly
classify its Delaware job site employees. Too, the Court
finds that Wilkinson is liable for additional premiums for
out-of-state work performed by Wilkinson employees sent from
FACTUAL AND PROCEDURAL BACKGROUND
LM Contracts to Provide Workers' Compensation Coverage to
about August 1, 2010, LM and Wilkinson entered into an
insurance policy contract known as # WC5-33S-344540-020 (the
"Policy"). Wilkinson was not able to obtain insurance
through the voluntary contracting of an Insurer, so it was
placed in a high-risk pool based on the type of work it
Wilkinson was assigned to LM for insurance. The Policy was to
cover the period from August 1, 2010, to August 1, 2011. It
stated that LM would provide workers' compensation
insurance to Wilkinson, and in return, Wilkinson would pay LM
for that coverage. The initial premium quoted in the Policy
and paid by Wilkinson was only an estimate. The final premium
is calculated at the Policy's end. The Policy states that
"[i]f the final premium is more than the premium paid to
[LM initially], [the client] must pay [LM] the balance"
when the Policy ends.
Policy also outlined what Wilkinson had to do in order to
comply with LM's initial and final premium
audits. It states that LM required policy-holders
to "maintain appropriate records ... to facilitate a
thorough audit, " and to "cooperate with [LM's]
auditors . . . ." The Policy also explained how LM
calculated the premium after it gathered Wilkinson's
information through the audits.
Delaware Workers' Compensation Ratings Bureau enumerates
codes that are used to classify employees and the type of
work they do. Certain types of work are rated higher
than others. Roofing work, for example, is rated higher than
clerical office work because the risk of a roofing employee
getting injured or having more serious injuries is higher
than a clerical office employee. "The premium that is
associated with each one of [the classification codes] is
calculated by the payroll that the insured would incur. . . .
[T]he more payroll [the insured] ha[s], the more exposure
[the insured] would have, and therefore, the more premium
[the insured] would pay."
order to calculate the preliminary premium estimate, LM looks
at federal quarterly payroll reports, the insured's
payroll records, job contracts, and payroll by
job. LM takes the information from the
insured and makes sure that it matches generally with what
was reported for the insured's tax returns. Then, LM
discusses with the insured the company's operations and
compensation for construction companies is broken down by
actual trade, due to the variety of work that comprises
construction projects. Instead of having one classification
code apply to the entire company, each individual employee is
classified in order to calculate the premium. The Delaware
Workers' Compensation Rating Manual (the "Rating
Each distinct type of construction or erection operation at a
job or location shall be assigned to the classification which
specifically describes such operation provided separate
payroll records are maintained for each operation. Estimated
or percentage allocation of payroll is not permitted.
Any such operation for which separate payroll records are not
maintained shall be assigned to the highest Bureau loss cost
classification which applies to the job or location where the
operation is performed.
A separate construction or erection classification shall not
be assigned to any operation which is within the scope of
another classification assigned to such a job or location
which is assignable to a construction classification
designated "all work to completion." All operations
of the insured contractor at that job or location shall be
assignable to such classification.
Policy adopted the Rating Manual structure. In essence,
this required Wilkinson to keep separate payroll records in
order to break down its construction jobs into distinct
trades. If it did not, Wilkinson would be charged the highest
trade premium for all of its employees on that job
LM Conducts Its Initial Audit of Wilkinson.
after LM issued Wilkinson the Policy in August 2010, it began
an initial audit. LM's auditor spoke with Wilkinson
employee Rachel Bleacher, who furnished the payroll and other
documentation to LM for that initial audit. Upon looking
through the documents, the LM auditor noted that only one
roofer was listed, and all other employees purportedly did
siding work. During that meeting, the LM auditor took
written notes and recorded that Ms. Bleacher told him that
Wilkinson did "mostly roofing, with very little siding
work, " that "[t]hey didn't do any sheet metal
fabrication, " and that "[a]ny carpentry work was
for wood blocking." When the LM auditor asked why there
was only one roofer on the payroll, Ms. Bleacher had him
speak with her father, Wilkinson's owner, Barry Bleacher.
Bleacher told the LM auditor that Wilkinson did have a sheet
metal shop, and the employees who work in the sheet metal
shop do not go to the job site. He also said that
Wilkinson installs siding and singles, but "they do very
little roofing work." Because he had now received
two conflicting descriptions from the Bleachers, the LM
auditor asked for Wilkinson's job contracts and invoices
to verify what kind of work Wilkinson actually engaged
in. The Bleachers said they could supply
that information, and the LM auditor left.
months later, the LM auditor met with Ms. Bleacher and Mr.
Sciortino, an insurance agent. They informed the auditor that
the invoices and job contracts were not ready. Ms. Bleacher
and Mr. Sciortino informed the auditor that the majority of
Wilkinson's work was sheet metal, and that the sheet
metal classification should be added to their policy.
the initial premium estimate was $29, 912.
Wilkinson Provides LM with Fake Job Invoices and Other
thereafter, Ms. Bleacher provided the LM auditor with
Wilkinson's records. The records were meant to be a
sampling of the work Wilkinson did.However, the records did
not look legitimate to the LM auditor. He noticed that there
were discrepancies between what the contract called for, and
what was actually billed for. For example, one contract said
it was a "contract for roofing, " but only billed
for "gutters and downspouts." If Wilkinson
only installed gutters and downspouts on a job, it would be a
cheaper classification than roofing - something the LM
auditor had informed Ms. Bleacher of during their prior
contact. Additionally, all of the projects appeared to have
the same project number.
Bleacher provided the LM auditor with a second packet on
April 27, 2012. In it, there were a number of contracts
for some of the same projects previously provided to LM. But
these documents contained different substantive information.
For instance, for one job, the original document that
Wilkinson produced to LM stated it was for gutters and
downspouts, but the April 2012 document for the same contract
showed it was for roofing work. LM received several more
conflicting documents during pre-trial
discovery. This even included job contracts for
jobs that never existed.
the original payroll reports Wilkinson provided listed only
one roofer. Those same reports listed a large number
of employees who performed "siding
work." Wilkinson never provided documents that
LM requested for the policy period that would properly break
down what each employee did on each job site.
such, every employee who worked outside of the office in any
capacity was classified as roofing, the highest available
rating for each job. LM informed Wilkinson that LM would do
this unless Wilkinson provided LM with the proper
documentation. Wilkinson failed to do so.
LM Reclassifies All External Wilkinson Employees as
LM reclassified Wilkinson's employees as roofers, the
company's premium increased. LM believed that all of
Wilkinson's employees were Delaware employees, and
therefore LM would be liable if they were
injured.Originally, Wilkinson had listed
employees who worked in Maryland, New Jersey, and
Pennsylvania. LM excluded those employees initially, but then
added them back in once it was unclear whether those
Wilkinson listed as out-of-state employees were, in fact,
out-of-state. The only employees who were not
classified as roofers were purely clerical employees and
this reclassification, the premium rose from the initial
estimate (based on false information) of $29, 912 to $73,
325. To date, Wilkinson has paid LM $39, 385, leaving a
balance of $33, 940. LM terminated the policy for non-payment
Files Suit Against Wilkinson.
filed suit against Wilkinson in the Court of Common Pleas for
the $33, 940 balance due. At mediation for that suit, LM
contended that it was owed an additional $62, 399. The suit
was transferred here. It is now alleged that Wilkinson owes
LM $96, 399, the sum of the balance due on the final audit
and the additional premiums identified by LM through the
Court of Common Pleas' discovery process.
the Policy period, LM paid one claim for $1, 649. The
employee was injured in Maryland but sought Delaware
benefits, requiring LM to pay. Wilkinson's principal
place of business is in Delaware, but on occasion its
employees leave the state for its projects. According to LM,
this makes them all Delaware employees. Wilkinson
disagrees that those employees should be classified as
Delaware employees for work they do in other
LM's Calculates Its Damages in Unpaid Premiums.
LM reclassified everyone except for four clerical employees
and two officers to Delaware, the premium jumped from the
initial estimated $29, 912 to $73, 325 in the final
discovery, LM reclassified several Delaware salespersons as
roofers, adding $14, 905 in premiums owed for those
reclassified roofers. LM also reclassified Maryland
salespersons as roofers, adding $9, 161 to the total premiums
owed. Finally, LM added $38, 333 in premiums owed on
out-of-state roofing employees in Maryland, Pennsylvania and
New Jersey. These additions result in the $62, 399 figure LM
argues that Wilkinson owes in addition to the outstanding
$33, 940 balance still owed on the final audit.
contends that Wilkinson owes premium on the out-of-state
roofing work not covered by insurance in the state in which
the work took place. Generally, if an individual is employed
by a Delaware company and lives in Delaware, but gets hurt in
another state, that employee can apply for benefits in the
state where he or she worked or Delaware. By industry
custom, carriers "will exclude each other's
[coverage] as long as they can verify that the coverage they
are excluding is actually being picked up by the
other." Here, LM initially thought that
Wilkinson had other states' coverage, but during
discovery, it realized that the state payroll breakdown was
not accurate - and that LM had relied on those inaccuracies
when it excluded the Maryland, Pennsylvania, and New Jersey
exposure. Additionally, none of the other
states' breakdowns reflect roofing work, even though all
were roofing jobs.
LM posits, all that LM excluded differed from what other
carriers were supposedly picking up. LM suggests, therefore,
that there were large parts of the payroll that no insurers
were covering. So LM had to provide coverage because all of
the employees on out-of-state jobs would have to be
classified as Delaware employees. That is, LM covered the
risk for each employee on those out-of-state jobs. LM argues
it should not have been providing that coverage without
charging the premium to cover those employees.
first acknowledges Wilkinson did have some form of coverage
in Maryland and Pennsylvania during the entire time that LM
was insuring it, though not for roofers. Also, Wilkinson had
coverage in New Jersey for the month of March, 2011. But
Wilkinson also completed a large job in that state and
didn't have coverage at the time of its performance on
that job. So LM says it was actually covering
benefits for New Jersey prior to March 2011, 
to LM, there is reason to believe that the coverage for
Wilkinson employees doing out-of-state jobs was not picked up
by the other states because LM was unable to verify any other
coverage. LM says it would, under its customary (but
voluntary) practice, have stopped charging or removed those
charges once it could verify any out-of-state coverage. But
LM never could, because Wilkinson never provided it with
proper records. LM alleges it "[has]n't been
provided with accurate records that have an accurate
breakdown with the state, which is why [LM] included everyone
under the Delaware class code, since they were all Delaware
employees and those wages had not been picked up by the other
states. Until a time when [LM has] accurate records so that
[it] can properly break down payroll by state and by
classification ... which [LM] still [does]n't have ...
the records [will] appear as all roofing."
best of Wilkinson's understanding, it was legally
required to have workers' compensation insurance in any
state where it worked. Failure to do so might provide an
employer an undue competitive advantage based on different
states' insurance rates; that could then translate to a
foreign contractor's bidding advantage on a
claims it would sometimes hire workers from other states when
it performed work in other states. If so, it might need
Delaware coverage for those particular workers. But Wilkinson
still provides no records supporting that assertion.
says it had a Maryland workers' compensation policy with
IWIF with a policy period from August 1, 2010, to August 1,
2011. It says it had a workers'
compensation policy in Pennsylvania with a policy period from
August 4, 2010, to April 21, 2011. It also says it had a
workers' compensation policy in New Jersey with a policy
period from March 22, 2011, to April 21, 2011. All three of
these policies were cancelled on or around the same time as
the LM policy in April 2011 because Wilkinson obtained one
policy that covered all of the states.
The Legal Standards Applied To Arrive at a Verdict.
LM brought suit against Wilkinson for breach of contract,
alleging that Wilkinson breached its obligations to pay the
required premium for workers' compensation insurance
because it failed to maintain accurate payroll breakdowns,
which would have allowed LM to definitively calculate the
premium due. Under Delaware law, a party claiming breach of
contract must prove three elements: (1) the existence of a
contractual obligation, express or implied; (2) a breach of
that obligation; and (3) resulting damages to the complaining
party. Delaware follows the
"'objective' theory of contracts, i.e.
contract construction should be that which would be
understood by an objective, reasonable third
party." "When interpreting a contract,
'[c]lear and unambiguous language . . . should be given
its ordinary and usual meaning.'"
prove the existence of the three elements of its
breach-of-contract claim, and the amount of any damages
therefrom, by a preponderance of the evidence.
Wilkinson Breached Its Contract with LM Regarding Proper
Classification of Wilkinson's Employees and Owes
Additional Premium for Its Roofers.
Wilkinson nor LM disputes there was a valid contract (the
"Policy") for workers' compensation insurance
coverage. What is disputed is whether there remains any
unpaid premium due to LM.
Policy states that Wilkinson was to expect that LM might
perform an audit at the beginning of the policy period and
review the payroll estimates and
classifications. It also states that LM expected
Wilkinson to "maintain appropriate records as required
by [the Policy's] terms to facilitate a thorough
audit." The Policy goes on to explain how LM
calculates premium. It says that "[a]ll premium for this
policy will be determined by our manuals of. . .
classifications, " and that "classifications [are]
assigned based on an estimate of the exposures [Wilkinson]
would have during the policy period." If Wilkinson