Matter of Held v State of New York Workers' Compensation Bd.

[*1] Matter of Held v State of New York Workers' Compensation Bd. 2008 NY Slip Op 52741(U) Decided on July 7, 2008 Supreme Court, Albany County O'Connor, J. 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 7, 2008
Supreme Court, Albany County

In The Matter of the Application of William Held, Jr., as Chairman of Contractors Compensation Trust; ALFRED LAVKER, as Chairman of Cooperative Association of Food Enterprises Workers' Compensation Trust; JOHN S. KOGET, as Chairman of THE ELEC-CON TRUST; GERALD O. SILVER, as Chairman of Empire State Education Trust; JOSEPH SCARING, as Chairman of Empire State Hospitality Workers' Compensation Trust; GREGORY F. DeLORENZO, as Chairman of Empire State Transportation Workers' Compensation Trust; FLOYD HUNTZ, as Chairman of First Automotive Services Trust; JOHN SHERMAN, as Chairman of NYSARC Workers' Compensation Trust; JOHN D. MANISCALCO and THOMAS J. PETERS, as Co-Chairman of New York Petroleum Associations Compensation Trust; PAUL ROSS, as Chairman of New York McDonald's Operators Worker's Compensation Trust; JAMES R. PIETROPAOLI, as Chairman of NY Transportation Workers' Compensation Trust; JOHN MacDOUGALL, as Chairman of Retailers of New York Workers' Compensation Trust; and KENNETH MONTERA, as Chairman of The Selective Safety Trust, Petitioners, Kevin Murphy, as Chairperson of NYAHSA Services, Inc. Self Insurance Trust, TODD BRASON, as Chair of the Health Care Providers Self-Insurance Trust, and JANICE M. JOHNSON, Chair of the Community Residence Insurance Savings Plan (CRISP) Self-Insurance Trust, Intervenor Petitioners, For a Judgment Pursuant to New York CPLR Article 78

against

State of New York Workers' Compensation Board, and Zachary S. Weiss, as Chairman of the Workers' Compensation Board, Respondents.



2957-08



PATTERSON BELKNAP WEBB

& TYLER LLP

Attorneys for Petitioners

(Stephen P. Younger and

Ella Campi, Esqs., of Counsel)

1133 Avenue of the Americas

New York, New York 10036

PHILLIPS LYTLE LLP

Attorneys for Petitioners

(Kenneth A. Manning, Craig R. Bucki,

and Sean C. McPhee, Esqs., of Counsel)

One HSBC Center, Suite 3400

Buffalo, New York 14203-2887

PHILLIPS LYTLE LLP

Attorneys for Petitioners

(Richard E. Honen and

Kelly Mooney Lester, Esqs., of Counsel)

Omni Plaza, 30 South Pearl Street

Albany, New York 12207

BOND, SCHOENECK & KING, PLLC

Attorneys for Intervenor Petitioners

NYAHSA Services, Inc. Self Insurance Trust

and Community Residence Insurance Savings

Plan Self-Insurance Trust

(Hermes Fernandez and Stuart F. Klein, Esqs., of Counsel)

111 Washington Avenue

Albany, New York 12210-2211

WHITEMAN OSTERMAN & HANNA, LLP

Attorneys for Intervenor Petitioner Health Care

Providers Self-Insurance Trust

(John P. Calareso, Jr., Esq., of Counsel) One Commerce Plaza

Albany, New York 12260

HON. ANDREW M. CUOMO

Attorney General of State of New York

Attorney for Respondents

(Richard Lombardo and Douglas J. Goglia,

Assistant Attorneys General, and

Robert M. Goldfarb, Assistant Solicitor

General, of Counsel)

The Capitol

Albany, New York 12224

COLLERAN, O'HARA & MILLS, LLP

Attorneys for the New York State AFL-CIO

(Edward J. Groarke, Esq., of Counsel)

1225 Franklin Avenue, Suite 450

Garden City, New York 11530

MACKENZIE HUGHES LLP

Attorneys for the Special Trades Contracting and Construction Trust

(Edward J. Moses, Esq., of Counsel)

101 South Salina Street, Suite 600

P.O. Box 4967

Syracuse, New York 13221-4967

Kimberly A. O'Connor, J.

Petitioners, thirteen group self-insured trusts, commenced the instant CPLR Article 78 proceeding (and companion declaratory judgment action) to challenge the authority of respondent New York State Workers' Compensation Board ("Board") to levy certain assessments against them pursuant to Workers' Compensation Law § 50 (5). On consent of the parties and by Orders of this Court, executed May 16, 2008 and May 23, 2008, three additional group self-insured trusts have intervened as petitioners in this proceeding. The New York State AFL-CIO and the Special Trades Contracting and Construction Trust appear as amicus curiae.

BACKGROUND

Some initial review of the relevant statutory and regulatory scheme is necessary to frame the facts of this proceeding. Section 50 of the Workers' Compensation Law ("WCL") requires all [*2]employers in the State of New York to provide coverage for workers' compensation benefits to their employees. Pursuant to the WCL, there are three methods of providing workers' compensation coverage to employees. An employer may: (1) purchase a workers' compensation insurance policy from the State Insurance Fund (see Workers' Compensation Law § 50 [1]); (2) purchase a workers' compensation insurance policy from an insurance carrier authorized to transact business in New York State (see Workers' Compensation Law § 50 [2]); or (3) self-insure as an individual or as a member of a group (see Workers' Compensation Law § 50 [3], § 50 [3-a]).

WCL § 50 (3-a) provides the method by which employers in New York State may secure workers' compensation benefits for their employees through group self-insurance. Pursuant to WCL

§ 50 (3-a), employers performing related activities in a given industry may adopt a plan for self insurance as a group to provide coverage for workers' compensation benefits to their employees. The legal entities formed thereunder are denominated group self-insurance trusts ("GSIT"), and there must exist "a homogeneity in the nature of the group members' business activities" to qualify to operate as a GSIT (12 NYCRR 317.2 [l]; see also 12 NYCRR 317.3 [a]).

Under the plan, each employer member of the GSIT contractually agrees to assume the workers' compensation obligations of each associated member (see Workers' Compensation Law § 50 [3-a] [2]; see also 12 NYCRR 317.2 [i]). That is, "each employer member of a GSIT agrees to be jointly and severally liable for the liabilities of the GSIT as a whole" (petition, exhibit A at 3). As such, an employer participating in a GSIT is not relieved from liability for compensation prescribed by the WCL except by payment thereof by the GSIT or by the employer itself (see Workers' Compensation Law § 50 [3-a] [3]).

Pursuant to the WCL, each GSIT is required to "furnish satisfactory proof to the [Board] chairman of its financial ability to pay [workers'] compensation for the employers in the industry covered by it, its revenues, their source and assurance of continuance" (Workers' Compensation Law § 50 [3-a] [2]). GSITs accomplish this by depositing with the chairman securities or cash, or filing irrevocable letters of credit and/or a surety bond in an amount jointly determined by the chairman of the Board and the superintendent of insurance to secure their liability to pay the compensation of each employer member of the GSIT (see id; see also Workers' Compensation Law § 50 [5] [d]). In addition to the statutory requirements, the promulgated regulations set forth the application procedures, qualifications, and responsibilities of GSITs (see 12 NYCRR 317, et seq.).

The New York State Workers' Compensation Board is the governmental entity charged, inter alia, with administering the provisions of the WCL and attendant regulations pertaining to workers' compensation benefits. As a self-funded agency, the Board's administrative expenses are recouped through annual assessments on the participants in the workers' compensation system. Under WCL § 50 (5) (c), the Board is authorized to levy an assessment against all self-insurers, both individual and group, for general administrative expenses[FN1] and for all other direct or indirect costs incurred by the Board during the preceding fiscal year in administering the self-insurance program. Furthermore, "[w]henever the chairman [of the Board] shall determine that the compensation and benefits provided by [the WCL] may be unpaid by reason of the default of an insolvent private self-insured [*3]employer and the penal sum of the surety bond and[/]or the securities or irrevocable letters of credit or cash held on its behalf by the chairman are about to become exhausted," the chairman is authorized pursuant to WCL § 50 (5) (f)[FN2] to "levy an assessment against all private self-insured employers."

Assessments levied by the Board pursuant to WCL § 50 (5) (c) and § 50 (5) (f) are allocated against each self-insurer, individual and GSIT, using a "pure premium" calculation (see Workers' Compensation Law § 50 [5] [c]). The "pure premium" calculation is the result of a statutory amendment to § 50 (5) (c), which took effect on January 1, 2008. As part of the Workers' Compensation Reform Bill, signed into law in March of 2007, the Legislature changed the assessment methodology for § 50 (5) assessments from a security deposit calculation to a "pure premium" calculation. Under the former, § 50 (5) assessments were allocated between individual self-insurers and GSITs on the basis of the relative proportion of surety bonds pledged to the Board. Under the new methodology, the basis of apportionment of the assessment against each self-insurer is a sum equal to that proportion of the amount which the "pure premium" calculation for each self-insurer bears to the total "pure premium" calculation for all self-insurers (id.). "Pure premium calculation" is defined in § 50 (5) (c) as the New York State annual payroll as of December 31st of the preceding year by class code for each individual self-insurer or employer member of a GSIT multiplied by the applicable rate for each class code as determined by the workers' compensation rating board in effect on December 31st of the preceding year (id.).

2008 Assessments

Each of the petitioners and intervenor petitioners in this proceeding is a GSIT established pursuant to WCL § 50 (3-a) and the promulgated regulations, and administered by a third-party administrator pursuant to an administration agreement. On February 11, 2008, the Board chairman sent each petitioner and intervenor petitioner a Notice of Assessment, demanding the first quarterly installment of the § 50 (5) assessments, comprising both the § 50 (5) (c) assessment and the § 50 (5) (f) assessment.[FN3] According to petitioners, their annual assessments for 2008 total more than $11 million collectively, and represent an increase of more than 8,000% over the Board's 2007 § 50 (5) assessments. Intervenor petitioners contend that their annual assessments total more than $2.5 million collectively, and represent an approximate increase of 2,386%, 4,000%, and 11,000% respectively from the Board's 2007 § 50 (5) assessments.

By letter dated February 15, 2008, petitioners, through their third party administrator, disputed the 2008 § 50 (5) assessments levied against them, and requested: (1) an explanation of the statutory and regulatory bases for the assessments; (2) an itemization of expenses included within the assessments; and (3) access to the Board's records supporting the allocation of assessments (see petition, exhibit D). Subsequent letters, dated March 10, 2008, were sent to the Board by petitioners' third party administrator "requesting written follow-up on the authority and support for the significant assessments" and "a meeting [to discuss] the recent 50-5 assessments" (see petition, exhibits E, F). Petitioners' records access request was denied by letter of the Board dated March 17, [*4]2008, and payment of the subject assessments was demanded. By the same letter, petitioners were advised that failure to remit payment of the 2008 assessments would result in "whatever action [the Board] deems necessary including, but not limited to, immediately drawing upon the security posted by the [GSIT] . . . and/or moving to revoke the [GSIT's] authority to operate as a group self-insurer . . . ." (see petition, exhibit G). This proceeding followed.

Petitioners made a motion to stay enforcement of the 2008 § 50 (5) assessments levied against them pending the Court's determination of the petition in this proceeding. The parties agreed to a voluntary stay through the return date of the application. Oral argument was heard on the motion on May 1, 2008, and a temporary stay was granted by Decision and Order of this Court, dated May 2, 2008, as to the enforcement of the portion of the assessments that had been imposed by the Board pursuant to WCL § 50 (5) (f). Petitioners, however, were directed to pay the portion of the 2008 assessments levied pursuant to WCL § 50 (5) (c)—the general administrative expenses—which were not in dispute and are not the subject of this proceeding. Petitioners have paid their § 50 (5) (c) general assessments in full. Intervenor petitioners have paid in full the first quarterly installments of their 2008 § 50 (5) (c) and § 50 (5) (f) assessments.[FN4]

Oral argument was held on May 1, 2008 and May 23, 2008 in connection with this proceeding. The papers are fully submitted, and all issues have been fully briefed.

ARGUMENTS

Petitioners' and Intervenor Petitioners' Contentions

By their petitions, petitioners and intervenor petitioners argue that the 2008 WCL § 50 (5) (f) assessments levied against them by the Board are unlawful and should, therefore, be annulled and vacated on the grounds that: (1) the § 50 (5) (f) assessments are infected by an error of law; (2) the Board's application of the § 50 (5) (c) "pure premium" calculation was arbitrary and capricious, and without a rational basis; and (3) the assessments violate their federal and state constitutional rights. Petitioners further assert claims that the Board acted in an arbitrary and capricious manner, and abused its discretion by refusing to make open for public inspection by petitioners certain records pertaining to and supporting the imposition of the § 50 (5) (f) assessments against GSITs, and the bases and methods for the allocation of those expenses to the petitioners.

By this proceeding, petitioners and intervenor petitioners seek a judgment: (1) declaring that the portion of the 2008 WCL § 50 (5) assessments levied by the Board against them pursuant to § 50 (5) (f), which includes monies for the anticipated liabilities or other losses for defaulted GSITs, is invalid as having been made in excess of the respondents' statutory and/or regulatory authority; (2) annulling and vacating the § 50 (5) (f) assessments imposed by the Board against petitioners and intervenor petitioners until they are correctly recalculated without including monies for defaulted GSITs, and made with a reasonable basis for allocating the Board's expenses between individual self-insurers and GSITs; (3) granting petitioners' access to the books and records of the Board that are related to the challenged assessments; (4) financially reimbursing intervenor petitioners for the portion of the 2008 § 50 (5) assessments they paid in full, which included the losses, liabilities, and [*5]expenses, anticipated or actual, of defaulted GSITs; (5) barring respondents from taking any adverse action against petitioners, intervenor petitioners, or their third party administrators based, in whole or in part, on the actions of the petitioners and intervenor petitioners in challenging and withholding portions of the Board's 2008 § 50 (5) assessments, and the denial of petitioners' access through its third party administrator to the Board's books and records; and (6) granting such other and further relief as the Court deems just and proper.

Error of Law Claims

Petitioners and intervenor petitioners allege that the Board lacks statutory and regulatory authority to assess healthy GSITs for the anticipated losses, liabilities, and expenses of defaulted GSITs because: (1) WCL § 50 (5) (f) authorizes the Board chairman to levy assessments only for losses that have actually been incurred in connection with "an insolvent private self-insured employer"; it does not authorize assessments for potential or prospective liabilities of a defaulted GSIT; (2) the statutory and regulatory scheme creating GSITs limits the liability of the employer members of a GSIT to the workers' compensation obligations of that particular GSIT; the scheme does not support assessments for the obligations of other unrelated GSITs; (3) WCL § 50 (5) (f) applies only to "private self-insured employers" (i.e., individual self-insurers) and not to GSITs; and (4) WCL § 50 (5) (d) provides the sole method for the Board to address GSIT insolvency.[FN5]

Petitioners and intervenor petitioners further contend that even if the Board had statutory authority to levy the WCL § 50 (5) (f) assessments, such assessments are nonetheless invalid because: (1) the Board failed to promulgate reasonable rules and regulations, as required by § 50 (3-a) (6), authorizing the Board to assess healthy GSITs for the workers' compensation liabilities of defaulted GSITs; and (2) the Board did not meet the statutory prerequisites of § 50 (5) (f) before imposing the assessments.

"Pure Premium" Calculation Claim

Petitioners and intervenor petitioners assert that the Board's implementation of the 2007 amendment to WCL § 50 (5) (c), prescribing the "pure premium" calculation as the method for allocating § 50 (5) assessments amongst both individual self-insurers and GSITs, was arbitrary and capricious, and without a rational basis. Specifically, they argue that the Board has not set forth any rational basis to calculate the "pure premium" of individual self-insurers, and does not have a rational process for accurately implementing the "pure premium" calculation method as to all self-insurers. Thus, petitioners and intevenor petitioners contend that the "pure premium" calculation the Board uses in apportioning the § 50 (5) assessments between individual self-insurers and GSITs is materially misstated.

Constitutional Claims

Petitioners and intervenor petitioner NYAHSA allege that the Board's WCL § 50 (5) (f) assessments violate their federal and state constitutional rights under the due process clause, the takings clause, and the contracts clause. They argue that these assessments violate their due process rights because WCL § 50 lacks the requisite clarity to apprise them of their potential for liability for the obligations of other GSITs, and is ambiguous as to the application of the assessment mechanism in § 50 (5) (f). Furthermore, petitioners and intervenor petitioner NYAHSA contend that because the § 50 (5) (f) assessments create an inequality in the burden imposed without conferring a benefit, [*6]such assessments, if enforced, constitute a taking of property without just compensation within the meaning of the takings clause, further abridging their due process rights. Finally, petitioners and intervenor petitioner assert that the challenged assessments violate their rights under the contracts clause because the assessments severely impair their obligations under their respective trust agreements, and are an unreasonable and inappropriate means to ensure that the workers' compensation claims made against members of defaulted GSITs are paid.

Intevenor petitioners also allege that the Board acted in an arbitrary and capricious manner by levying the § 50 (5) (f) assessments only against individual self-insurers and GSITs, and not imposing these assessments upon public employers, self-insuring either individually or as a member of a GSIT exclusively made up of public employers. They argue that this selective assessment lacks any rational basis, and is in violation of the equal protection clause because: (1) the only basis for this treatment is respondents' claim that public self-insurers cannot default on their workers' compensation obligations since they have taxing authority; (2) the need for the assessment is not due to the default of the assessed self-insurer; and (3) a public self-insurer can default on its workers' compensation obligations.

Petitioners' Remaining Claims

Petitioners charge the Board with acting in an arbitrary and capricious manner, and abusing its discretion by refusing to disclose for inspection by petitioners an itemization of the costs and expenses included in the WCL § 50 (5) (f) assessments; support for the anticipated losses, liabilities, and expenses of the defaulted GSITs, including recent financial statements of the defaulted GSITs; collection efforts undertaken by the Board against the defaulted GSITs to secure their workers' compensation obligations, including billings, if any, imposed upon the members of the defaulted GSITs for the anticipated losses, liabilities, and expenses expected to be disbursed by the Board on their behalf; and the bases and methods for the allocation of those expenses to the petitioners, including but not limited to, the derivation of the "pure premium" allocation.

Respondents' Opposition

By their opposition, respondents raise two objections in point of law, and seek dismissal of the petitions on the grounds that the claims advanced by petitioners and intervenor petitioners are entirely without merit. Specifically, respondents contend that: (1) the Board's construction of WCL § 50 (5) (f) is reasonable and should be upheld because the Board is interpreting a statute that it drafted and proposed, and the issues in this proceeding implicate the Board's special competence in its administration of the statute; (2) the Legislature intended § 50 (5) (f) to apply to all "private self-insured employers," including those employers self-insuring individually under § 50 (3) as well as those employers self-insuring as a group under § 50 (3-a), exempting only those public employers that self-insure as individuals or as part of a group comprised exclusively of public employers; (3) the plain language of the statute authorizes § 50 (5) (f) assessments against GSITs for the anticipated losses, liabilities, and expenses of other defaulted, insolvent GSITs; (4) WCL § 50 (5) (f) assessments do not contravene and/or conflict with the statutory and regulatory scheme creating GSITs; (5) WCL § 50 (5) (d) does not limit the assessment provisions set forth in § 50 (5) (f), but rather provides an alternative, discretionary means to ensure the financial abilities of GSITs; and (6) the Board is not required to promulgate a rule or regulation restating its statutory authority to assess GSITs for the workers' compensation obligations of other defaulted GSITs.

Respondents also argue that the Board's basis for the "pure premium" calculation is set forth [*7]in WCL § 50 (5) (c), and that the exact same calculation is used for individual self-insurers as well as GSITs. Moreover, respondents assert that the Board did not violate petitioners' and intervenor petitioners' due process rights and/or their rights under the contracts clause, takings clause, and equal protection clause of the federal and state constitutions. The Board contends that: (1) legislative enactments are entitled to a strong presumption of constitutionality; (2) WCL § 50 (5) (f) was enacted to cure what the Legislature perceived to be a significant social and economic problem—to ensure that eligible claimants would receive workers' compensation benefits to which they are entitled, notwithstanding the default of an insolvent private self-insured employer; (3) WCL § 50 (5) (f) is clear and unambiguous, and sufficiently places GSITs on notice as to their obligations to pay their share of the Board's administration expenses, which includes amounts the Board may pay as compensation and benefits for a defaulted private self-insured employer; and (4) the Board's actions in imposing the § 50 (5) (f) assessments serve a legitimate public purpose, and are a reasonable and necessary means to accomplish such purpose.

Finally, respondents argue that petitioners' claims that the Board acted in an arbitrary and capricious manner, and abused its discretion by refusing to make open for public inspection by petitioners certain records pertaining to and supporting the imposition of the WCL § 50 (5) (f) assessments against GSITs, and the bases and methods for the allocation of those expenses to the petitioners should be dismissed because of petitioners' failure to exhaust their administrative remedies.

Recent Legislative Activity

It should be noted that recent legislation was passed and signed into law that will alter this area of the Workers' Compensation Law, including some of the provisions specifically at issue in this proceeding (see Governor's Program Bill No. 70; 2008 NY Senate-Assembly Bill S 8708, A11756). While petitioners, intervenor petitioners, and respondents have written to this Court extensively, after the papers in this case were fully submitted, regarding the impact that these changes in the law may have on this proceeding, the majority of the amendments to the existing law are irrelevant to this proceeding. Additionally, any ambiguity in the effective date and any possible retroactive application of these changes in the law have no bearing on this proceeding, as will be more fully described herein.

DISCUSSION

"Courts have rarely singled out error of law,' by name, as a question for consideration in an Article 78 proceeding" (Vincent C. Alexander, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 7803:1). The question of whether an administrative agency's determination is affected by an error of law is often implicit in the nature of the grievance, and will often turn on the underlying substantive law applicable to the determination (id.; see also 14-7803 Weinstein-Korn-Miller, NY Civ Prac ¶ 7803.01 [3]). For example, if an agency improperly interprets or applies a statute or regulation, the determination may be affected by an error of law (see Weinstein-Korn-Miller, supra; see also Alexander, supra).

As a general matter, an agency's interpretation of the statutes and regulations that it is charged with administering will be upheld if the question before the court involves the agency's special competence or expertise (see Weinstein-Korn-Miller, supra), and there has been no showing that the agency's interpretation is irrational or unreasonable (see Lorillard Tobacco Co. v Roth, 99 NY2d 316, 322 [2003]; see also Seittelman v Sabol, 91 NY2d 618, 625 [1998]). If, however, on the facts [*8]presented, "the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the . . . agency" (Lorillard Tobacco Co. v Roth, supra; see also Price Chopper Operating Co. v New York State Liquor Auth., 52 AD3d 924, 925 [3d Dept 2008]; see also Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459 [1980]).

The main question before the Court in this proceeding is whether the Board had legal authority to assess healthy GSITs, including petitioners and intervenor petitioners, for the anticipated losses, liabilities, and expenses of defaulted GSITs. If the law confers this authority on the Board, the Court must then determine whether that authority has been properly exercised under the facts presented in this case. Essential to these determinations is a review of the language of WCL § 50, particularly the assessment provisions set forth in WCL § 50 (5) (f), and the interpretation and resulting application of those provisions.

"The governing rule of statutory construction is that courts are obliged to interpret a statute to effectuate the intent of the Legislature" (People v Finnegan, 85 NY2d 53, 58 [1995]). Since "the clearest indicator of legislative intent is the statutory text, the starting point in any case of interpretation must always be the language itself" (Price Chopper Operating Co., supra, citing Majewski v Broadalbin-Perth Cent. Sch. Dist., 91 NY2d 577, 583 [1998]; see also Matter of Kern v New York State Dept. of Civ. Serv., 288 AD2d 674, 676 [3d Dept 2001]). Thus, "[w]here the statutory language is clear and unambiguous, the court should construe it so as to give effect to the plain meaning of the words used" (Wise v Jennings, 290 AD2d 702, 703 [3d Dept 2002], quoting Patrolmen's Benevolent Assn. of City of New York v. City of New York, 41 NY2d 205, 208 [1976] [internal quotations and citations omitted]).

WCL § 50 (5) (f) provides, in relevant part, as follows: Whenever the chairman shall determine that the compensation and benefits provided by this chapter may be unpaid by reason of the default of an insolvent private self-insured employer and the penal sum of the surety bond and[/]or the securities or irrevocable letters of credit or cash held on its behalf by the chairman are about to become exhausted, the chairman shall levy an assessment against all private self-insured employers in accordance with paragraphs c and e of this subdivision to assure prompt payment of such compensation and benefits.

Initially, the Court finds that the language of WCL § 50 (5) (f) is clear and unambiguous on its face. As such, the Court will construe it so as to give effect to the plain meaning of the words used. Applying the principles of statutory construction, the Court finds that upon a plain reading of § 50 (5) (f) considered in light of the relevant legislative history, attendant regulations, and the provisions of § 50 as a whole, the Legislature's use of the term "private self-insured employer" evidences its intent that such provision apply to all non-public self-insurers, including individual self-insured employers and GSITs.[FN6]

There has been a great deal of treatment in the record before the Court regarding the use of the terms "private" and "employer" as they relate to legislative intent, the statutory and regulatory scheme of individual and group self-insurance, and the assessments at issue in this proceeding. The [*9]statutory and regulatory scheme, together with the relevant legislative history, supports use of the term "private" and "employer" in the context of the self-insurance program, and more specifically, in WCL § 50, as referring to both individual self-insurers and GSITs. Furthermore, the term "private" is meant to distinguish non-public individual employers self-insuring under the provisions of § 50 (3) and non-public employer groups self-insuring under the provisions of § 50 (3-a), from public employers self-insuring individually pursuant to the provisions of § 50 (4) or as a group exclusively made up of public employers pursuant to the provisions of § 50 (3-a). Thus, the term "private self-insured employer," as contemplated by the Legislature, includes non-public individual self-insured employers and GSITs, comprising non-public employers only as well as GSITs that include both public and non-public employers. As such, these "private self-insured employers" are subject to WCL § 50 (5) (f) assessments.

Notwithstanding the petitioners' and intervenor petitioners' arguments to the contrary, the Court further finds that the language of the statute expressly confers upon the Board the authority to assess all private self-insurers for the anticipated losses, liabilities, and expenses of defaulted GSITs. Respondents' contentions that recent changes in the law clarify this issue and that such changes should be applied retroactively are rendered academic as this Court has determined that this provision, prior to the change in the law, applies to all private self-insurers.

However, for the reasons that follow, the Court finds that the Board improperly exercised its authority in levying the WCL § 50 (5) (f) assessments. Section 50 (5) (f) sets forth conditions precedent to the imposition of an assessment. Specifically, the Board is only authorized to levy an assessment after the chairman has determined that claims may go unpaid "by reason of the default of an insolvent private self-insurer and that the penal sum of the surety bond and[/]or the securities or irrevocable letters of credit or cash held on its behalf by the chairman are about to become exhausted" (emphasis added). Insolvency must be real and actual prior to imposing the assessment, not prospective or speculative. This is clear from the legislative history surrounding the enactment of this provision. Furthermore, it must be demonstrated that the penal sum of the surety bond and/or securities, irrevocable letters of credit, or cash held by the chairman on behalf of the self-insurer are about to become exhausted.

The Court finds merit in petitioners' and intervenor petitioners' claim that the Board failed to comply with the statutory requirements of WCL § 50 (5) (f) prior to levying assessments against them. The record shows that the § 50 (5) (f) assessments being challenged in this proceeding are attributable to the losses, liabilities, and expenses of nine defaulted GSITs. Respondents contend that of the nine defaulted GSITs, the Board is currently making claims payments on behalf of six because they are financially unable to do so, and thus are "clearly insolvent." Respondents also contend that the Board has either called or will shortly call in the security deposits of each of the nine defaulted GSITs, and that the security deposits of these GSITs have been liquidated or are expected to be liquidated shortly.

Other than the entirely conclusory assertions set forth in the self-serving affidavits of Mary Beth Woods,[FN7] submitted on behalf of respondents in support of their position in this proceeding, [*10]there is nothing in the record before the Court which establishes that the six defaulted GSITs are in fact insolvent. Furthermore, respondents admit that the remaining three defaulted GSITs "are expected to become insolvent within months," which is supported by the record. Moreover, the Court rejects respondents' suggestion that total insolvency is neither a requirement of nor a condition precedent to the levying of an assessment pursuant § 50 (5) (f). Finally, respondents have failed to demonstrate to this Court's satisfaction, and there is nothing in the record before the Court to establish, that the posted security held by the chairman on behalf of the nine defaulted GSITs are about to become exhausted.

Under these circumstances, the Court finds that the challenged assessments are based upon a flawed interpretation of the relevant provisions of WCL § 50 (5) (f). As such, the Board's determination to levy these assessments was affected by an error of law.

The Board's application of the WCL § 50 (5) (c) "pure premium" calculation, however, was not arbitrary and capricious, and thus was rationally based. An action is arbitrary and capricious when it is "taken without sound basis in reason and . . . without regard to the facts'" (Matter of Konski Engrs., P.C. v Levitt, 69 AD2d 940, 942 [3d Dept 1979], quoting Matter of Pell v Bd. of Educ. of Union Free Sch. Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222, 231 [1974]; accord Matter of Heintz v Brown, 80 NY2d 998, 1001 [1992]; see also Matter of Grella v Hevesi, 38 AD3d 113, 116 [3d Dept 2007]). The court's "function is limited to whether the administrative action may be supported on any rational basis" (Matter of C.K. Rehner, Inc. [City of New York], 106 AD2d 268, 270 [1st Dept 1984]), and the court may not disturb factual determinations (see Matter of Heintz v Brown, supra), weigh the evidence (see Matter of Pell v Bd. of Educ. of Union Free Sch. Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, supra at 230), or substitute its judgment for that of the administrative official (see id. at 230-31).

In the present case, the basis for the "pure premium" calculation is expressly set forth in WCL § 50 (5) (c) as described above. Furthermore, the "pure premium" calculation is used to apportion § 50 (5) assessments against all private self-insurers. In light of the statutory basis for the "pure premium" calculation, and notwithstanding petitioners' and intervenor petitioners' arguments pertaining to the accuracy of the "pure premium" calculation method as applied to all private self-insurers, including individual self-insurers and GSITs, the Court finds that the Board's use of the "pure premium" calculation in allocating the 2008 WCL § 50 (5) assessments was neither arbitrary nor capricious and, therefore, will not be disturbed (see Crest Mainstream, Inc. v Mills, 257 AD2d 969, 971 [3d Dept 1999]).

Furthermore, it is well settled that "an [A]rticle 78 proceeding may not be used to test the constitutionality of a legislative enactment" (Bd. of Educ. of Belmont Cent. Sch. Dist. v Gootnick, 49 NY2d 683, 687 [1980]; see also R & G Outfitters, Inc. v Bouchard, 101 AD2d 642, 643 [3d Dept 1984]). However, "it is the proper method for the determination of whether a statute in a specific instance has been applied in an unconstitutional manner" (R & G Outfitters, Inc. v Bouchard, supra; see also Kovarsky v Hous. & Dev. Admin. of City of New York, 31 NY2d 184, 191 [1972]). [*11]As the constitutional due process, takings, and contracts clause claims raised by petitioners and intervenor petitioner NYAHSA present questions concerning the constitutionality of WCL § 50 (5) (f) itself, the Court is unable to address these claims in this proceeding.[FN8] To the extent that intervenor petitioners' equal protection claim can be determined herein, the Court finds such claim to be without merit.

Finally, petitioners claims that the Board acted in an arbitrary and capricious manner, and abused its discretion by refusing to make open for public inspection by petitioners certain records pertaining to and supporting the imposition of the WCL § 50 (5) (f) assessments against GSITs, and the bases and methods for the allocation of those expenses to the petitioners are moot. These claims were also advanced in a separate application to the Court, and decided by Decision and Order, dated June 18, 2008.

All remaining contentions raised by the parties' in this proceeding have been considered and found to be without merit.

Despite this Court's determination that the assessment provisions under WCL § 50 (5) (f) apply to GSITs, and that the Board did not satisfy the statutory prerequisites under that provision of law, the issues that have been raised in the companion declaratory judgment action persist and could not be determined in the limited context of this proceeding. The statutory scheme at issue in these cases presents a significant question that must be sorted out in order to ensure that all members of GSITs, all insurers of GSITs, the State of New York, the Workers' Compensation Board, and all taxpayers are aware of the obligations that arise in the situation created by GSITs that are in default. The provisions establishing the GSITs and the provisions authorizing the imposition of assessments in the case of defaulted GSITs appear to be inconsistent, and if such inconsistency is established in the context of the related action, a conundrum has been presented that has realistic and significant implications for all concerned.

Accordingly, in light of the foregoing, it is hereby

ORDERED AND ADJUDGED, that the petition and intervenor petitions are granted to the extent that the 2008 assessments levied by the Board against petitioners and intervenor petitioners pursuant to Workers Compensation Law § 50 (5) (f) are annulled and vacated, and are otherwise denied; and it is further

ORDERED AND ADJUDGED, that the Workers' Compensation Board shall take action consistent with this Decision and Judgment.

This memorandum shall constitute the Decision, Order and Judgment of the Court. All papers, including this Decision, Order and Judgment, are being returned to the attorneys for petitioners. The signing of this Decision, Order and Judgment shall not constitute entry or filing under CPLR 2220. Counsel is not relieved from the applicable provisions of that rule relating to filing, entry, and notice of entry.

SO ORDERED AND ADJUDGED.

ENTER.

Dated:July 7, 2008

Albany, New York [*12]

_____________________________________

HON. KIMBERLY A. O'CONNOR

Acting Supreme Court Justice

Footnotes

Footnote 1: These expenses include the direct costs of personal services, the cost of maintenance and operation, the cost of retirement contributions made and workers' compensation premiums paid by the State for or on account of personnel, and rentals for space occupied in state-owned or state-leased buildings.

Footnote 2: The Court notes that WCL § 50 (5) includes two paragraphs "(f)." The second paragraph (f) of WCL

§ 50 (5) is the provision at issue in this proceeding. All references to WCL § 50 (5) (f) as used herein are to the second paragraph (f).

Footnote 3: The record shows that all private self-insured employers were subject to these assessments.

Footnote 4: Intervenor petitioners second quarterly installment was due in May 2008, and collectible by the Board as intervenor petitioners were not subject to the stay of enforcement in this proceeding. Intervenor petitioners assert that their payments of the challenged assessments have been made under protest, and do not constitute a concession that the assessments levied against them pursuant to WCL § 50 (5) (f) are lawful.

Footnote 5: Intervenor petitioners do not assert this argument in their petitions.

Footnote 6: A public employer that is part of a GSIT, comprising both private employers and public employers, is subject to the provisions of WCL § 50 (5) (f).

Footnote 7: Ms. Woods is the Director of Licensing for the Board. She oversees the Board's Office of Self-Insurance and is responsible for authorizing both individual self-insurers and GSITs, assisting in determining the Board's annual operating expenses attributable to the self-insurance program, and assisting in the "pure premium" calculation set forth in WCL§ 50 (5) (c).

Footnote 8: The constitutional issues raised herein have also been asserted in petitioners' companion declaratory judgment action. Intervenor petitioners are not parties to that action.