Commissioners of State Ins. Fund v Kuck

[*1] Commissioners of State Ins. Fund v Kuck 2004 NY Slip Op 51093(U) Decided on June 23, 2004 Civil Court Of The City Of New York, Richmond County Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on June 23, 2004
Civil Court of the City of New York, Richmond County

COMMISSIONERS OF STATE INSURANCE FUND, Plaintiff, against James Kuck, Defendant.



15068 RR1



Attorney for Plaintiff:

Ross, Suchoff, Hankin, Maidenbaum, Handwerker & Mazel

195 Broadway

New York, NY 10007

(212) 619-6401

Attorney for Defendant:

Pro Se

Judith R. McMahon, J.

Commissioners of State Insurance Fund, alleging a breach of contract by Defendant James Kuck, seeks unpaid Workers' Compensation and Employers' Liability Insurance premiums in the amount of $10,888.41 inclusive of a 22% collection fee charge, plus interest.

The instant action was commenced by the filing of a Summons and Complaint on or about October 11, 2001. Issue was joined on November 2, 2001. On March 5, 2002, the Court dismissed the action for Plaintiff's failure to appear before the Court. Plaintiff then brought a motion seeking to vacate its default and restore the case to the calendar. The motion was granted, the default vacated and the case was restored to the calendar by order of the Court on March 2, 2004. A Notice of Trial was filed by the Plaintiff on or about April 14, 2004. The trial convened on June 15, 2004 at which Plaintiff was represented by counsel and Defendant appeared pro se.

On May 20, 1999, Plaintiff received an application for New York Workers' Compensation and Employers' Liability Insurance from Mr. Kuck. (Pl. Exh. 1). The application contained a statement of an estimated annual payroll of $13, 018.00 by Defendant. At the time the application was made, Defendant paid $600.00 toward the policy's annual premium in the form of two money orders made payable to the State Insurance Fund. (Pl. Exh. 1). A policy for Workers' Compensation and Employers' [*2]Liability Insurance was issued by the State Insurance Fund for the period commencing May 21, 1999 and ending on May 21, 2000, which, pursuant to the policy, was automatically renewed for a term of another year. (Pl. Exh. 4). Plaintiff contends that the policy was ultimately cancelled on June 26, 2000 for Defendant's failure to make monthly payments of the annual premium and is seeking premiums for the entire term Defendant was covered up to June 26, 2000.

In support of its claim, Plaintiff offered into evidence a Statement of Account for James Kuck. (Pl. Exh. 3). The document indicates the monthly premium payment was $55.56, plus a $10.00 service charge for a total due each month of $65.56. The Statement of Account further illustrates that from the inception of the policy on May 21, 1999 through March 23, 2000, Defendant had paid $1,653.88 in premiums and other charges. As of March 23, 2000 Defendant had a "zero" balance on account. Furthermore, Plaintiff's witness testified as to the zero balance as of March 30, 2000. However, between March 23, 2000 and June 26, 2000, there accrued $14,772.19 in unpaid premiums and other charges, leading to the ultimate cancellation of the policy. As of December 12, 2003, the date of the last transaction in the Statement of Account, Defendant's balance was stated as being $8,924.93 plus the 22% collection fee charge of $1,963.48 for an aggregate sum of $10,888.41.

When questioned with regard to the exorbitant amount allegedly owed by Defendant subsequent to his zero balance of March 23, 2000, Plaintiff's witness, Nadine Moreau, an underwriter for the State Insurance Fund, testified that the initial annual premium was based on Defendant's declaration of $13,018.00 as his annual payroll as stated in his application. She explained that audits are supposed to be performed quarterly for purposes of adjusting the annual payroll amount, so that the annual premium is based on the employer's actual payroll, as opposed to the projected annual payroll. Ms. Moreau further testified that at no time since the date of the policy's issuance had the Defendant allowed audits of his books and records despite the five attempts made while the policy was in effect and the three attempts made subsequent to its cancellation. She averred that in situations where an employer refuses to allow an audit, an estimate of its payroll is made by the auditor, but that she had no knowledge as to how the estimates were calculated . In the instant matter, Ms. Moreau testified that the estimate of Defendant's annual payroll was $100,000.00. However, her testimony was completely devoid of any explanation as to how the $100,000.00 figure was arrived at and she repeatedly stated that it was based on a formula known to the auditor and that since she was not the auditor, she did not have any knowledge about the formula. The witness also testified that there was a minium annual premium amount of $2,000.00 notwithstanding the actual amount of annual payroll.

Defendant James Kuck testified that he never actually had employees working for him and therefore never had a payroll. He stated that he was the sole proprietor in a [*3]cabinet making business and that he needed the insurance policy so that he could receive work from other contractors. Mr. Kuck said he had tried repeatedly to contact the State Insurance Fund to notify them that he no longer needed the policy but was unable to reach anyone who could direct his call appropriately. It was at this time that Mr. Kuck stopped paying the monthly premium bills.

Defendant, by his own admission, breached the contract by not paying the monthly premium bill subsequent to March 23, 2000. Defendant's reasons for not doing so was that he no longer needed the insurance since he did not have or expect to have any employees. This argument is without merit since Defendant was required to follow the cancellation procedure as mandated in the policy. Part Five - Conditions D. Cancellation states, in pertinent part, as follows:

This policy may be cancelled only as follows:

...You must mail or deliver written notice to us which specifies

the date you propose cancellation to take effect. Notwithstanding

the date you specify, cancellation will not take effect until thirty

days after the date you mail or deliver notice to us and ten days

after we file notice in the office of the Chair of the Workers

Compensation Board... (emphasis added) (Pl. Exh. 4)

Since the policy further provides (Part Four - Premium F. Final Premium) that subsequent to cancellation, a final premium would be calculated on a pro rata basis for the period that the policy was in force, the mere cancellation of the policy did not necessarily end Defendant's obligations to make payments toward the premium. According to the policy, an employer is liable for remaining premium payments if, after the final calculation is performed, the actual premium was higher than the estimated one upon which the initial premium payments were based. Defendant did not, therefore, have the option of simply cancelling the policy by telephone since the final premium still needed to be determined and monies may have been owed. Since Mr. Kuck did not allow for an audit of his books and records, the issue before the Court is whether the State Insurance Fund is entitled to recover premium payments based on payroll amounts calculated by way of an estimated audit.

Pursuant to the Workers' Compensation Law §95

Every employer who is insured in the State Insurance Fund shall

keep a true and accurate record of the number of his employees

and the wages paid by him, and shall furnish, upon demand, a sworn

statement of the same. Such record shall be open to inspection at

any time and as often as may be necessary to verify the number of

employees and the amount of the payroll...(See also, Workers'

Compensation Law §131). [*4]

Moreover, the policy itself states at Part Five - Premium G. Records "[y]ou will keep records of information needed to compute premium. You will then provide us with copies of those records when we ask for them." (Pl. Exh. 4). An employer is therefore obligated under statutory law and the terms of the contract to allow for audits of its books and records, including payroll information. Mr. Kuck did not uphold his obligations under the contract in violation of the Workers' Compensation Law.

In situations in which an employer has refused to allow an audit, prior courts have held that the State Insurance Fund may rely on estimated audits in order to compute the payroll basis for purposes of determining annual policy premiums. Commissioners of the State Ins. Fund v. Global Distributors, Inc., NYLJ 2/24/92 35, (col. 5); Commissioners of the State Ins. Fund v. Branicki, 3/1/04 NYLJ 20, (col. 3). The rationale behind this is "...precisely to entice [the employer] to comply with the law and make his books and records available, since the estimated premium will almost always be much higher than the premium based on an audit." Commissioners of the State Ins. Fund v. Branicki, 3/1/04 NYLJ 20, (col. 3).

Since Mr. Kuck failed to provide Plaintiff with access to his books and records, Plaintiff was within its rights to rely on estimated audits. However, Plaintiff must demonstrate its entitlement for the amount it is seeking by providing evidence as to how it arrived at the figure. Commissioners of the State Ins. Fund v. Branicki, 3/1/04 NYLJ 20, (col. 3).

Much like the case of Commissioners of the State Ins. Fund v. Branicki, id., Plaintiff in this matter has failed to demonstrate the manner in which it arrived at the ultimate figure of $10,888.41, other than to state that it was based on an estimated payroll of $100,000.00. There was a complete lack of testimony as to the facts, figures, schedules and/or formulas used to estimate the payroll as $100,000.00. Plaintiff's witness averred that she was without the knowledge of the formula used because she is an underwriter and the calculations of estimated payrolls fall within the province of the auditor. Plaintiff did not produce the auditor for illumination on this germane issue. The Statement of Account and the printout from the Premium Audit Department proffered as evidence by Plaintiff also do not set forth any ascertainable standard for the computation of the estimated payroll figure of $100,000.00. Therefore, Plaintiff failed to sustain its burden of proof as to the amount of damages it is seeking.

The Court notes that while Ms. Moreau testified that Mr. Kuck's policy had a minimum premium of $2,000.00, there is nothing in the record to support that. The policy itself refers to "...Information Page, schedules and endorsements..." in which the annual estimate is stated, but no such documents are attached to the subject policy. (Pl. Exh. 4). Therefore, the Court must calculate damages based Ms. Moreau's and Mr. Kuck's testimony along with the documentary evidence presented. [*5]

The testimony elicited at trial, as well as the Statement of Account (Pl. Exh. 3), indicated the monthly premium to be in the amount of $65.56. Since Defendant had a zero balance as of March 23, 2000 and the policy was cancelled by Plaintiff on June 26, 2000, the only months in which the premium payments were outstanding are April, May and June 2000. The aggregate amount owed then is $196.68, plus the twenty-two percent collection fee charge pursuant to State Finance Law Article 2 §18(4) and (5) in the amount of $43.27 ($196.68 x 22%), totaling $239.95, plus statutory interest from June 26, 2000.

Accordingly, judgment is entered in favor of the Plaintiff Commissioner's of the State Insurance Fund against the Defendant James Kuck in the amount of $239.95, plus interest from June 26, 2000.

This is the Decision and Order of the Court.

Court attorney to notify all sides.

Dated: June 23, 2004

ASN by_____on____ Judith R. McMahon Judge, Civil Court

COMMISSIONERS OF STATE INS. FUND v. JAMES KUCK

Index No. 15068 RR1 2001 [*6]

Attorney for Plaintiff:

Ross, Suchoff, Hankin, Maidenbaum, Handwerker & Mazel

195 Broadway

New York, NY 10007

(212) 619-6401

Attorney for Defendant:

Pro Se

Contact Person:

Wendy Keegan, Esq.

Court Attorney to the Hon. Judith R. McMahon

(718) 390-5424

Wkeegan@courts.state.ny.us