Case Title: State ex rel. Ohio Aluminum Industries, Inc. v. Conrad

Citation: 2002-Ohio-5307

Docket Number: 

State: ohio

Court: Ohio Supreme Court

Date: 2002-10-16T00:00:00Z

Document:
[Cite as State ex rel.  Ohio Aluminum Industries, Inc. v. Conrad, 97 Ohio St.3d 38, 2002-Ohio-
5307.] 
 
 
THE STATE EX REL. OHIO ALUMINUM INDUSTRIES, INC., APPELLANT, v. 
CONRAD, ADMR., BUREAU OF WORKERS’ COMPENSATION, APPELLEE. 
[Cite as State ex rel. Ohio Aluminum Industries, Inc. v. Conrad, 97 Ohio St.3d 
38, 2002-Ohio-5307.] 
Workers’ compensation — State Insurance Fund — Occupational classifications 
— Bureau’s reclassification of nonferrous metal foundry’s classification 
number resulting in a higher premium affirmed, when. 
(No. 2001-0315 — Submitted July 24, 2002 — Decided October 16, 2002.) 
APPEAL from the Court of Appeals for Franklin County, No. 99AP-1060. 
__________________ 
 
Per Curiam. 
{¶1} 
Appellant, Ohio Aluminum Industries, Inc. (“OA”), makes high-
precision products for the military, automotive, and aerospace industries.  After 
the pieces are cast, they undergo rigorous testing and inspection.  Machining and 
milling are sometimes required. 
{¶2} 
In 1982, appellee, Ohio Bureau of Workers’ Compensation, 
inspected OA’s plant to determine the appropriate manual classifications for OA’s 
risk for purposes of fixing OA’s premium rate.  The report discussed various 
foundry activities and noted that the plant had a machine shop that was physically 
separated from the castings manufacturing plant.  Employees who worked in the 
machine shop had a payroll that was segregated from the others for premium 
purposes. 
{¶3} 
The report made two relevant assignments.  Manual classification 
number 3085 was assigned to employees doing actual casting and foundry work.  
Classification number 3632—with a lower basic premium rate—was assigned to 
those working in the machine shop. 
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{¶4} 
In October 1996, the bureau did a premium audit on OA.  The 
audit revealed: 
{¶5} 
“Risk [OA] has not had a machine shop at its foundry for the last 
three years since all its machine shop work is done at its sister company.  Risk’s 
controller admits that it does not have any cost accounting processing under a 
machine shop account or any direct labor assigned to a machine shop account 
classification.  Both the safety manager (Rocco Paladino) and the controller (Mike 
Fornick) admit that the machine shop has been closed down at this location for 
three years.” 
{¶6} 
Manual classification number 3632 was therefore discontinued 
from OA’s premium calculation, resulting in a higher rate. 
{¶7} 
OA contested these findings, arguing that its business had not 
changed since the 1982 audit/inspection that had added number 3632 to OA’s 
risk.  On December 9, 1997, the matter was heard by the bureau’s adjudicating 
committee.  It concluded: 
{¶8} 
“[E]mployer’s primary line of business is that of an aluminum 
foundry and * * * the molding, finishing, and core room operations are incidental 
thereto, and therefore the employer should be classified under Manual No. 3085 * 
* *.” 
{¶9} 
OA appealed and was heard by the bureau administrator on 
February 5, 1998.  The adjudicating committee’s findings and order were 
affirmed.  On February 19, 1998, another plant inspection occurred.  The 
inspector remarked: 
{¶10} “NCCI [National Council on Compensation Insurance, Inc.] states 
that the inspection process is incidental to the foundry.  Although this employer’s 
inspection process is more extensive than the manufacturing process, NCCI does 
not appear to make allowances for these operations to be separately classified.  
January Term, 2002 
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There was no apparent need for the machine shop classification.”  (Emphasis 
added.) 
{¶11} On April 6, 1998, the administrator mailed his order affirming the 
adjudicating committee order.  OA took no further action. 
{¶12} On November 16, 1998, the bureau sent a letter to OA confirming 
that number 3632 had been “deactivated” on OA’s State Fund policy effective 
January 1, 1998.  The next day, the bureau sent OA another letter, stating that 
3632 was deactivated from July 1, 1994 through July 1, 1997.  It also said, 
however, that 3632 was reinstated as of November 17, 1998.  There was no 
explanation of the latter. 
{¶13} OA filed a complaint in mandamus in the Court of Appeals for 
Franklin County.  Around the same time, OA received further bureau 
correspondence informing it that 3632 had been reactivated effective January 1, 
1999.  Again, no explanation accompanied this action. 
{¶14} On February 29, 2000, the bureau moved the court of appeals for 
leave to supplement the record with a February 14, 2000 bureau letter to OA 
explaining that the November 17 letter had contained an error, i.e., that 3632 had 
never been “reinstated.”  The letter attributed the mistake in part to a computer 
glitch and in part to OA’s continued use of number 3632 in its payroll reports. 
{¶15} The court of appeals granted the motion, prompting OA’s motion 
to supplement the record with two affidavits from OA employees denying that the 
machine shop had ever been moved.  OA’s request was overruled. 
{¶16} This cause is now before this court upon an appeal as of right. 
{¶17} Section 35, Article II of the Ohio Constitution authorizes the board 
to “classify all occupations, according to their degree of hazard * * *.”  
Implemented by what is now R.C. 4123.29(A)(1), the result is the Ohio Workers’ 
Compensation State Fund Insurance Manual.  The manual is based on the manual 
developed by NCCI and has hundreds of separate occupational classifications.  
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See Ohio Adm.Code 4123-17-04, Appendix A.  It also specifies the basic rate that 
an employer must pay, per $100 in payroll, to secure workers’ compensation for 
its employees.  See Ohio Adm.Code 4123-17-02(A). 
{¶18} Currently at issue are classification numbers 3085 and 3632.  The 
former is very specific, governing nonferrous metal foundries.  The latter is 
basically a catchall provision for machine shops.  It is entitled “Machine Shop 
NOC [Not Otherwise Classified],” which means that it applies “only if no other 
classification more specifically describes the insured’s business.”  Ohio 
Adm.Code 4123-17-08(C)(2)(g). 
{¶19} In 1982, the bureau designated OA’s postcasting machining, i.e., 
grinding, filing, heat-treating, etc., as 3632 activities.  In 1996, a bureau audit 
found insufficient on-site postcasting activities to continue assigning 3632 as a 
separate classification.  This conclusion was based on three things: (1) the 
absence of a separate and distinct machine shop (as contrasted with 1982), (2) 
statements from two plant officials that the machine shop had relocated, and (3) 
OA’s lack of any cost-accounting processes or direct labor assigned to a machine-
shop account.  It is around these points that our controversy revolves. 
{¶20} OA has an uphill battle from the outset.  That is because “[t]he 
bureau is afforded a ‘wide range of discretion’ in dealing with the ‘difficult 
problem’ of occupational classification.”  State ex rel. Roberds, Inc. v. Conrad 
(1999), 86 Ohio St.3d 221, 222, 714 N.E.2d 390, quoting State ex rel. McHugh v. 
Indus. Comm. (1942), 140 Ohio St. 143, 149, 23 O.O. 361, 42 N.E.2d 774.  Thus, 
we have “generally deferred to the [bureau’s] expertise in premium matters” and 
will find an abuse of discretion “only where classification has been arbitrary, 
capricious or discriminatory.”  State ex rel. Progressive Sweeping Contrs., Inc. v. 
Ohio Bur. of Workers’ Comp. (1994), 68 Ohio St.3d 393, 396, 627 N.E.2d 550.  
We find that the present declassification was reasonable. 
January Term, 2002 
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{¶21} All activities relevant to this inquiry occur after the aluminum has 
been cast.  The 1998 plant inspection indicated that extensive postcasting 
inspection and testing were done on the high-precision pieces OA produces.  It 
also stated that “some orders require machining and milling.”  OA argues that 
these activities fall under 3632 both definitionally and because they mirror those 
so classified in 1982. 
{¶22} In describing some of the activities that can fall under 3632, the 
manual states: 
{¶23} “Metal castings, forgings, bars, rods, flats, tubing, angles, pipe and 
pipe fittings, chains, sockets, gears, shafting, pulleys, hardware, sheet metal and 
some lumber and paint may be used.  A variety of processes may be involved 
such as boring, turning, planing, shaping, milling, drilling, punching, grinding, 
tapping, threading, shearing, bending, forming, riveting, welding, painting, 
inspecting and testing.” 
{¶24} Undoubtedly, inspecting, testing, and various machining processes 
are included within the scope of classification number 3632.  OA, however, 
misses two key points.  First, the provision uses the term “may” not “must,” 
negating any claim of mandatory inclusion.  Second, the manual’s scope 
provision for 3632 opens as follows: 
{¶25} “Code 3632 applies to the manufacture or repair of machines as 
well as general job machining.  It must be emphasized that Code 3632 is an NOC 
classification and is applied to operations only when such operations are not 
specifically contemplated by another manual classification(s).”  NCCI Scopes of 
Basic Manual Classifications (Jan. 2001) 117. 
{¶26} That point is again stressed near the close of the description of 
3632’s scope: 
{¶27} “Certain Code 3632 operations are designated as ‘not otherwise 
classified’ (NOC).  These NOC operations shall apply to an insured only when no 
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other classification more specifically describes the insured’s operations.”  Id. at 
118. 
{¶28} Contrary to OA’s representation, the postcasting activities at issue 
may well be contemplated by number 3085, eliminating 3632 applicability.  As 
explained in the NCCI Scopes Manual, Code 3085 “is applied to foundries 
engaged in the manufacture of castings from brass, aluminum or other non-ferrous 
metals * * *.  The classification includes wood or metal pattern making, core and 
mold making, melting of the non-ferrous metals in furnaces and the pouring of the 
molten metal into molds.  After the castings are cooled they generally receive 
some machining to remove burrs or imperfections.  The finished castings are then 
inspected, packed and shipped.”  (Emphasis added.)  Id. at 103. 
{¶29} Given this language, we do not find that the bureau abused its 
discretion in classifying postcasting functions under the general number 3085.  
Because it is not unreasonable, we defer to the bureau’s determination. 
{¶30} OA also challenges the presence of “some evidence” to support the 
bureau’s findings.  We reject this challenge. 
{¶31} The 1982 classification of OA’s machine shop under 3632 was 
premised on three things: (1) a physically separate machine shop, (2) payroll 
segregation of the machine shop from the foundry, and (3) the apparent volume of 
work occurring in the shop.  The 1996 declassification was based on changes to 
one and three.  That audit report found that most of the postcasting machining was 
being done elsewhere—so much so that what remained was deemed incidental 
and included in the main foundry activity. 
{¶32} The 1996 report was based on, among other things, statements 
from two plant officials, Mike Fornick and Rocco Paladino, indicating that the 
machine shop had closed three years earlier.  Most of the criticism leveled at this 
report and these statements is that they did not conform to the Rules of Evidence.  
January Term, 2002 
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This fails because the Rules of Evidence do not apply to this bureau proceeding.  
R.C. 4123.10. 
{¶33} Equally important, the probity of these two statements is enhanced 
by two things: (1) the 1997 hearing challenging the 3632 deletion, at which 
Fornick was present, and (2) the bureau’s 1998 in-plant inspection. Both events 
presented opportunities for OA to establish its continued entitlement to the 3632 
classification. 
{¶34} These two missed opportunities also undermine OA’s assertion 
that it was prejudiced by the court of appeals’ refusal to allow OA to supplement 
the record with affidavits from Fornick and Paladino.  These affidavits deny that 
the bulk of postcasting machining had been moved.  Fornick, however, had 
already had the chance at the 1997 hearing to rebut the earlier statement that had 
been attributed to him, and he apparently either did not try or was not successful.  
So, too, is the case with the 1998 inspection.  That evaluation obviously 
confirmed what Fornick allegedly said in 1996.  To exclude an affidavit that 
attempted to contradict what an auditor had already visually confirmed was not 
improper.  Accordingly, the court of appeals’ denial of OA’s motion to 
supplement was not error. 
{¶35} OA is also highly critical of the court of appeals’ consideration of 
the February 14, 2000 letter that describes the November 17, 1998 and September 
16, 1999 letters as mistakes, asserting procedural and evidentiary irregularities.  
This argument seems irrelevant given the lack of reliance placed upon the letter 
by the court of appeals.  Equally important, the letter simply expressed what the 
facts already suggested—that the November 1998 and September 1999 letters 
reinstating number 3632 were erroneously generated. 
{¶36} OA overlooks the circumstances surrounding these documents.  
When the bureau conclusively removed classification 3632 from OA’s risk 
assessment in the spring of 1998, OA did nothing to contest that determination.  
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Then, out of the blue, came a November letter—the first of two—reinstating 3632 
without explanation.  Considering the vigorous contention over the issue, this 
letter should have raised a red flag with OA.  OA instead decided to gamble on 
this fortunate turn of events rather than inquire as to what generated this 
surprising reversal.  Thus, contrary to OA’s representation, the 2000 letter 
presented little that could be realistically considered new.  As the magistrate 
wrote: 
{¶37} “The letter of November 16, 1998, is consistent with the 
investigation and audit reports of 1996 and 1998, respectively.  The unexplainable 
letter which is not based on any evidence in the record was generated by the BWC 
on November 17, 1998.  That letter reactivated manual classification M3632 
without giving any explanation whatsoever.  In fact, that letter could not have 
provided any explanation for reactivating manual classification M3632 because 
there simply is no evidence in the record to substantiate any rationale for the 
BWC to reactivate manual classification M3632. With or without the additional 
evidence submitted by the BWC explaining that the letter of November 17, 1998 
was generated in error, there is no other conclusion to which anyone could come 
to [sic] but that the November 17, 1998 letter was generated in error.” 
{¶38} OA’s final procedural objection is directed at the court of appeals’ 
decision to allow the bureau to amend its answer once the bureau realized that the 
two mistakenly sent letters might imply an admission that OA had a machine shop 
over the contested period. 
{¶39} Civ.R. 15(A) directs that leave to amend “shall be freely given 
when justice so requires.”  The bureau accurately observes that “[t]he true facts of 
this case do not reveal any prejudice whatsoever to [OA], other than its not being 
able to place reliance upon a faulty sentence in a letter generated by computer 
glitch.”  Accordingly, leave to amend was not granted in error. 
{¶40} The judgment of the court of appeals is affirmed. 
January Term, 2002 
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Judgment affirmed. 
 
MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER, COOK and 
LUNDBERG STRATTON, JJ., concur. 
__________________ 
 
Buckley, King & Bluso, Robert F. Deacon and M. Scott Young, for 
appellant. 
 
Betty D. Montgomery, Attorney General, and Gerald H. Waterman, 
Assistant Attorney General, for appellee. 
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