Title: Zaloudek Grain Co. v. CompSource Oklahoma
Citation: 2012 OK 75
Docket Number: 
State: Oklahoma
Issuer: Oklahoma Supreme Court
Date: September 18, 2012

Zaloudek Grain Co. v. CompSource Oklahoma Annotate this Case Justia Opinion Summary Zaloudek Grain Company held a workers' compensation policy with CompSource Oklahoma for approximately ten years prior to 2011. Zaloudek was required each year to provide payroll audit information to CompSource. The audit information was used to determine the proper premium for each year. CompSource sent a notice in late 2010 to Zaloudek requesting audit information. In January, 2011, Zaloudek's policy was renewed for all of 2011 through January 1, 2012. On January 18, 2011, CompSource sent another letter requesting Zaloudek provide the necessary payroll audit information, but Zaloudek was unresponsive. Subsequently, CompSource sent Zaloudek a notification to inform the company that the process of canceling its policy would begin if CompSource did not receive the audit information. The audit information was not provided; CompSource ultimately canceled the policy when Zaloudek ignored several subsequent requests. CompSource issued a refund for payments made under the policy. Later that summer, two teenage workers were seriously injured in the grain auger at Zaloudek's facility. CompSource did not accept the company's new insurance application because it was incomplete and was not signed by an owner of Zaloudek. Zaloudek sued a few weeks following the rejection of its application, asking for a judgment against CompSource for breach of contract and bad faith and further requested declaratory relief in the form of an order requiring CompSource to provide workers' compensation coverage. Zaloudek filed a motion for summary judgment claiming CompSource lacked legal justification for terminating its policy and requested orders to establish there was no lapse in coverage and requiring CompSource to provide coverage for its two injured employees. Zaloudek further requested a finding that CompSource was in breach of contract. CompSource moved for summary judgment, arguing Zaloudek was not covered at the time of the incident and its policy was properly canceled. Zaloudek filed a counter-motion for summary judgment asserting CompSource should be estopped from denying coverage because it retained premiums and acted in a manner toward Zaloudek consistent with continued coverage. The trial court issued an order dismissing Zaloudek's bad faith claim but left pending its claims for breach of contract and declaratory relief. CompSource appealed. After its review, the Supreme Court concluded that CompSource was authorized to cancel a policy for an insured's failure to participate in the audit. The Court remanded the case for further proceedings on the other contract issues raised. Read more Want to stay in the know about new opinions from the Oklahoma Supreme Court? Sign up for free summaries delivered directly to your inbox. Learn More › You already receive new opinion summaries from Oklahoma Supreme Court. Did you know we offer summary newsletters for even more practice areas and jurisdictions? Explore them here . ZALOUDEK GRAIN COMPANY v. COMPSOURCE OKLAHOMA 2012 OK 75 Case Number: 110662 Decided: 09/18/2012 THE SUPREME COURT OF THE STATE OF OKLAHOMA NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL. ZALOUDEK GRAIN COMPANY, Plaintiff/Appellee, v. COMPSOURCE OKLAHOMA, Defendant/Appellant. ON APPEAL FROM THE DISTRICT COURT OF OKLAHOMA COUNTY HONORABLE BARBARA G. SWINTON DISTRICT JUDGE ¶0 Appeal of an April 13, 2012, Final Order granting summary judgment in favor of Plaintiff/Appellee, Zaloudek Grain Company and against Defendant/Appellant, CompSource Oklahoma. Plaintiff successfully argued Defendant wrongfully canceled its workers' compensation policy because it did not comply with subsection (C) of section 3639 of title 36 of the Oklahoma Statutes. Defendant asserts it properly canceled Plaintiff's workers' compensation policy pursuant to subsection (G) of section 64 of title 85 of the Oklahoma Statutes and subsection (C) of section 3639 is not applicable. We find subsection (C) of section 3639 of title 36 of the Oklahoma Statutes is not applicable to Defendant. We further find that Defendant is authorized to cancel a policy for an insured's failure to participate in the audit. REVERSED AND REMANDED FOR FURTHER PROCEEDINGS Kerry R. Lewis and James D. Johnson, Rhodes, Hieronymus, Jones, Tucker & Gable, P.L.L.C., Tulsa, Oklahoma, for Defendant/Appellant. Richard E. Hornbeek, John E. Vitali, and Larry G. Cassil, Jr., Hornbeek Vitali & Braun, P.L.L.C., Oklahoma City, Oklahoma, for Plaintiff/Appellee. COMBS, J. ¶1 This is an appeal of the trial court's Final Order granting summary judgment in favor of the Plaintiff/Appellee, Zaloudek Grain Company (Zaloudek). Zaloudek claims its workers' compensation policy was unlawfully canceled by the Defendant/Appellant, CompSource Oklahoma (CompSource). CompSource argues it properly canceled Zaloudek's policy pursuant to subsection (G) of section 64 of title 85 of the Oklahoma Statutes 1 and subsection (C) of section 3639 of title 36 of the Oklahoma Statutes2 is not applicable to CompSource. FACTS AND PROCEDURAL HISTORY ¶2 Zaloudek held a workers' compensation policy with CompSource for approximately ten years prior to 2011. Zaloudek was required each year to provide payroll audit information to CompSource. The audit information is used to determine the proper premium for each year. CompSource sent a notice dated December 15, 2010, to Zaloudek requesting workers' compensation premium audit information. In January, 2011, Zaloudek's policy was renewed for the policy period January 1, 2011, through January 1, 2012. On January 18, 2011, CompSource sent another letter requesting Zaloudek provide the necessary payroll audit information by February 2, 2011. Upon not receiving the audit information, CompSource sent out a "courtesy notification" on February 4, 2011. This notification informed Zaloudek that the process of canceling its policy would begin if CompSource did not receive the audit information by February 16, 2011. The audit information was not provided and on February 16, 2011, CompSource sent a statutory "Notice of Pending Cancellation" stating Zaloudek's policy would be canceled effective March 3, 2011, at 12:01 a.m. It further informed Zaloudek that it could not apply for a new policy until an audit was completed on the canceled policy term. ¶3 On March 17, 2011, CompSource sent another letter advising Zaloudek that the policy had been canceled on March 3, 2011, and instructing Zaloudek how to reapply. CompSource made a credit refund to Zaloudek in the amount of $1342 on July 22, 2011.3 Six days later, CompSource faxed an application for workers' compensation insurance to Zaloudek. On August 4, 2011, two teenage workers were seriously injured in the grain auger at Zaloudek's facility. On the same day, Zaloudek mailed its application for workers' compensation coverage to CompSource. CompSource claims the application was received on August 5, 2011, and it was not accepted because the application was incomplete and was not signed by an owner of Zaloudek. The application contained the following standard provision "[c]overage will become effective 12:01 a.m. the day following acceptance of the properly signed application and receipt of the specified premium in our office." ¶4 Zaloudek filed its Petition on August 25, 2011, asking for a judgment against CompSource for breach of contract and bad faith and further requested declaratory relief in the form of an order requiring CompSource to provide workers' compensation coverage. On December 23, 2011, Zaloudek filed a motion for summary judgment claiming CompSource lacked legal justification for terminating its policy and requested orders to establish there was no lapse in coverage and requiring CompSource to provide coverage for its two injured employees. Zaloudek further requested a finding that CompSource was in breach of contract. ¶5 CompSource filed its response and cross-motion for summary judgment on January 11, 2012, requesting summary judgment and denial of Zaloudek's motion for summary judgment because Zaloudek was not covered at the time of the incident and its policy was properly canceled. Zaloudek filed a counter-motion for summary judgment asserting CompSource should be estopped from denying coverage because it retained premiums and acted in a manner toward Zaloudek consistent with continued coverage. On October 26, 2011, the trial court issued an order dismissing Zaloudek's bad faith claim but left pending its claims for breach of contract and declaratory relief. ¶6 On March 30, 2012, the trial court entered its Final Order whereby it granted Zaloudek's motion for summary judgment, denied CompSource's cross-motion for summary judgment, and found Zaloudek's counter-motion for summary judgment and its claim for equitable estoppel to be moot. The trial court ruled "1) 36 O.S. § 3639 applies to CompSource Oklahoma." The order further stated: …the Court finds there is no just reason for delay and this Court expressly directs the filing of a Final Order. 12 O.S. § 994(a). The Court further stays Plaintiff Zaloudek Grain Company's remaining claims and stays the enforcement of this Final Order pending the resolution of the appeal of the rulings contained herein. 12 O.S. § 994(b). This Court deems the language in the order as the functional equivalent of the certification required by section 952 of title 124 of the Oklahoma Statutes. We recast the petition in error as a petition for a writ of certiorari from a certified interlocutory order and grant the writ.5 STANDARD OF REVIEW ¶7 An appeal on summary judgment comes to this Court as a de novo review. Carmichael v. Beller, 1996 OK 48, ¶2, 914 P.2d 1051 , 1053. On appeal, this Court assumes "plenary independent and non-deferential authority to reexamine a trial court's legal rulings." Kluver v. Weatherford Hospital Auth., 1993 OK 85, ¶14, 859 P.2d 1081 , 1084. The question presented to us involves ascertainment of legislative intent which necessarily involves statutory construction. Statutory interpretation of a legal issue demands a de novo review standard.6 Basic rules of statutory interpretation are often utilized by this Court. In TRW/Reda Pump v. Brewington, 1992 OK 31, ¶5, 829 P.2d 15 , 20, we stated: The primary goal of statutory construction is to ascertain and follow the intention of the Legislature. Ledbetter v Alcoholic Beverage Laws Enforcement Commission, 764 P.2d 172 , 179 (Okla.1988). If a statute is plain and unambiguous and its meaning clear and no occasion exists for the application of rules of construction a statute will be accorded the meaning expressed by the language used. Berry v. Public Employees Retirement System, 768 P.2d 898 , 899-900 (Okla.1989), quoting Caves Springs Public School District, 613 P.2d 1046 , 1048 (Okla.1980). However, where a statute is ambiguous or its meaning uncertain it is to be given a reasonable construction, one that will avoid absurd consequences if this can be done without violating legislative intent. See Berry, supra at 900-901; Grand River Dam Authority v. State, 645 P.2d 1011 , 1019 (Okla.1982). Further, the Legislature will not be presumed to have done a vain and useless act in the promulgation of a statute [Cunningham v. Rupp Drilling, Inc., 783 P.2d 985 , 986 (Okla.Ct.App.1989) ], nor will an inept or incorrect choice of words be applied or construed in a manner to defeat the real or obvious purpose of a legislative enactment. Wooten v. Hall, 442 P.2d 334 , 336 (Okla.1968). "The goal of statutory construction is always to follow legislative intent." Humphrey v. Denny, 1988 OK 69, ¶8, 757 P.2d 833 , 835. "In ascertaining legislative intent the language of the entire act should be construed with a reasonable and sensible construction." Udall v. Udall, 1980 OK 99, ¶11, 613 P.2d 742 , 745. "Legislative acts are to be construed in such manner as to reconcile the different provisions and render them consistent and harmonious, and give intelligent effect to each." Eason Oil Co. v. Corporation Commission, 1975 OK 14, ¶9, 535 P.2d 283 , 286. This Court has found "legislative silence, when it has authority to speak, may be considered as giving rise to an implication of legislative intent." City of Duncan v. Bingham, 1964 OK 165, ¶12, 394 P.2d 456 , 460. "Put simply, when called on to interpret a statute or ordinance a court's function given our tripartite system of government is to interpret or construe the applicable provision in an effort to expose the legislative will or intent and apply it to the applicable fact situation then extant, not to itself legislate or draft a law nor make policy decisions concerning the wisdom of what the legislative branch has enacted." Wylie v. Chesser, 2007 OK 81, ¶20, 173 P.3d 64 , 72. ANAYLSIS I. THE APPLICABILITY OF TITLE 36 O.S. SUPP. 2007 § 3639 (C) TO COMPSOURCE ¶8 Zaloudek's main assertion is CompSource is not legally able to terminate a workers' compensation policy for mere failure to provide audit information. Zaloudek cites to section 3639 (C) which specifies what conditions must occur before a "licensed insurer or surplus or excess lines insurer" may cancel certain coverage.7 Cancelation for failure to provide audit information is not one of the listed conditions. ¶9 CompSource asserts section 3639 (C) is not applicable and that the provisions of the Oklahoma Insurance Code8 (Insurance Code) only apply to CompSource when CompSource is specifically referenced. Zaloudek does not allege CompSource is a surplus or excess lines insurer so our analysis will look at whether CompSource is a "licensed insurer" for purposes of this statute. ¶10 We find that CompSource is neither an "insurer" for purposes of section 3639 (C) nor is it licensed by the Insurance Commissioner. Therefore, section 3639 (C) does not apply to CompSource. ¶11 The record reflects the trial court found CompSource to be an insurer for purposes of section 3639 (C) based upon CompSource's inclusion in the definition of "insurance carrier" found in title 85. Section 3 of title 85 of the Oklahoma Statutes added CompSource to the definition of "insurance carrier."9 Section 3 is a definitions section and is prefaced with "[a]s used in the Workers' Compensation Act." The Workers' Compensation Act, now the Workers' Compensation Code, is entirely encompassed within title 85.10 This section specifically limits the use of those definitions to the Act and therefore such definitions are not applicable to the Insurance Code which is found in title 36. ¶12 Zaloudek also argues that CompSource is an insurer under the definition of "insurer" in the Insurance Code. Section 103 of the Insurance Code states that an "[i]nsurer includes every person engaged in the business of making contracts of insurance or indemnity." 11 "Person" is defined in section 104 as: "includes an individual, company, insurer, association, organization, society, reciprocal or inter-insurance exchange, partnership, syndicate, business trust, corporation, Lloyd's association, and entity, and association, group or department of underwriters and any farmer's educational and cooperative union."12 However, in order to have authority to transact insurance in Oklahoma under the Insurance Code an insurer must: be an incorporated stock insurer, an incorporated mutual insurer, a mutual benefit association, a nonprofit hospital service and medical indemnity corporation, a farmers mutual fire insurance association, a Lloyd's association or a reciprocal insurer, of the same general type as may be formed as a domestic insurer under this Code...13 ¶13 The State Insurance Fund (Fund) was created in 1933.14 CompSource is the successor to the Fund.15 The Fund was created to be a "revolving fund" for the purpose of insuring employers against liability for compensation under Oklahoma's workers' compensation laws.16 CompSource has been described by this Court as not being "an independent corporate entity or a governmental agency created by law and vested with a measure of governmental power, but a mere department created for a fixed and limited purpose, over which the state, through its Legislature and its officials, retains absolute domination and control."17 CompSource's employees are state employees and the President and Chief Executive Officer's salary is set by statute.18 It is a state department created for the purpose of insuring employers against liability for compensation pursuant to the Workers' Compensation Code and is required to be "fairly competitive with other insurance carriers."19 It is not an incorporated stock insurer, an incorporated mutual insurer, a mutual benefit association, a nonprofit hospital service and medical indemnity corporation, a farmers mutual fire insurance association, a Lloyd's association nor a reciprocal insurer. ¶14 The Fund/CompSource has been in existence for almost eighty years and yet the legislature has not added it to the list of entities in the Insurance Code's general definition of "insurer." This is so even though in 2010, as mentioned, the legislature amended the Workers' Compensation Act to include CompSource in the definition of "insurance carrier." References to CompSource in the Insurance Code further indicate the legislature's intent to distinguish it from "insurer" for purposes of the Code. For example, in subsection C of section 924.2 of the Code, CompSource is singled out from insurance companies. This subsection provides as follows: C. Eligible employers shall be those employers: 1. Who are insured by an insurance company writing workers' compensation insurance in this state; 2. Who are self-insured; or 3. Who are insured by CompSource Oklahoma. Another example is found in the Unfair Claims Settlement Practices Act (UCSPA) which is a part of the Insurance Code.20 The UCSPA's definition of "insurer" specifically includes CompSource for purposes of the Unfair Claims Settlement Practices Act.21 This definition only applies to the UCSPA and not the entire Insurance Code. If CompSource was considered by the legislature to fall under the general definition of "insurer" found in section 103 of the Insurance Code, then it would not be necessary to refer to it specifically in the UCSPA. Even though CompSource was included in the definition of "insurer" for the UCSPA other provisions of the UCSPA exclude CompSource when the legislature determined such provisions were only applicable to other UCSPA insurers.22 This further shows legislative intent to treat CompSource differently. ¶15 CompSource points out another example to show the legislature intended to treat CompSource as if it was not meant to be included in the Insurance Code's general definition of "insurer." The Insurance Code provides minimum requirements for the Insurance Commissioner to examine domestic insurers.23 It also requires insurers to submit annual financial statements to the Insurance Commissioner.24 However, such provisions concerning CompSource are separately provided for under the Workers' Compensation Code: CompSource Oklahoma shall submit to the State Insurance Commissioner an annual financial statement in the same manner as a domestic insurance carrier. The Insurance Commissioner may audit CompSource Oklahoma in the same manner as a domestic insurance company if an audit does not conflict with any specific provision contained herein. 85 O.S. Supp. 2002, § 139; renumbered as 85 O.S. 2011, §389 by 2011 Okla. Sess. Laws ch. 318, §88. CompSource argues section 139 would be a useless act if the legislature intended the definition of "insurer" in the Insurance Code to include CompSource. It asserts the only rational construction is that the legislature did not intend to include CompSource in that definition except to the extent it explicitly has done so. Essentially, they argue the Insurance Code only applies to CompSource when it specifically refers to CompSource. We agree. ¶16 The rational conclusion obtained from the legislature's silence in the general definition of "insurer" along with its specific treatment of CompSource in other parts of the Insurance Code is that the legislature intended for the provisions of the Insurance Code to only apply to CompSource when it specifically refers to CompSource. ¶17 When the Fund was established in 1933 the State Industrial Commission was vested with full power, authority and jurisdiction over the Fund.25 This power and authority extended to managing and conducting all business and affairs relating to The State Insurance Fund. The structure of The State Insurance Fund was later amended in 1937. A Board of Managers was created to oversee The State Insurance Fund.26 The Board was authorized to appoint a State Insurance Fund Commissioner (Commissioner). Both the Commissioner and its successor, the CompSource Oklahoma President and Chief Executive Officer, have statutorily been "vested with full power, authority and jurisdiction" over the Fund and CompSource respectively.27 ¶18 Section 3639 (C) applies to a "licensed insurer." A license grants authority to perform a certain act or acts. The license referred to in section 3639 (C) can only mean one granted by the Insurance Commissioner to transact the business of insurance in this state. Section 606(A) of Title 36 of the Oklahoma Statutes provides "[n]o person shall act as an insurer and no insurer shall transact insurance in Oklahoma except as authorized by a subsisting authority granted to it by the Insurance Commissioner, except as to such transactions as are expressly otherwise provided for in this Code."28 Section 109 of the Insurance Code further states "[n]o person shall transact a business of insurance in Oklahoma without complying with the applicable provisions of this Code."29 Neither of these sections is applicable to CompSource because it derives its authority to provide workers' compensation insurance from sections in the Workers' Compensation Code and not from the Insurance Commissioner nor the Insurance Code.30 Therefore, CompSource is also not "licensed" by the Insurance Commissioner because its authority is founded in the Workers' Compensation Code and is not dependent upon the Insurance Commissioner or the Insurance Code.31 CompSource is not a "licensed insurer" for purposes of section 3639 (C) and therefore section 3639 (C) is not applicable to CompSource. II. COMPSOURCE'S CANCELATION OF ZALOUDEK'S POLICY ¶19 CompSource asserts it properly canceled Zaloudek's workers' compensation policy pursuant to subsection (G) of section 64 of title 85 of the Oklahoma Statutes which provides in relevant part: G. No contract of insurance issued by a stock company or mutual association or other concern against the liability arising under this act shall be canceled within the time limited in such contract for its expiration until at least ten (10) days after notice of intention to cancel such contract, on a date specified in such notice, shall be filed in the office of the Administrator and also served on the employer. Such notice shall be served on the employer by delivering it to the employer or by sending it by mail, by registered letter, addressed to the employer at the employer's last-known place of residence; provided that, if the employer is a partnership, then such notice may be so given to any one of the partners, and if the employer is a corporation, then the notice may be given to any agent or officer of the corporation upon whom legal process may be served… Zaloudek argues § 64(G) is only a notice provision and CompSource is only able to cancel a policy for one of the eight reasons found in section 3639 (C). As mentioned earlier, we find that section 3639(C) is not applicable to CompSource so the question therefore becomes whether CompSource may properly cancel a workers' compensation policy because an insured failed to participate in the audit. We hold that it may. ¶20 Section 142 of title 85 of the Oklahoma Statutes32 requires the premiums for any policy period to be paid to CompSource and adjusted according to the contract of insurance. It provides as follows: Premiums for any policy period shall be paid into CompSource Oklahoma and adjusted according to the contract of insurance. If such adjusted premium is more than the premium paid at the beginning of the period, the employer shall pay the difference immediately upon notification of the amount of premium due. If such adjusted premium is less than the premium paid at the beginning of the period, the employer shall at the employer's option receive either refund of the difference or a credit of the amount thereof on the employer's account with CompSource Oklahoma. CompSource asserts the audit is necessary in order to make the required adjustment of premium. Paragraph 5 of subsection A of section 134 of title 85 of the Oklahoma Statutes33 grants CompSource the authority "[t]o inspect and audit, cause to be inspected and audited, or require production of the records of employers insured with or applying for insurance with CompSource Oklahoma against liability for compensation." CompSource argues that the only proper way to satisfy the section 142 mandate is to condition cancelation on receiving audit information. We agree with CompSource's interpretation especially considering the legislature has authorized CompSource to cancel a policy of insurance if an insured defaults in the payment "required to be made" to CompSource.34 CompSource depends upon the audit information to determine required payments. If the insured fails to provide audit information then CompSource has no way to 1) determine if a "default in the payment required to be made" has occurred and 2) make the premium adjustments mandated by section 142. ¶21 In its final order the trial court found Zaloudek's counter-motion for summary judgment and its claims for equitable estoppel to be moot based upon its finding that section 3639 (C) applies to CompSource. We reverse the trial court's ruling on section 3639 (C)'s applicability. The trial court stayed Zaloudek's remaining claims pending this appeal. In its counter-motion for summary judgment Zaloudek alleges it sent the requested audit information prior to the March 3, 2011, cancelation of its policy. On this appeal we have reviewed only issues of law. We do not rule today as to whether or not CompSource properly canceled Zaloudek's policy. Those issues remain for the trial court's determination upon remand. Our holding determines CompSource is authorized to cancel a policy based upon an insured's failure to participate in the audit. CONCLUSION ¶22 For the above stated reasons, we find section 3639 (C) does not apply to CompSource and CompSource is authorized to cancel a policy for an insured's failure to participate in the audit. All other issues are remanded for further proceedings in the trial court. REVERSED AND REMANDED FOR FURTHER PROCEEDINGS ¶23 TAYLOR, C.J., KAUGER, WATT, WINCHESTER, EDMONDSON, REIF, COMBS and GURICH, JJ., concur. ¶24 COLBERT, V.C.J., concurs in result. FOOT