Opinion ID: 3006936
Heading Depth: 3
Heading Rank: 3

Heading: Pennsylvania Administrative Regulations

Text: The question we must now answer is whether the terms of section 578, requiring insurance companies to collect the workers‘ compensation assessments from their policyholders and remit the payments to the Pennsylvania Department of Labor and Industry, qualify as -8- any premium or income or other taxes, or any fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions or restrictions . . . imposed upon Tennessee insurance companies doing business in [Pennsylvania] . . . that are in excess of the taxes, fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions or restrictions imposed upon the insurance companies of [Pennsylvania] doing business in [Tennessee]. Tenn. Code Ann. § 56-4-218(a). If Tennessee insurance companies doing business in Pennsylvania are burdened by the application of section 578 in a way that exceeds the burdens imposed upon Pennsylvania insurance companies doing business in Tennessee, then we must uphold our Commissioner‘s decision to impose a retaliatory tax against the Claimants. If, however, section 578 does not impose a higher burden (or any burden) upon Tennessee insurance companies doing business in Pennsylvania, then it would not be proper to impose a retaliatory tax under these circumstances. Importantly, section 578 provides that the three workers‘ compensation assessments ―shall be imposed, collected and remitted through insurers in accordance with regulations promulgated by the Department of Labor and Industry.‖ (Emphasis added.) In response to this directive, the Pennsylvania Department of Labor and Industry, through its Bureau of Workers‘ Compensation, adopted several amendments to the Pennsylvania Code, which were ―designed to implement section [578],‖ ―to clarify and provide detailed guidance for the uniform application of section [578],‖ and to ―refin[e] existing procedures for assessment collection and calculation.‖ 29 Pa. Bull. 2649 (May 15, 1999), available at 6 http://www.pabulletin.com/secure/data/vol29/29-20/29_20_p2.pdf. In particular, the amendments to the Code were ―designed to allow the imposition, collection and remittance of assessments ‗through‘ insurers on behalf of employers, rather than the imposition of assessments ‗on‘ insurers.‖ 29 Pa. Bull. 2649. Prior to adopting the amendments, the Pennsylvania Department of Labor and Industry solicited comments from ―all interested parties . . . regarding the proposed rulemaking.‖ Id. After the close 6 The Pennsylvania Bulletin is the official register for Pennsylvania‘s compilation of administrative regulations, which is known as the Pennsylvania Code. See ―The Pennsylvania Bulletin,‖ http://www.pabulletin.com/index.asp (last visited July 27, 2015). The Pennsylvania Code—an administrative code of regulations, not a legislative code of statutes—should not be confused with Pennsylvania‘s statutory compilations, which include the Pennsylvania Statutes Annotated and Purdon‘s Pennsylvania Statutes and Consolidated Statutes Annotated. The Bluebook: A Uniform System of Citation 263 tbl. T.1 (Columbia Law Review Ass‘n et al. eds., 19th ed. 2010); see also ―The Pennsylvania Code,‖ http://www.pacode.com (last visited July 27, 2015) (―No statutes or acts will be found at this website.‖). -9- of the comment period, the Department addressed each of the concerns raised by the interested parties and provided notice of ―final rulemaking.‖ Id. The final rules and regulations adopted by the Department were published within Chapter 121 of Title 34 of the Pennsylvania Code. See 34 Pa. Code §§ 121.1, 121.22, 121.23, 121.31–.35. Three of the existing regulations, each of which relates to the Workmen‘s Compensation Administration Fund, the Subsequent Injury Fund, or the Supersedeas Fund, were amended to provide that ―[i]nsured employers shall remit assessment amounts through their insurance carriers, according to procedures defined by the approved rating organization and approved by the Insurance Commissioner.‖ 34 Pa. Code §§ 121.22(d), 121.23(c), 121.31(e) (emphasis added).7 In response to concerns submitted by two of these ―approved rating organization[s]‖ during the comment period, the Department issued the following statement along with its publication of the final rules: Of course, lapses in policies and variations among insurance carriers[‘] business practices make adherence to an exact collection [amount] administratively burdensome, if not impossible. In keeping with the intent of [section 578], the Department’s use of the term “collect” was designed to establish that assessments are to be imposed, collected and remitted through insurers. The Department did not intend to bind insurers to an impossible task. Therefore, the Department has incorporated the suggestions of the commentators and amended these sections to clarify that insurance carriers shall remit assessment amounts to the Department according to the appropriate formulas. The Department believes that §§ 121.22(d), 121.23(c), 121.31([e]) and 121.33(b)(3) sufficiently establish that assessments shall be imposed, collected and remitted through insurers. 29 Pa. Bull. 2650 (May 15, 1999) (emphasis added). In addition to the amendments made to existing regulations, a new catch-all regulation was added to specify the manner of the ―[c]ollection of special funds assessments‖8 as follows: 7 The regulations also specify that ―[s]elf-insured employers . . . shall pay assessments directly to the Bureau.‖ 34 Pa. Code §§ 121.22(e), 121.23(d), 121.31(f). 8 The Pennsylvania Code defines ―special funds‖ as the ―[f]unds maintained under sections 306.2, 443 and 446 of the [Workers‘ Compensation] [A]ct (77 P. S. §§ 517, 999 and 1000.2),‖ which are the Workmen‘s Compensation Administration Fund, the Subsequent Injury Fund, and the Supersedeas Fund. 34 Pa. Code § 121.1. - 10 - (a) The Bureau will collect assessments for the special funds by calculating the total amount of the following: (1) What each self-insured employer is liable for paying to the Bureau. (2) What each insurance carrier is responsible for collecting from insured employers and remitting to the Bureau. (b) Assessments for the special funds will be imposed, collected and remitted as follows: (1) The Bureau will transmit to each insurance carrier and selfinsured employer a notice of assessment amount to be collected, which will specify the amount calculated under subsection (a) and the date on which the amount is due. (2) Each self-insured employer shall timely remit to the Bureau the amount calculated under subsection (a)(1). (3) Each insurance carrier shall collect payment for assessments from insured employers according to the procedures defined by the approved rating organization and approved by the Insurance Commissioner and timely remit payment to the Bureau. (4) The failure of an insurance carrier to receive payment from an insured employer does not limit an insurance carrier’s responsibility to collect and timely remit to the Bureau the total amount calculated under subsection (a)(2). 34 Pa. Code § 121.33 (emphasis added). Another proposed addition to the regulations would have provided that ―[o]bjection to assessment does not relieve an insurer of its obligation to promptly pay assessment amounts imposed under the [Act].‖ 29 Pa. Bull. 2650 (emphasis added) (second alteration in original). This provision, however, was omitted from the final regulations based upon concerns raised during the comment period. Id. Finally, in response to concerns ―that the amendments [would] not adequately protect insurers from taxes which they may be required to pay in other states,‖ the Department expressed its ―belief that it ha[d] adequately responded to the needs of [insurance companies] in proposing and adopting these amendments‖ to the Pennsylvania Code, thereby effectuating the legislative purpose of section 578—that is, for the three - 11 - workers‘ compensation assessments at issue in this case to be collected and remitted through insurance companies rather than imposed on the insurance companies. Id. D. Effect of Pennsylvania Statutes and Administrative Regulations In our view, the language of section 578 and the corresponding Pennsylvania Code regulations was clearly designed to avoid retaliatory taxes that might be calculated by other states based upon the assessments collected to fund Pennsylvania‘s workers‘ compensation system. The real issue, therefore, is whether the laws of Pennsylvania have actually accomplished that purpose. As indicated, the Claimants contend that section 578 and its corresponding administrative regulations have effectively removed any requirement that insurance companies pay the workers‘ compensation assessments, thereby removing any financial burden from being imposed upon the insurance companies. The State, on the other hand, insists that the financial burden of paying these assessments remains on the insurance companies despite Pennsylvania‘s clever attempt to disguise the role of the insurance companies as a mere conduit for payments made by their policyholders. In its brief on appeal to this Court, the State framed its argument as follows: In 1998, Pennsylvania enacted [section 578,] declaring that [the three Workers‘ Compensation assessments] were no longer imposed on insurers but instead were to be collected ―through‖ those companies. But the fact of the matter is that the new statute changed nothing in Pennsylvania and repealed none of the previous scheme. Insurers remain liable for these obligations, whether they collect them from policyholders or not. Pennsylvania has engaged in a subterfuge to protect its domestic insurance companies by pretending to have a lower premium tax rate when, in fact, the obligations that it imposes on and collects from insurance companies are actually significantly higher than those imposed by Tennessee. (Emphasis added.) In support of its position, the State relies primarily upon the language of the original statutes governing the Workers‘ Compensation Administration Fund, the Supersedeas Fund, and the Subsequent Injury Fund—each of which we have determined to have been repealed insofar as in conflict with section 578—as well as the newly added section 121.33(b)(4) in the Pennsylvania Code, which provides that ―[t]he failure of an insurance carrier to receive payment from an insured employer does not limit an insurance carrier‘s responsibility to collect and timely remit to the Bureau the total amount calculated under subsection (a)(2).‖ In response, the Claimants have summarized their position as follows: - 12 - None of the State‘s arguments can obscure the following: (1) Section 578 changed Pennsylvania law and, since 1998, provides that the [three Workers‘ Compensation assessments] are no longer imposed upon insurers; (2) Section 578, together with the Pennsylvania regulations promulgated and adopted after passage of Section 578, establish the process by which the legal obligation of payment of the [three Workers‘ Compensation assessments] is imposed upon policyholders and the responsibility for collection of the [three Workers‘ Compensation assessments] is on the insurers; (3) the collection responsibility is mandatory and insurers have no discretion as to whether and what extent to collect the [three Workers‘ Compensation assessments] from policyholders; and (4) the payment obligation for the [three Workers’ Compensation assessments] is not shifted to insurers, in the supposed event of nonpayment by a policyholder, because Pennsylvania law requires employers to carry workers’ compensation insurance, which necessarily requires policyholders to pay their premiums and policyholder surcharges to maintain the legally-required coverage. (Third emphasis added.) In addition, the Claimants have provided supplemental authority in the form of an ―Opinion and Declaratory Order‖ issued by the Pennsylvania Secretary of Labor and Industry.9 The Secretary explained the effect of section 578 and regulation 121.33(b)(4) as follows: [I]t could not be clearer that the General Assembly in 1997 intended [section 578] to make a structural alteration to the various surcharges imposed by the Workers‘ Compensation Act. .... Though 34 Pa. Code § 121.33(b)(4) provides that ―[t]he failure of any insurance carrier to receive payment from an insured employer does not limit an insurance carrier‘s responsibility to collect and timely remit to the 9 Tennessee Rule of Appellate Procedure 27(d) permits the filing of ―pertinent and significant authorities . . . after [a] party‘s brief has been filed, or after oral argument but before decision.‖ The State urges this Court to reject the Claimants‘ submission of the Declaratory Order as ―a belated attempt to supplement the appellate record[, which is] of questionable propriety.‖ While we consider the Declaratory Order of the Secretary to be persuasive, we agree with the State that the opinion ―adds little, if anything, to the arguments already made by [the Claimants].‖ In consequence, while we view the Declaratory Order as supportive of our interpretation of the relevant statutes and regulations, the opinion of the Secretary is neither necessary to nor dispositive of this case. - 13 - Bureau the total amount calculated under subsection (a)(2),‖ subsection (a)(2) reinforces the prime legislative directive of section [578] that insurers are to collect surcharges from insured employers. The regulation in no way imposes on insurers, directly or indirectly, the liability to pay the surcharges. . . . [The] regulations impose on employers alone the liability to pay surcharges in the first instance. ACE Am. Ins. Co., Docket No. 001-DLI-2014, slip op. at 4-5 (Pa. Dep‘t of Labor & Indus. Oct. 20, 2014) (Op. & Declaratory Order) (second emphasis added) (fourth alteration in original). In conclusion, the Secretary declared ―that [section 578] requires that the surcharges established to support [the three Workers‘ Compensation funds] are imposed solely on employers. No liability to pay the surcharges is imposed on insurers.‖ Id. at 6 (emphasis added). After our extensive review of the statutory language, the implementing regulations, and the arguments presented by the Claimants and the State as to the practical effect of these statutes and regulations, we conclude that the Pennsylvania Workers‘ Compensation Act, as amended by section 578, does not impose a direct financial burden upon insurance companies doing business in that state. The Court of Appeals, in reaching the opposite conclusion, erred in two important respects. First, the Court of Appeals relied upon ―numerous sections [of the Pennsylvania Workers‘ Compensation statutes] that continue to impose the assessments on the insurers, not the policyholders.‖ Chartis Cas. Co., 2014 WL 3807938, at  (citing 77 Pa. Stat. Ann. §§ 517, 999, 1000.2(b)). As we have explained, each of those sections was repealed by the enactment of section 578, which states that the three workers‘ compensation assessments ―shall no longer be imposed on insurers.‖ 71 Pa. Cons. Stat. Ann. § 578. While we do not fault our intermediate appellate court for overlooking the doctrine of express repeal by virtue of 1997 Pa. Laws 530,10 the prior workers‘ compensation statutes were clearly repealed by implication when section 578 became effective in 1998. Second, the Court of Appeals erred by concluding that regulation 121.33(b)(4), which the court incorrectly cited as a statute, ―makes clear the fact that the insurance companies, not the insured employers, are ultimately responsible for the surcharges at issue.‖ Chartis Cas. Co., 2014 WL 3807938, at . The only burden imposed on the insurance companies by regulation 121.33(b)(4) is ―to collect and timely remit‖ payments 10 For whatever reason, the Claimants failed to cite 1997 Pa. Laws 530 in their brief to the Court of Appeals. - 14 - made by the employer–policyholders, not to pay the assessments in the first instance or to guarantee their payment by policyholders. Our interpretation is not only consistent with the plain language of regulation 121.33(b)(4), but also the plain language of section 578 and regulations 121.22(d), 121.23(c), 121.31(e), 121.33(a)(2), and 121.33(b)(3), as well as the legislative and administrative intent of section 578 and the corresponding regulations. Neither the Pennsylvania statutes nor the administrative regulations place any penalty or fine upon the insurance companies in the event of non-payment by a policyholder. In fact, although the prior workers‘ compensation system required the insurance companies to pay the Pennsylvania Department of Labor and Industry even if the amount of an assessment was disputed, see 77 Pa. Stat. Ann. §§ 999(b), 1000.2(c), the Department expressly considered and rejected a similar provision when adopting the final rules and regulations which implemented section 578, see 29 Pa. Bull. 2650 (May 15, 1999) (noting the exclusion of a proposed regulation which would have provided that ―[o]bjection to assessment does not relieve an insurer of its obligation to promptly pay assessment amounts imposed under the [Act]‖ (second alteration in original)). Finally, although the State claims that insurance companies doing business in Pennsylvania ―continue to face revocation of their licenses under 77 Pa. Cons. Stat. § 997 if they fail to pay the assessments,‖ such a penalty would be inconsistent with the plain language and intent of section 578, and, therefore, has been repealed.11 In summary, we conclude that the three Pennsylvania workers‘ compensation statutes were in fact repealed by the subsequent enactment of section 578 insofar as the statutory schemes are inconsistent. In light of the express repeal provision in 1997 Pa. Laws 530, as well as the doctrine of repeal by implication, there is simply no other way 11 The State contends that section 578 ―is fragmentary and vague‖ because it ―purports to declare where the [three workers‘ compensation] assessments are not imposed, but neither it nor the implementing [regulations] ever effectively re-imposes them elsewhere.‖ Although we agree that the workers‘ compensation system is not a model of clarity, our canons of construction and statutory analysis fully support the conclusion that the direct financial burden of paying the assessments has been removed from the insurance companies and now lies with employer–policyholders. To the extent the Pennsylvania Department of Labor and Industry may seek to enforce compliance with section 578 in the event of nonpayment, we presume that the Department will first look to the insurance companies for collection and remittance of the assessments, which must be paid by the employer–policyholders. Several logical conclusions follow: (1) if the insurance company has not attempted to collect an assessment, the insurance company has neglected its statutory duty; (2) if the insurance company has collected an assessment but failed to remit payment to the Department, the insurance company has neglected its statutory duty; and (3) if the insurance company has attempted to collect an assessment but an employer–policyholder refuses to pay the assessment, the employer–policyholder has neglected its statutory duty. In short, the insurance company has the responsibility of acting as a tax collector on behalf of the Department, but the liability for payment of the assessments ultimately lies with the employer–policyholders. Of course, our courts may revisit this issue if, in the future, the Department adopts laws or practices that result in holding insurance companies financially responsible when policyholders fail to pay. - 15 - to interpret the plain language and legislative intent of section 578. Moreover, the administrative regulations adopted by the Pennsylvania Department of Labor and Industry evince both a legislative and an administrative intent to effectuate section 578 in a manner that would avoid the imposition of retaliatory taxes.12 In our view, the effect of section 578 and its corresponding regulations is to relieve insurance companies of the burden to pay the three workers‘ compensation assessments in the first instance, substituting instead a system whereby the insurance companies are tasked with collecting and remitting the payments made by their policyholders in conjunction with their premiums.13 We conclude, therefore, that the Commissioner had no authority to impose a retaliatory tax upon the Claimants. See Combs, 258 S.W.3d at 634.14