Opinion ID: 989148
Heading Depth: 3
Heading Rank: 2

Heading: Workers' compensation insurance

Text: The leases in effect before March 1991 required the lease operators to purchase workers' compensation insurance through Central Transport. Central Transport deducted funds from the lease operators' pay and used those funds to purchase the insurance. Central Transport covered its lease operators under its own workers' compensation policy, the same policy it used to cover its own employees. However, most of the plaintiffs did not realize they received workers' compensation coverage through Central Transport's employee group insurance policy instead of through individual policies. As the price of workers' compensation insurance rose in the late 1980s, lease operators began to complain about the high cost of workers' compensation insurance. In response to these recurring complaints, and out of a desire to reduce its overall workers' compensation insurance exposure, Central Transport amended the workers' compensation insurance requirement. Since March 1991, the lease requires lease operators to obtain their own workers' compensation insurance. Lease operators also have the option of obtaining occupation accident insurance, a lower-quality policy that covers fewer injuries but at a lower premium. The lease requires only that lease operators furnish Central Transport with proof of insurance coverage. Before 1991, when lease operators were still covered under Central Transport's group policy, the plaintiffs paid for their insurance according to a long-standing, well-published formula used to calculate their premiums: Premium = Gross Pay X .3333 X State Rate Central Transport communicated this formula to its lease operators by distributing memoranda and by including the formula in the leases. Liberty Mutual Insurance Company (Liberty Mutual), Central 8 Transport's workers' compensation insurance carrier, provided the formula to Central Transport. The same formula was used to determine the rates for the drivers employed by Central Transport. Central Transport, however, paid the workers' compensation premiums for its own employees. The magistrate judge found that Central Transport used the lease operators' premiums to subsidize its cost of providing workers' compensation insurance to its employees. The magistrate judge relied on statistical data introduced by the plaintiffs at trial, which established the following facts: In 1988, Central Transport paid a workers' compensation premium of $1,297,088, of which the lease operators contributed $341,682, or 26 percent. In 1989, the total premium was $1,085,508, of which the lease operators paid $342,187, or 31 percent. In 1990, the total premium was $1,342,373, of which the lease operators paid $493,311, or 37 percent. Between 1988 and 1990, the lease operators comprised less than 20 percent of the total work force. The magistrate judge agreed with the plaintiffs that the evidence dem- onstrated that Central Transport used the lease operators' premiums to subsidize its own cost of providing workers' compensation insurance to its employees. Leases between motor carriers and lease operators must specify that the lessor is not required to purchase or rent any products, equipment, or services from the authorized carrier as a condition of entering into the lease arrangement. 49 C.F.R. § 1057.12(i) (1995). Central Transport's leases did in fact contain such a provision. The magistrate judge concluded that Central Transport violated 49 C.F.R. § 1057.12(i) and breached its leases by providing workers' compensation coverage to the lease operators under its company-wide workers' insurance policy. Although Central Transport did not actually provide 9 the workers' compensation insurance to the lease operators (Liberty Mutual issued the coverage), the magistrate judge treated Central Transport as the provider of workers' compensation insurance because Central Transport received a benefit from including the lease operators in its group policy: Central Transport used the lease operators' premiums to subsidize its own cost of providing workers' compensation insurance to its employees. Thus, the magistrate judge concluded that Central Transport violated 49 C.F.R.§ 1957.12(i) and breached the leases, and it awarded damages in the amount of $164,085.07, plus $10,867.43 in costs. The magistrate judge did not find, however, that Central Trans- port's workers' compensation insurance requirement constituted an unfair or deceptive trade practice. The magistrate judge found that the leases clearly stated the lease operators' obligation to purchase workers' compensation insurance through Central Transport, and that Central Transport provided the lease operators with the formula used to calculate the lease operators' premiums. Central Transport eventually responded to the lease operators' complaints about escalating costs of workers' compensation insurance. In 1991, Central Transport eliminated its requirement that lease operators purchase workers' compensation insurance from Liberty Mutual through Central Transport's group policy. Central Transport now requires only that the lease operators show proof that they have obtained a workers' compensation policy or an occupational accident policy from an independant insurance carrier.