Title: Uninsured Employers' v. Lutter

State: maryland

Issuer: Maryland Supreme Court

Document:

Uninsured Employers' Fund v. William Lutter et al. - No. 58, 1995
Term
WORKERS COMPENSATION - Uninsured Employers' Fund -- An officer of
a close corporation, who decides not to purchase workers'
compensation insurance for himself, cannot collect benefits from
the Uninsured Employers' Fund by claiming that he is still a
"covered employee" because he failed to notify the Workers'
Compensation Commission of the decision.
IN THE COURT OF APPEALS OF MARYLAND
No. 58
  September Term, 1995
___________________________________
UNINSURED EMPLOYERS' FUND
v.
WILLIAM LUTTER et al.
___________________________________
Murphy, C.J.
Eldridge
Rodowsky
Chasanow
Karwacki
Bell
Raker
JJ.
___________________________________
Opinion by Chasanow, J.
Rodowsky, Karwacki, and 
Raker, JJ., dissent
___________________________________
      Filed:  May 8, 1996          
      
This case presents the question of whether officers of
Maryland close corporations, who decide not to purchase workers'
compensation insurance for themselves but fail to notify the State
of their decision and are subsequently injured working for the
corporation, may collect workers' compensation benefits from the
state-operated Uninsured Employers' Fund.  We hold that uninsured
close corporation officers are not "covered employees" under the
Workers' Compensation Act when they decide, in their capacity as
corporate officers, not to carry insurance for themselves and they
fail to notify the Workers' Compensation Commission of their
decision.  Hence, they are not entitled to benefits from the Fund.
I.
William Lutter, the respondent, was injured in a job-related
accident in February, 1991 while working for Lutter Construction,
Inc., a Maryland close corporation wholly owned by Lutter and his
wife.  The Lutters formed the corporation in 1988, and Lutter
served as president, and his wife as vice president of the
corporation.  Although the corporation previously employed other
workers, the record indicates that Lutter was the corporation's
only employee at the time he was injured. 
 Between 1988 and 1990, the corporation carried workers'
compensation insurance covering Lutter with State Farm Insurance.
In 1990, after conversations with an agent for Aetna Insurance,
2
Lutter decided to cancel the State Farm policy and switch to Aetna
to save money.  In making the switch, however, Lutter dropped the
workers' compensation insurance the corporation had been carrying
on him.  The record is unclear as to whether Lutter knew or
understood that the workers' compensation coverage had been dropped
from his insurance package at the time his corporation switched
insurers.  But if Lutter was not aware of his lack of insurance at
that time, he shortly became aware.  Soon after he switched from
State Farm to Aetna, Lutter himself called his agent to cancel the
workers' compensation insurance on a former employee and discovered
that no such insurance had ever been purchased from Aetna.
Lutter's deposition, which was an exhibit in the trial court,
indicates his decision-making process:
"[LUTTER:] I found out later on that I had cut
State Farm for workman's comp[ensation] and
they were providing me with liability.  I
didn't find that out until July of that year.
Q.
After the accident?
A. 
No, before the accident....
Q.
What did you do then?
A.
I called up to -- the man that was
working for me quit, so I called up to cancel
my insurance on him.  And, at that time is
when I found out that I hadn't had workman's
comp[ensation] with them at all, at that time.
* * * 
Q.
When you found out that you had no
worker's comp[ensation] insurance, did you ask
them to place insurance for you?
3
A.
No, because I didn't have any work at the
time, and the man told me until you hire
somebody 
that 
you 
don't 
really 
need
insurance --
Q.
Who told you that?
A.
-- as long as you have health insurance.
Mr. Katz.
And then when I hired somebody, to call
him up and then he would go ahead and sign me
up again."
 
After discovering that Lutter Construction, Inc., did not have
workers' compensation insurance, Lutter did not purchase it for the
corporation, apparently taking the advice of his insurance agent
that workers' compensation insurance was not necessary as long as
he was Lutter Construction*s only employee and had health
insurance.  Lutter acknowledged in his deposition that he was
responsible for procuring workers' compensation insurance for the
corporation.  Yet despite having a lawyer, accountants, and another
insurance agent available, Lutter made no effort to consult with
any of them in order to confirm the Aetna insurance agent's advice.
In February of 1991, approximately six months after he decided
not to purchase workers' compensation insurance from Aetna, Lutter
fell from the roof of a building while on the job and was seriously
injured, remaining in the hospital for almost two months.  He filed
a claim with the Workers' Compensation Commission (the Commission),
seeking benefits from his close corporation pursuant to the
Maryland Workers' Compensation Act, Maryland Code (1991 Repl. Vol.,
4
     Unless otherwise indicated, all statutory references are to
1
Maryland Code (1991 Repl. Vol., 1995 Supp.), Labor and Employment
Article. 
The accident that caused Lutter's injuries occurred before the
Workers' Compensation Act was recodified from Md. Code (1957, 1985
Repl. Vol., 1990 Cum. Supp.), Art. 101, § 1 et seq. to title 9 of
the Labor and Employment Article.  Since the relevant provisions of
the Act were not substantively changed in this recodification, we
will cite the sections of the Act as they are now codified.  
1995 Supp.), Labor and Employment Article, § 9-101 et seq.   As the
1
corporation had no insurance, Lutter sought benefits from the
Uninsured Employers' Fund (the Fund), which was established by the
State to provide workers' compensation benefits for injured workers
whose employers fail to purchase workers' compensation insurance
for them.  See § 9-1002; RICHARD P. GILBERT AND ROBERT L. HUMPHREYS, JR.,
MARYLAND WORKERS' COMPENSATION HANDBOOK § 14.3, at 300 (2nd ed. 1993).
The Commission denied Lutter's claim for benefits on the
ground that Lutter was not a "covered employee" within the meaning
of the Workers' Compensation Act.  Lutter appealed to the Circuit
Court for Prince George's County, which affirmed the Commission's
ruling on a motion for summary judgment.  Lutter then appealed to
the Court of Special Appeals, which reversed the circuit court,
holding that Lutter was a "covered employee" under the statute and
thus entitled to benefits from the Fund.  Lutter v. Lutter
Construction, 103 Md. App. 292, 653 A.2d 517 (1995).  We granted
the Fund's petition for certiorari.  
5
     All funds received by the Uninsured Employer's Fund are held,
2
managed and disbursed by the State Treasurer.  §§ 10-315, 10-318
and 10-319.  The Fund is administered by a board appointed by the
Governor with the advice and consent of the Senate.  § 10-308.  The
board and staff are paid in accordance with the State budget.  See
§ 10-309.  In Workmen's Comp. Comm. v. P. & C. Ins., 319 Md. 1, 570
A.2d 323 (1990), we said:
"[T]he assessment proceeds which fund the ...
[Uninsured 
Employers' 
Fund] 
constitute
government revenue raised by legally required
payments to be expended for public purposes.
As such, they are `taxes.'"
319 Md. at 6, 570 A.2d at 325.  
II.
A.
Under the Maryland Workers' Compensation Act (the Act), an
employer is generally required to pay workers' compensation
benefits to an employee who suffers an accidental personal injury
in the course of employment.  See § 9-501.  The Act requires all
employers to obtain workers' compensation insurance or to implement
an approved self-insurance program to cover the cost of any
benefits awarded to an injured worker.  § 9-402(a).  An employer's
failure to provide insurance for employees can result in criminal
prosecution.  § 9-1107(b).  In the event that an employer does not
purchase the required workers' compensation insurance, an injured
employee can still receive benefits by applying to the state-
operated Fund.   § 9-1002(e).
2
 
As a general rule, employers are required under the Act to
carry workers' compensation insurance for all their workers that
6
     Close corporations are governed by Md. Code (1975, 1993 Repl.
3
Vol.), Corporations and Associations Article, § 4-101 et seq.  A
close corporation is one in which the stock is subject to certain
transfer restrictions, and which has elected close corporation
status by a unanimous vote of its stockholders.  William G. Hall,
Jr., The New Maryland Close Corporation Law, 27 MD. L. REV. 341,
341-42 (1967).  Generally, a close corporation has a limited number
of stockholders who actively participate in the business, a close
personal relationship among the stockholders, and does not have an
established market for the corporation's stock.  The New Maryland
Close Corporation Law, 27 MD. L. REV. at 341.  
fit the Act's definition of a "covered employee."  See § 9-402.
Officers of corporations are considered covered employees under the
Act if they provide services to the corporation in return for pay.
§ 9-206(a).  Thus a corporation is ordinarily required to purchase
workers' compensation insurance for corporate officers who provide
paid services to the corporation.  An exception to this rule allows
officers of close corporations  to exclude themselves from the
3
corporation's insurance coverage by filing a notice of their
decision to be exempt from coverage with both the corporation's
insurance carrier and with the Commission.  § 9-206(b).  Section 9-
206 provides in pertinent part:
"(a) In general. -- Subject to subsection
(b) of this section, an officer of a
corporation ... is a covered employee if the
officer ... provides a service for the
corporation ... for monetary compensation.
(b) 
Election 
to 
be 
Exempt. 
-- 
An
individual who otherwise would be a covered
employee under this section may elect to be
exempt from coverage if:
(1) the individual is an officer of
a close corporation....
7
* * *
(c) 
Notice 
of 
election. 
-- 
(1) A
corporation ... shall submit to the Commission
and to the insurer of the corporation ... a
written notice that names the individual who
has elected to be excluded from coverage.
(2) An election under subsection
(b)(1) ... of this section is not effective
until 
a 
corporation 
complies 
with 
this
subsection."
At first glance, Lutter appears to be a covered employee
within the meaning of § 9-206.  At the time of his injury, Lutter
was president of Lutter Construction, Inc., and he performed
construction work for the corporation.  Hence, he was an officer
who provided a service for the corporation for monetary
remuneration.  See § 9-206(a).  The real question, however, is
whether Lutter effectively exempted himself from his status as a
covered employee under § 9-206(b) by deciding, in his capacity as
corporate president, not to purchase workers' compensation
insurance for himself. 
If Lutter did exempt himself under § 9-206(b), then he is not
a covered employee and, therefore, not entitled to benefits from
the Fund.  See § 9-1002(e)(only covered employee or dependents of
covered employee may apply for benefits from the Fund).  Lutter
contends that despite his decision not to purchase insurance for
himself, he did not effectively exempt himself from coverage under
the Act because he did not file written notice of his election to
be exempt with the Commission as required by § 9-206(c).  We
8
     The dissent urges a mandatory requirement in § 9-206(c) that
4
the Commission be notified of an uninsured close corporation
officer's decision to be exempt from coverage, and concludes that
an uninsured close corporation officer remains a covered employee
until such notice is provided.  The dissent does not explain,
however, how an officer of a close corporation electing to carry no
insurance could comply with the requirement in § 9-206(c) to notify
the corporation's insurer where the corporation has no insurance.
     The dissent contends that the notice requirement also exists
5
to protect "innocent" close corporation officers by ensuring that
they will be covered employees until the corporation files a
written notice of exemption.  __ Md. at __, __ A.2d at __
disagree. 
B.
Initially, we note that the requirement in § 9-206(c) that the
corporation notify its insurance carrier of Lutter's decision to
exempt himself from coverage is inapplicable in this case because
the corporation was not carrying any workers' compensation
insurance, and thus there was no workers' compensation insurance
carrier to notify.   In addition, the corporation's insurance agent
4
obviously knew that the corporation was not carrying workers'
compensation insurance.
The requirement in § 9-206(c) that the Commission be notified
in writing of a corporate officer's election to be exempt exists
for the benefit of the State, not for the benefit of the corporate
officer.  The clear purpose of the provision is to ensure that the
State, in the form of the Commission, is aware that a particular
corporate officer is no longer a covered employee.   The notice
5
9
(Dissenting Opinion at 12).  This protection, the dissent argues,
is "destroy[ed]" by our holding in the instant case.  The dissent's
construction of our holding is simply incorrect.  As we plainly
point out in Section III, infra, our holding applies only in cases
where the close corporation officer seeking to claim benefits from
the Fund also had the responsibility to ensure that the corporation
carried workers' compensation insurance.  Hence, an "innocent"
officer who was not responsible for the decision not to purchase
insurance would still be a covered employee, even if the
corporation did not purchase insurance for the officer and did not
notify the Commission.
     Although § 9-206 requires that the Commission, not the Fund,
6
be notified of a corporate officer's decision to be exempt from
coverage, both the Commission and the Fund are instruments of the
State.  Thus, the State, acting through the Fund, can waive the
requirement that it be notified.  Lutter should not be able to
receive what this Court has characterized as "government revenue,"
see note 2, supra, solely because he failed to notify a state
requirement does not exist for the protection of the corporate
officer who is already aware of his or her decision to be
uninsured.
Because the notice provision exists solely for the benefit of
the State, the State has the right to waive the notice requirement.
See Blaustein v. Aiello, 229 Md. 131, 138, 182 A.2d 353, 357
(1962)("[T]he right to notification may be waived by the person for
whose protection it is exactable...."), cert. denied and appeal
dismissed, 371 U.S. 233, 83 S.Ct. 326, 9 L.Ed.2d 494 (1963); 2
MAURICE H. MERRILL, MERRILL ON NOTICE § 877, at 395 (1952)("One may waive
the advantage of a law providing for notice which is intended
solely for his own benefit.")(footnote omitted).  By contesting
Lutter's claim for benefits, the State, in the form of the Fund,
has waived the notice requirement.   Hence, Lutter's failure to
6
10
agency of his decision not to purchase workers' compensation
insurance.
notify the Commission of his decision not to purchase workers'
compensation insurance had no effect on Lutter's status under § 9-
206.            
C.
By deciding to work as an employee of his close corporation
without workers' compensation insurance, we believe Lutter elected
to be exempt from the State workers' compensation system.  The mere
fact that he failed to notify the State of his election does not
entitle him to workers' compensation benefits from the Fund.
Lutter's own deposition makes clear that he knew exactly what he
was doing when he decided to operate his corporation without
purchasing workers' compensation insurance coverage for himself.
On the advice of his insurance agent, Lutter decided that the
corporation didn't "really need" the insurance as long as Lutter
was the only employee and was covered by health insurance.  As
corporate president, Lutter was both the person who made the
decision not to protect himself with workers' compensation
insurance, as well as the person with the corporate responsibility
to notify the Commission of his decision.  Hence, he cannot be
permitted to receive benefits from the Fund merely because he
neglected or refused to perform his duty to notify the Commission.
In fact, as the dissent suggests, Lutter may be criminally
11
liable for failing to procure the required insurance for himself.
See §§ 9-1107(c) and 9-1108(b) (making corporate officers who have
the responsibility for the "general management of the corporation"
criminally liable for failing to secure payment of workers'
compensation).  Allowing him to collect workers' compensation
benefits, therefore, would violate the common law principle that
one should not be permitted to benefit from his own criminal
conduct.  See Ford v. Ford, 307 Md. 105, 109, 512 A.2d 389, 391
(1986); Chase v. Jenifer, 219 Md. 564, 567, 150 A.2d 251, 253
(1959); Price v. Hitaffer, 164 Md. 505, 165 A. 470 (1933). 
We agree with the Fund that the principle announced in Molony
v. Shalom Et Benedictus, 46 Md. App. 96, 415 A.2d 648 (1980),
applies in the instant case.  Molony, a corporate president, was
injured while working for the corporation.  He then filed a claim
for workers' compensation benefits, but not until after the two-
year limitation for a claim had expired.  In an attempt to avoid
the effect of the two-year limitation, Molony argued that the
limitation did not apply because his employer, i.e., the
corporation of which he was president, had not filed a report of
employee injury within 10 days of receiving notice of the accident,
as required by the Act.  Hence, Molony contended, the two-year
limitations period had not begun to run and he was eligible for
benefits.  Molony, 46 Md. App. at 97-98, 415 A.2d at 648.  The
Court of Special Appeals rejected this argument, noting that
12
Molony, as corporate president, had a duty to see that the report
of injury was filed.  Hence, he could not invoke the corporation's
failure to file the report to preserve his rights as a claimant.
Judge Wilner explained:
"[W]here the injured employee is himself
responsible for seeing to it that the report
is made -- where, in effect, he is both the
employer and claimant-employee -- he cannot
evade his responsibility as employer and
thereby gain an unwarranted advantage as
claimant-employee.  As a matter of law,
therefore, if appellant in fact occupied these
dual roles, he is required to discharge the
responsibilities 
of 
each 
or 
suffer 
the
consequence of failing either one." 
46 Md. App. at 102-03, 415 A.2d at 651. 
We believe this reasoning applies in the instant case.  As
president of the corporation, Lutter was responsible for notifying
the Commission that he had decided not to purchase insurance for
himself and had therefore exempted himself from the Act under § 9-
206(c).  He cannot use his own failure to notify the Commission as
the basis for his eligibility for benefits.  By occupying the dual
roles of employer/employee, Lutter was "required to discharge the
responsibilities of each or suffer the consequence of failing
either one."  Molony, 46 Md. App. at 103, 415 A.2d at 651.  
It is obvious that the legislature's purpose in creating the
Fund was to protect injured workers whose employers failed, either
willfully or negligently, to carry workers' compensation insurance
for them.  See MARYLAND WORKERS' COMPENSATION HANDBOOK § 14.3, at 300.
13
     We pause to point out that our holding today has no effect on
7
the eligibility of close corporation officers who seek to collect
benefits under an insurance policy purchased by a statutory
employer.  See Inner Harbor v. Myers, 321 Md. 363, 582 A.2d 1244
(1990).  As we explain in Section II(E), infra, Inner Harbor is
distinguishable from the instant case.  Hence, its holding is not
affected by our decision today.    
It would be a gross distortion of this purpose to hold, as Lutter
urges us to do, that the Fund must also pay benefits to individuals
who knowingly and deliberately choose to operate their close
corporation without purchasing workers' compensation insurance for
themselves solely because they did not notify the Commission of
their decision.
   
We hold that when officers of close corporations make a
conscious and deliberate decision not to purchase workers'
compensation insurance for themselves, they cannot claim the status
of a covered employee for the purpose of collecting benefits from
the Fund, regardless of whether they comply with the notice
requirement in § 9-206(c).   To hold otherwise would enable
7
officers of close corporations to effectively get free workers'
compensation coverage from the Fund simply by not buying insurance
for themselves and not notifying the Commission of their decision.
Surely, the legislature did not intend such an absurd result.  See
Md. State Retirement v. Hughes, 340 Md. 1, 7, 664 A.2d 1250, 1253
(1995)(noting that statutory construction is approached from a
commonsensical perspective, and that the Court should avoid
constructions that are illogical, unreasonable or inconsistent with
14
common sense).  
D.
The history of the provisions allowing corporate officers to
be covered under the Act supports our holding.  The Act was
originally designed to cover employees, not employers.  See MARYLAND
WORKERS' COMPENSATION HANDBOOK § 4.2-2, at 63.  Traditionally, although
corporations were separate entities from those who worked for the
corporation, cases and statutes in some states did not permit
workers' compensation coverage for corporate executives because
they were considered employers rather than employees.  See 1C ARTHUR
LARSON, THE LAW OF WORKMEN'S COMPENSATION § 54.21(d), at 9-232-33 (1986).
As Professor Larson explains:
"At one time the majority rule appeared to
rule out such coverage, on the ground that,
even though the corporation is a separate
entity in law, some human beings must exert
the powers that belong to the employer-
corporation, and those persons, the officers
and 
directors, 
must, 
therefore, 
for
compensation purposes, be identified with the
employer while exercising those powers."
(Footnote omitted).
Id.  
Later, workers' compensation coverage became available to most
employers.  See MARYLAND WORKERS' COMPENSATION HANDBOOK § 4.2-2, at 63-64.
For example, in 1968 the legislature amended the Act to permit
partners and sole proprietors devoting full time to the partnership
or proprietorship business to elect to be "covered employees" under
the Act.  See Chapter 742 of the Acts of 1968.  Similarly, in 1971,
15
the legislature amended the Act to include as covered employees
corporate officers providing paid services to the corporation.  See
Ch. 119 of the Acts of 1971.  
The legislative history of the provisions allowing corporate
officers to be covered under the Act indicates that in 1978 the
General Assembly amended the statute so that officers of close
corporations were excluded from coverage unless they specifically
opted into coverage by filing written notice with the Commission.
See Ch. 634 of the Acts of 1978.  As a result of the amendment, the
number of notices filed with the Commission by close corporation
officers seeking to opt into coverage increased so dramatically
that the Commission needed an additional clerk to handle the added
work.  In response, the legislature in 1979 amended the provision
to provide that officers of close corporations were automatically
covered unless they filed a notice opting out of coverage.  See Ch.
582 of the Acts of 1979.  A memorandum prepared for the legislature
by the State Department of Fiscal Services on the fiscal impact of
the 1979 amendment states:
"Last year the number of inquiries and
notices received by the Commission was so
great concerning close corporation officers
that the Commission believes it needs a
Typist-Clerk II for this purpose.  This would
entail $9,014 in additional expenditures in
the first year for the Commission, funded by
general 
fund 
appropriations 
that 
are
reimbursed to the State Treasury.
The Department of Fiscal Services doubts
that this much activity will result with
16
respect to close corporation officers who
elect to be exempt."
Hence, the legislature's primary purpose in amending the
statute to automatically cover officers of close corporations
unless they filed written notice opting out was to save the State
the added expense of hiring an additional clerk.  The fiscal
memorandum indicates that "State revenues and expenditures are not
affected" by the legislation.  Clearly, then, the legislature's
purpose in adopting the amendment was not to provide free coverage
from the Uninsured Employers' Fund for officers of close
corporations who decide not to purchase insurance and fail to
notify the Commission of their decision. 
E.
In concluding that Lutter's failure to notify the Commission
of his decision not to purchase insurance meant that he was still
a covered employee under the Act, the Court of Special Appeals
relied on Inner Harbor v. Myers, 321 Md. 363, 582 A.2d 1244 (1990).
In Inner Harbor, this Court held that the failure of a corporate
officer/employee to purchase workers' compensation insurance for
the employees of his close corporation did not prevent the
officer/employee from collecting benefits under a workers'
compensation policy purchased by his statutory employer.  321 Md.
at 377, 582 A.2d at 1251.  The Court of Special Appeals applied
this reasoning to the instant case, and concluded that Lutter had
17
     The record does not indicate the total value of the benefits
8
that Lutter would have received under the holding of the Court of
Special Appeals.  It does indicate that Lutter's medical expenses
totaled more than $108,000.
not exempted himself from coverage under the Act by failing to
procure workers' compensation insurance.  See Lutter, 103 Md. App.
at 296-298, 653 A.2d at 519-20. 
Inner Harbor, however, is distinguishable from the instant
case.  In Inner Harbor, the corporate officer/employee was seeking
benefits from an insured statutory employer, not from the Uninsured
Employers' Fund.  Hence, it was not in the State's interest in
Inner Harbor to waive the statutory notice requirement now codified
in § 9-206(c).  Had the State waived the notice requirement in
Inner Harbor, the insured statutory employer would have escaped
liability, and the injured corporate officer/employee would have
received nothing even though an insurance policy existed that
covered the officer as a statutory employee.  As we noted, this
result would have contravened the remedial purpose of the workers'
compensation statute.  See Inner Harbor, 321 Md. at 378, 582 A.2d
at 1251.        
In the instant case, on the other hand, it was clearly in the
interest of the State to waive the notice requirement set out in §
9-206(c).  By not waiving the notice requirement, the State would
have made itself liable to pay Lutter more than $100,000 in
benefits from its own Fund,  even though Lutter elected not to
8
18
carry workers' compensation insurance.  It was clearly in the
State's interest to waive the notice requirement.  By contesting
Lutter's claim, the State did just that.    
III.
Our holding in the instant case is a limited one.  We hold
that a corporate president who knowingly and deliberately decided
to operate his close corporation without workers' compensation
insurance for himself cannot collect benefits from the Fund solely
because he did not notify the Commission of his decision to be
uninsured.  We stress that our holding applies only to cases where,
as here, the corporate officer seeking to claim benefits from the
Fund also had the responsibility to ensure that the corporation
carried workers' compensation insurance.  It does not apply in
cases where the corporation fails to obtain insurance but the
injured corporate officer/employee was not responsible for, and
played no role in, the decision not to procure workers'
compensation insurance.  
JUDGMENT 
OF 
THE 
COURT 
OF
SPECIAL APPEALS REVERSED.  CASE
REMANDED TO THAT COURT WITH
INSTRUCTIONS 
TO 
AFFIRM 
THE
JUDGMENT OF THE CIRCUIT COURT.
COSTS IN THIS COURT AND IN THE
COURT OF SPECIAL APPEALS TO BE
PAID BY RESPONDENTS.
1
Dissenting Opinion follows next page:
Dissenting Opinion by Karwacki, J.:
The majority holds today that an officer of a close
corporation 
who 
deliberately 
fails 
to 
purchase 
workers'
compensation insurance for himself cannot thereafter collect
benefits from the State Uninsured Employers' Fund when the officer
is injured on the job.  I respectfully dissent.
2
The majority's holding directly contravenes the express
language of the statute governing coverage under the Act of close
corporation officers, in order to achieve a result which is
admittedly more desirable but nonetheless incorrect.  Moreover, the
contrived and internally contradictory reasoning by which the
majority reaches its result leaves the state of the law regarding
workers' compensation coverage of close corporation officers
confused and vague.  First, the majority's holding effectively
overrules past precedent, while expressly claiming not to do so.
Second, the majority, through this opinion, arbitrarily determines
standards by which the Fund should and should not pay its benefits,
standards which should rightly be determined by the Legislature
after informed research and debate.  Finally, the majority opinion
opens the door to untoward manipulation by the State of the concept
of "waiver of notice," because it finds the State did so waive
where no such waiver has ever been affirmatively demonstrated or
even claimed by the State. 
I.
An employee hired and working in Maryland who has been
accidently injured on the job, rendering the employee unable to
work at all or at former capacity, is normally assured of financial
support through the workers' compensation statutory scheme.  The
Workers' Compensation Act, Maryland Code (1991 Repl. Vol., 1995
Cum. Supp.), § 9-101 et seq. of the Labor and Employment Article,
3
      If an employer is a corporation, the corporate officer who has
9
responsibility for the general management of the corporation is subject to these
criminal penalties.  Md. Code (1991 Repl. Vol.),  §§ 9-1107 and 1108 of the Labor
and Employment Article.
(hereinafter "the Act"), requires all employers to obtain workers'
compensation insurance, or to implement an approved self-insurance
program; failure to do so can result in criminal prosecution of the
employer, who is subject to a fine and even imprisonment for this
criminal offense.   In the event that an employer, whether
9
negligently or in deliberate disregard of legal obligations, has
not obtained workers' compensation insurance, the injured employee
can still receive financial assistance by applying to the state-
operated Uninsured Employers* Fund, Md. Code (1991 Repl. Vol.), §
9-1001 et seq. and § 10-301 et seq. of the Labor and Employment
Article (hereinafter "the Fund").
In the case before us, the injured worker/employee, nominally
one of those for whose protection the Fund was initially created,
also happened to be the president of the non-insured employer, a
Maryland close corporation which he wholly owned with his wife.
The claimant acknowledged himself to be personally responsible, in
his capacity as president, for the corporation's conscious and
illegal failure to procure workers' compensation insurance.
Nevertheless, when he was injured, he filed a claim with the
Workers' Compensation Commission (hereinafter the "Commission") and
impled the Fund because his corporate employer was not insured.
The Commission denied his claim on the basis that he was not a
4
"covered employee" under the Act.  Our purpose in granting
certiorari in this case was to decide whether an injured "employee"
who, unlike most others who claim benefits from the Fund, actually
made the deliberate decision not to insure himself, is nevertheless
a "covered employee."   
Despite Lutter's responsibility for obtaining and failure to
obtain workers' compensation insurance, the interplay of the
statutory provisions which govern workers' compensation and the
Fund leaves me no choice but to regard the claimant as a covered
employee and entitled to benefits from the Fund.  The majority,
unfortunately, ignores the express language of the statute in order
to avoid this admittedly unsatisfactory holding.  
II.
The 
majority 
acknowledges 
that 
since 
Lutter's 
close
corporation did not submit a written notice to the Commission,
"[a]t first glance, Lutter appears to be a covered employee within
the meaning of § 9-206."  The opinion then goes on to state that
"[t]he real question, however, is whether Lutter effectively
exempted himself from his status as a covered employee . . . by
deciding, in his capacity as corporate president, not to purchase
workers' compensation insurance for himself."  The answer to the
"real question," according to the majority, is that Lutter did
exempt himself by virtue of his failure to purchase insurance.
Neither the statute itself nor our precedents countenance such
5
an answer.  The Legislature quite explicitly stated as much in
subsection (c)(2) of the statute governing coverage of close
corporation officers, § 9-206 of the Act, which could not be more
clear:  "An election under subsection (b)(1) . . . of this section
is not effective until a corporation . . . complies with [the
written notice provision]."  Yet, in spite of the mandatory and
unambiguous language, the majority reads an implied alternative
means of exemption into the statute, thereby effectively rewriting
the plain language of the statute, and contravening the express
purpose of § 9-206(c)(2).  
Even reading the statute with the broadest of interpretations,
I cannot infer from this plain language in subsection (c)(2) an
underlying legislative intent that uninsured close corporate
officers can be exempted by means other than written notice,
particularly non-affirmative means such as failing to purchase
insurance.  The statute simply precludes the majority's holding
that Mr. Lutter's failure to procure insurance is an implicitly
valid means of exemption.  Only written notice to the Commission
and to its workers' compensation insurer serves to exempt close
corporation officers from workers' compensation coverage.  
I find support for my interpretation not only in the plain
language of the statute but also in the Revisor's Note following
the statute to which may be ascribed significant historical and
interpretative weight, and in which the Code Revision Commission
6
notes the explicit affirmative election of exemption requirement
for close corporation officers only:
"The Labor and Employment Article Review
Committee notes, for consideration by the
General Assembly, that, while former Art. 101,
§ 
67(4)(ii) 
required 
notice 
about 
each
election [of exemption], only the election for
an officer of a `close corporation' is
contingent on compliance."  (Emphasis added.)
Md. Code (1991 Repl. Vol.), § 9-206 of the Act.  
Moreover, the history of § 9-206, contrary to the majority's
assessment, supports the expectation and intent of the Legislature
that only the affirmative act of filing written notice of election
of exemption would exempt a close corporation officer from coverage
under the Act.  In 1978, the General Assembly passed HB 908, which
amended §§ 21 and 67(4) of the Act to exclude close corporation
officers from automatic coverage unless they specifically opted for
coverage through written notice to the insurer and the Commission
naming the persons to be covered.  Had an uninsured close
corporation so notified the Commission that it wished to "opt-in"
to coverage under the Act, the Commission would have been put on
notice immediately that the employer was uninsured and would have
been able to enforce the insurance provisions, before any action
could arise involving the Fund.
7
      These provisions were re-codifed at § 9-206 of the Act. The current
1
provisions are not substantially different from the original legislation in language
and effect.
  
The scanty but telling legislative history on these provisions
indicates that after the amendments the Commission was flooded with
notices from close corporation officers opting in to coverage under
the Act.  Therefore, during the General Assembly session in 1979,
HB 780 was introduced "to correct [the] problem created by HB 908,"
according to notations on the bill in the legislative bill file.
The Legislature passed HB 780, again amending §§ 21 and 67(4)  and
1
reversing its action of the year before.  Now, close corporation
officers were automatically covered under the Act unless they opted
out, with the same requirements of written notice.  
No doubt "opting out," while it may have relieved the
administrative burden on the Commission, set the stage for the
instant case, for the Commission has no knowledge of the insurance
status of any close corporation which does not choose to opt out of
coverage for its officers under the Act.  Without such knowledge,
an injured close corporation officer can make a claim impleading
the Fund before the Commission has the opportunity to enforce the
mandatory insurance provisions, just as Lutter has done in the case
before us.  Nevertheless, it is absolutely clear that the
Legislature intended that close corporation officers affirmatively
"opt out" of coverage; it made no provisions for other forms of
election of exemption, and reiterated the sole means of exemption
8
by adding subsection (c)(2).
The majority posits that the history of the statute supports
its holding, because the State Department of Fiscal Services'
fiscal note on the 1979 amendment stated that the State's revenues
and expenditures were not affected, and consequently the
Legislature's purpose could not have been "to provide free coverage
from [the Fund] for officers of close corporations who decide not
to purchase insurance and fail to notify the Commission of their
decision."  
I agree that the Legislature did not have this purpose;
legislatures do not usually have purposes so contrary to the
interests of the State, and given the history of this legislation,
I see no reason why a scenario such as the one before us would even
have entered into the Legislature's contemplation.  The only
evidence before the Legislature was that close corporations opted
for coverage in such huge numbers that the statute needed to be
rewritten to its present form to avoid administrative inconvenience
and expense to the Commission.  Clearly the vast majority of close
corporations wanted coverage for their officers and acted
responsibly in order to assure they had it.  Nevertheless, a
statute which is not purposefully drafted to achieve an unfortunate
situation can still result in that unfortunate situation if
inartfully written; Lutter's situation, apparently extremely
unusual, is a result of a significant gap in a statute which might
have been written to avoid the situation if it had been raised.
9
      It is also possible that the Legislature, even if it did contemplate a
2
scenario such as Lutter's, believed, as I do, that the prospect of criminal
prosecution and even incarceration for failure to purchase insurance would not be
regarded lightly by the decision-makers in close corporations in Maryland.
      Our Legislature would have only to turn to a nearby state to find an example
3
of a legislative solution to the question before us.  New York's current Workers'
Compensation Law uses the "opt-in" approach to close corporation officers.
Corporate officers such as Lutter who are sole or dual owners of close corporations
are exempt from coverage under the workers' compensation statutes unless they
specifically elect to be covered:
"Any two executive officers of a corporation who at all
times during the period involved between them own all of
the issued and outstanding stock of such corporation and
hold all such offices, provided, however, that each
officer must own at least one share of stock, who are the
executive officers of such corporation that has no other
persons who are employees required to be covered under
this chapter shall be deemed to be excluded from coverage
under this chapter unless one or both officers elect to be
covered.  Such coverage may be effected by obtaining an
insurance policy or, in the case of self-insurance, by the
corporation submitting a form prescribed by the chair of
the workers' compensation board, giving notice that the
corporation elects to bring one or both executive officers
of such corporation named in the notice within coverage of
this chapter."
N.Y. Workers' Compensation Law § 54(6)(e) (Consol. 1982, Cum. Supp. 1996).  This
provision contemplates the close corporation as in the instant case and, to avoid
exactly the situation we have here, requires affirmative election of coverage by
obtaining an insurance policy or qualifying as a self-insurer.
We note that the New York Legislature, as did Maryland's General Assembly,
chose to address the anomaly of an injured employee who is also the executive
corporate officer within the provisions concerning coverage under the workers'
compensation laws, and not within the statutes establishing an uninsured employers'
fund.  The implication is that the Fund pays compensation to anyone deemed
"covered," as an insurer of last resort; however, by requiring any corporate officer
to elect coverage affirmatively by actually obtaining insurance, the New York
Legislature avoided the scenario of a corporate officer who, failing to obtain
insurance, is still "covered" under the Act.
Such a scenario was not likely raised, however, and therefore the
majority's assertion that the Legislature did not intend for
individuals such as Lutter to recover from the Fund says no more
than that the Legislature never intends oversights in its statutory
enactments.   Nevertheless, they exist, and our job is to point
2
them out rather than close them judicially.3
10
      The term "statutory employer" denotes the principal contractor if it is
4
liable to pay compensation benefits to a subcontractor or a subcontractor's employee
(the "statutory employee") under § 9-508 of the Act.  Section 9-508 is a
recodification without substantive change of Art. 101, § 62, the statute in effect
at the time Myers was injured.
III.
  
In Inner Harbor Warehouse, Inc. v. Myers,, 321 Md. 363, 582
A.2d 1244 (1990), we refused to rewrite the statute in question, as
we ought to refuse it in the case sub judice.  The Court of Special
Appeals appropriately relied on our holding in Inner Harbor to
decide that Lutter was indeed a covered employee under the language
of § 9-206's predecessor, Art. 101, § 67(4)(ii).  The claimant in
Inner Harbor, Myers, much like Lutter, was the president of his own
close corporation as well as an employee truck driver of the
corporation.  Myers, as an officer and decision-maker for the close
corporation, deliberately did not carry workers' compensation
insurance.  When Myers was seriously injured while working under a
retainer agreement with Inner Harbor Warehouse, he filed a claim
with the Commission naming Inner Harbor as his employer, or, in the
alternative, as his statutory employer.   
4
Our analysis of Myers' claim first required a determination
that Myers was a covered employee under the Act.  Inner Harbor
maintained that he was not, as he had effectively exempted himself
from coverage by failing to purchase workers' compensation
insurance when he was clearly the individual within his corporation
responsible for doing so:
11
"Inner Harbor argues that although § 67
requires notice of election of non-coverage to
be served on the insurance carrier and the WCC
and no such notice was served, it was because
Myers' inaction rendered service of the notice
impossible."
Inner Harbor, 321 Md. at 376, 582 A.2d at 1250.  We held
unequivocally that Myers had not affirmatively exempted his
corporation from coverage by his inaction:
"Here, it is Myers' responsibility under § 67
to file notice with the WCC in order not
[emphasis in original] to be covered by the
protections of Article 101.  The legislative
mandate could not be clearer.  Only the
affirmative act of filing notice with the WCC
exempts an employee from coverage; no such
notice was filed, so G.K. Myers did not exempt
Myers from coverage.  Although we do not
condone Myers' actions in not purchasing
insurance, he has not, by that action alone,
proved his desire to be exempt."  (Emphasis
added).
Id. at 377, 1251.
The parallels to Lutter's situation are obvious.  Lutter did
not, any more than Myers, prove by his failure to purchase
insurance that he wished to be exempt; the record reflects, in
fact, that Lutter did not understand himself to be exempt, although
we cannot say what exactly he did understand when he was given such
faulty advice by his insurance agent.  Moreover, regardless of what
Lutter desired or understood, he simply did not comply with the
written notice provision in the statute.  Under the plain language
of the statute and our explicit holding in Inner Harbor, Lutter did
12
not exempt himself from coverage under the Act.  When the majority
holds that he did, the majority effectively overrules Myers and
ought to do so explicitly.  
IV.
The majority attempts to avoid the import of the plain
statutory language of § 9-206(c)(2), as well as our holding in
Inner Harbor, by construing the statutorily required notice to be
solely for the benefit of the State (i.e., the Commission and the
Fund), and theorizing that therefore the Commission is allowed to
"waive" notice when failure to receive it is not in the State's
interest.  The analysis is faulty on several levels.  
a.
First, the majority assumes that the only time failure to
receive notice is not in the State's interest is when the State
will have to pay benefits from the Fund.  The majority attempts to
distinguish Inner Harbor from the case sub judice on the sole basis
that Myers, as culpable as Lutter for his lack of insurance, sought
coverage from a statutory employer and not the Fund.  Yet, if the
only reason the case before us is distinguishable from Inner Harbor
is on the basis of who pays, the logical extension of the reasoning
is that it makes absolutely no difference whether Lutter was
culpable or completely innocent.  For example, if one fact in Inner
13
Harbor changed - the statutory employer in Inner Harbor was
uninsured - Myers would have been a candidate for Fund benefits,
and under the holding today Myers would have been denied those
benefits based on his culpability.  The majority cannot have it
both ways: either the Fund's liability to pay is the cornerstone of
the analysis and culpability is irrelevant, as it was in Inner
Harbor, or culpability for failure to purchase insurance is the
cornerstone, and therefore Inner Harbor is overruled.
b.
Second, of course, the notice provision is not only for the
benefit of the State.  Any close corporation officer who is not
responsible for the purchase of workers' compensation insurance for
his or her company also benefits from the protection of a single
required affirmative written notice of exemption.  The explicit
legislative notice requirement, as the sole method of exemption,
ensures the "innocent" close corporation officer that the Fund will
not be able to deny benefits regardless of the actions of the
decision-makers in his corporation.  The holding today destroys
that protection by judicially opening the door to other means of
exemption, rendering the statute open to manipulation by the State.
The statutes governing the creation and operation of the Fund,
§ 9-1001 et seq. and § 10-301 et seq. of the Labor and Employment
Article, provide guidance as to the standards the Fund and the
14
Commission must use to determine whether a claimant should receive
Fund benefits.  A review of the legislative history of the Fund
reveals that the Fund was intended to be an "insurer of last
resort," and that the only eligibility requirement by which the
Commission determines who receives benefits from the Fund is
whether the claimant is a "covered employee."  Nothing in the
recorded history of the legislation explicitly or implicitly
indicates any legislative intention to limit the benefits available
from the Fund based on criteria other than eligibility for workers'
compensation.  We note that when the Fund requested a hearing to
object to Lutter's claim, the Commissioner who heard the case
raised sua sponte the issue of covered employee status, we presume
because he could not find in the statutory language any further
direction as to Fund eligibility.
The legislative history reveals only a single eligibility
criterion, "covered employee" status.  Before the holding today,
when the only apparent legislatively-set standard for payment was
whether the claimant was a covered employee, the Fund could appeal
only on the basis of the status of the claimant and whether any
other insurance existed.After today, the gates are open, since the
only legislative standard has now been supplemented with a
judicially-created standard for receiving benefits from the Fund.
That standard can be described as "lack of intentional failure to
purchase workers' compensation insurance for yourself."   Now, the
15
Fund can develop virtually any argument to avoid paying benefits
and the courts will have to consider it to determine if other
judicially-created standards are advisable. 
c.
Third, and of great concern to me, is the majority's holding
that the State "waived notice" merely by contesting Lutter's claim.
Even assuming, arguendo, that the State could waive notice under
the statutory enactments and our precedents, I would still be
compelled to find for Lutter because the State made no argument of
waiver of notice to us, nor did it raise waiver at any stage in
these proceedings.  
V.
In Molony v. Shalom Et Benedictum, 46 Md. App. 96, 415 A.2d
648 (1980) the corporate officer was personally responsible as a
representative of the corporate entity for failing to file with the
Commission a report of any accident involving an employee.  That
corporate officer was also the employee who had been injured, and
he filed his workers' compensation claim 17 days after the statute
of limitations ran, which meant his claim was completely barred.
The Act also provides, however, that an employer's failure to file
a report tolls the statute of limitations on that particular
workers' compensation claim, and the claimant in Molony argued that
16
since he had not filed the report for his employer, his claim as
the employee was not barred.  The Court of Special Appeals rejected
his argument, even though the corporation was insured and the Fund
was not liable to pay any benefits, because the claimant's own
negligent actions could not be used to gain an "unwarranted
advantage."
   
The majority's use of Molony to bolster its holding only
further illuminates the flaws in its analysis of the instant case.
As I noted earlier, apparently the majority cannot decide whether
it bases its holding on the deliberate and egregious actions of
Lutter or on the fact that the Fund is being asked to pay benefits
as a result of those actions.  If the principle announced in Molony
applies in the instant case, as the majority states, then, again,
who pays benefits is irrelevant and the case hinges on the actions
of the claimant.  Therefore, the same principle would have to apply
in Inner Harbor as well, for Myers also used his failure to file
written notice to achieve the status of covered employee, thereby
gaining an "unwarranted advantage" and thus receiving benefits from
the statutory employer.  The majority's unwillingness to overrule
Myers cannot be reconciled with its use of Molony to support its
position.
VI.
I simply cannot agree with the Fund's arguments to this Court
17
that Lutter should be denied benefits.  The statutory scheme as it
presently reads does not allow such a result, and, as we have
repeatedly held before, we will not fill a gap in a statutory
scheme, particularly one as extensive as this Act, by supplying
missing language or standards.  See, e.g., Fairbanks v. McCarter,
330 Md. 39, 622 A.2d 121 (1993); Collier v. Connolley, 285 Md. 123,
400 A.2d 1107 (1979); Amalgamated Cas. Ins. Co. v. Helms, 239 Md.
529, 212 A.2d 311 (1965); Gregg v. Gregg, 199 Md. 662, 87 A.2d 581
(1952).  Yet the majority has indeed filled the gap in a statutory
scheme, and further done so in a manner which requires an explicit
overruling of our 1991 decision in Inner Harbor.
The General Assembly created the Uninsured Employers' Fund
with the benevolent purpose of providing some financial assistance
to injured workers whose employers failed to carry workers'
compensation insurance.  It also established civil and criminal
penalties for any employer failing to insure its workers, and it
specifically protected the interests of officers of close
corporations by automatically covering any who performed services
on behalf of their corporations for monetary compensation.  In the
unusual case before us, in which the injured employee is also the
close corporation officer criminally responsible for failing to
purchase insurance, all three of these statutory purposes are
relevant and are in conflict.  We impermissibly intrude into the
responsibilities of the Legislature when we attempt to resolve this
18
conflict permanently through our holding today.  Therefore, while
I do not condone Lutter's actions in failing to obtain insurance
for himself, I would nonetheless affirm the holding of the Court of
Special Appeals that Lutter is a covered employee and entitled to
benefits from the Fund.
Judges Rodowsky and Raker join in this opinion.