Court Opinion

ID: 2654638
Source: CourtListenerOpinion
Date Created: 2014-02-26 01:09:03.138206+00
Date Added: 2024-06-11T12:36:14.712299
License: Public Domain

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       IN THE COURT OF APPEALS OF THE STATE OF W                                                         IM- T
                                                                                                           10
                                                        DIVISION II

DELLEN WOOD PRODUCTS, INC.,                                                             No. 43636 -1 - II

                                            Appellant,

           V.

WASHINGTON STATE DEPARTMENT OF
LABOR AND INDUSTRIES,
                                                                                  PUBLISHED OPINION

           HUNT, J. —         Dellen Wood Products, Inc. ( Dellen) appeals the superior court' s affirmance

of    the Board         of   Industrial Insurance Appeals' ( Board) decision that Dellen defaulted on its

                      insured employer and
obligations as a self -                                     thereby lost its   right   to its surety funds.   Dellen' s first

argument presents an               issue   of   first impression:    whether the superior court erred in construing

    default" under the Industrial Insurance Act' to mean a self insured employer' s failure to satisfy
                                                                -

its legal       obligations       under    the Act, instead   of    ruling that " default"   means only a self -
                                                                                                               insured

employer' s       failure to pay        workers'    compensation      benefits.   Dellen also argues that the superior

court     erred       in ruling that ( 1)       Dellen " defaulted "2    under the Act even though it intended to

                  3
    terminate "       its self -
                               insured employer obligations under the Act; and ( 2) the Washington State

    Title 51 RCW; RCW 51. 14. 020.

2
    Br. of Appellant at 20.

3
    Br.   of   Appellant     at   22.
No. 43636- 1- 11

Department of Labor and Industries ( Department) did not violate Dellen' s due process rights in

retaining the excess surety funds.

       We hold that        as used   in   section   RCW 51. 14. 020   of   the Industrial Insurance Act, " default"

means a self -
             insured employer' s failure to satisfy any of its multiple legal obligations under the

Act, not solely its failure to satisfy its single obligation to pay workers' compensation benefits.

We further hold that        substantial     evidence    supports   the   superior   court' s   ruling that ( 1)   Dellen

defaulted as a self -
                    insured employer when it stopped paying industrial insurance to its injured

workers,   ceased   administering its injured           workers'   claims, turned over its claim files to the

Department to administer, failed to file required reports, and failed to pay industrial insurance

assessments; (   2) Dellen has no right to recoup the remaining surety funds deposited with the

Department;   and (   3)    the Department did not violate Dellen' s procedural due process rights

because Dellen had ( a) no property interest in the proceeds of its surety and ( b) appropriate

notice and an opportunity to be heard. We affirm.

                                                         FACTS

        Beginning     in 1986, Dellen Wood Products, Inc., operated as a self -
                                                                              insured employer

under the Industrial Insurance Act; Dellen backed its obligation to pay its worker compensation

claims directly to its injured employees with a surety in an escrow account. In December 2001,

4
  As we explain later, we do not address Dellen' s equity argument, which it improperly raises for
the first time in its reply brief.

5 The Industrial Insurance Act allows a self - insured employer to provide workers' compensation
benefits directly to its injured workers in the same manner that the Department would pay if the
employer had instead paid insurance funds to the Department.         To qualify as a self insured
                                                                                          -
employer under the Act ( and to relieve itself from the normal obligation to pay industrial

insurance funds to the Department), the employer must demonstrate that it has sufficient
financial ability to pay its workers' compensation claims. RCW 51. 14. 020( 1).

                                                            2
No. 43636 -1 - II

Dellen    ceased         operations,   sold its manufacturing equipment, and terminated its employees.

From     January     2002 to December 31, 2005, Dellen               continued   some      operations   with "   leased"

employees. Administrative Record ( AR) at 95.

          In     January        2002, Dellen' s Chief Financial Officer, Eugene Olsen,              contacted Larry

Wilkinson, the Department' s self -
                                  insured certification manager, asking how the Department

could take over the administration of Dellen' s ongoing injured employee claims. Wilkinson told

Olsen that the Department would take over administration of the claims only if Dellen

 defaulted "; Wilkinson            advised   Olsen to   send a notice of " default.   "6   Administrative Transcript

 AT) at 44.

                                  I. DELLEN' S INDUSTRIAL INSURANCE ACT DEFAULT

          Soon thereafter, on January 18, 2002, Olsen sent the Department a letter ( 1) giving notice

that Dellen was electing to " default" on payment of injured workers' claims under the Act' s self-

insured employer program,7 and ( 2) asking the Department to take over administration of these
          8
claims.        AR   at   111.    Dellen provided the Department with a $ 422, 853. 81 surety deposit to cover

these claims.       In response, Wilkinson retrieved Dellen' s injured employee claims files and turned

6 Wilkinson did not inform Olsen that by defaulting, Dellen would forfeit all right and interest to
its surety bond; nor did Olsen inquire about this subject.

  WAC 296 -15- 125( 1) provides:
                   A default occurs when a self -
                                                insured employer no longer provides benefits to
              its injured workers in accordance with Title 51 of the Revised Code of
              Washington. A default can be a voluntary action of the self -  insured employer, or
              an action brought on by the employer' s inability to pay the obligation.

8 The letter contains a typographical error: It mistakenly states the year as 2001 instead of 2002.

                                                              9
No. 43636 -1 - II

them       over   to the Department.       The Department administered these claims for almost two and a

half years until the last Dellen employee claim closed in May 2004.

            After Dellen'    s   January   2002 default letter, ( 1)     Dellen did not file quarterly or annual

reports     with    the Department, (      2) Dellen did not pay the Department any industrial insurance

assessments,        and (   3) the Department     paid   Dellen' s injured     workers'     claims.      A year later, in

January 2003, Wilkinson reported to Dellen that the Department had " assumed jurisdiction" over

Dellen' s       workers'    claims   and   that the surety bond'    s   balance   was $   403, 833. 58. Administrative

Record Exhibits (ARE) (Ex. 20).

            A     year   later, in 2004, Dellen filed for          bankruptcy.       In connection with Dellen' s

bankruptcy proceeding, Wilkinson filed a declaration stating that ( 1) Dellen had surrendered its

     insurance certification
self -                                to the Department     on    December 31, 2001; ( 2) Dellen had defaulted

on   its   self insurance obligations on
                -                              January   31, 2002 ( one    month    later); and ( 3) as a result of this

default, Dellen has lost its         right and   title to any   interest in   and right   to   control   its surety. ARE

 Ex. 13).

            Three years later, on June 19, 2008, Dellen sent the Department a letter requesting ( 1) the

return of all but $20, 000 of its remaining surety fund, and ( 2) treatment of its January 2002 letter

as Dellen' s written notice to terminate its status as a self -
                                                              insurer under RCW 51. 14. 0509. Dellen

stated that the last day any employees had worked for Dellen had been December 31, 2001, and

the last     day   Dellen had     operated as a   business had been September 30, 2005.                  The Department

responded on July 28, stating that when Dellen sent its January 18, 2002 letter expressing intent

9
    The legislature         amended    RCW 51. 14. 050 in 2010.           LAWS of 2010,          ch.   8, §   14004.   The

amendments did not alter the statute in any way relevant to this case; accordingly, we cite the
current version of the statute.

                                                             rd
No. 43636 -1 - II

to default on its self -
                       insurance obligations, it lost all rights to the surety fund it had provided

under RCW 51. 14. 020( 2).

                                                       II. PROCEDURE

            On September 19, 2008, the Department issued an order reiterating its July 28 decision

that Dellen had lost all rights and interest to its surety fund when it defaulted in January 2002 and

asked   the Department to          administer       Dellen'   s   injured   employees'       claims.       Dellen appealed this

Department order.

            An Industrial Appeals Judge ( IAJ)                 ruled    that ( 1)   Dellen had defaulted on its RCW

51. 14. 020( 2) self -
                     insured employer obligations and consequently lost its rights, title to, interest

in,   and   any   right   to   control   the surety; (   2) Dellen did not comply with WAC 296 -15- 121( 8),

which set forth requirements for a former self insured employer that " terminates" its self -
                                               -                                            insurer

status, instead of " defaults" on its obligations; and ( 3) therefore, Dellen had " defaulted" under

WAC 296 -15 - 125.             The IAJ issued an order affirming the Department' s September 19 2008

order and     ruling that Dellen had forfeited           all      its interest in the surety fund. Dellen appealed the

IAJ' s decision to the Board.

            The Board     affirmed       the IAJ'   s rulings and entered       the   following      conclusions of     law: ( 1)

Dellen defaulted on its obligations as a self insured employer under RCW 51. 14. 020( 2) and
                                              -

therefore,     lost   all right and   title to, any interest in,        and   any   right   to   control   its surety; ( 2) Dellen

had defaulted under WAC 296 -15 -125; and ( 3) Dellen did not comply with WAC 296 -15- 121( 8)

requirements       for " terminating" its           insurer worker' s compensation program.
                                               self -                                                            The Board also

affirmed the Department' s September 19, 2008 order:

                                                                    0
No. 43636 -1 - II

            Dellen      petitioned   the   superior court        to   review        the Board'      s   decision.   The superior court

                                                                              10                                    11
made       the   following    oral rulings: (   1) "`[     D] efaulf..         " under      RCW 51. 14. 020( 2)          means failure to

fulfill a legal obligation, a broader definition than a self-insured employer' s failure to pay claims;

 2) Dellen defaulted           on   January    18,    200212, when it submitted the letter electing to default and

asking the Department to assume administration of worker compensation payments to injured

Dellen      employees; (      3) nevertheless, Dellen did not terminate its self -
                                                                                 insurer status under RCW

51. 14. 050 because it did not comply with the statute' s self -
                                                               insurer notice of termination

requirements and other obligations13; and ( 4) Dellen was entitled to a hearing on whether there

had been a default, but after that hearing and a determination of default, there was no due process

issue.

            The superior court also affirmed the Board' s September 18, 2008 order, entering the

following findings of fact:

            1. 2      On December 31, 2001, Dellen [ surrendered] its self -
                                                                           insurance certification
            because it was no longer a Washington employer and ceased to have any
            employees.

            1. 3 On January 18, 2002, Dellen' s Chief Financial Officer, Eugene Olsen, sent a
            letter to the Department indicating that Dellen elected to default on its payment of
            claims under the self -
                                  insured program and requested the Department to take over
            the administration of its claims.

10
     Report      of   Proceedings ( RP) ( Mar. 30, 2012) at 57.

11
     RCW 51. 14. 020( 2)(        a) provides    in    pertinent part: "            In the event of default the self -
                                                                                                                    insurer loses
all right and         title to, any interest in,     and   any   right       to   control   the surety." ( Emphasis added).

12
     See   n. 8:   The    superior court says, "         January      18, 2001 letter,"        in its oral ruling. But as we noted
earlier,    the letter     contained a     typographical         error and should            have read, " January 18, 2002."

13
     RCW 51. 14. 050          provides     the mechanism          for terminating            self insurer status as
                                                                                                  -                       follows: "   Any
employer may at any time terminate his or her status as a self insurer by giving the director
                                                               -
written notice." (         Emphasis added).

                                                                        on
No. 43636 -1 - II

        1. 4 On January 31, 2002, Dellen stopped paying industrial insurance benefits to
        its injured workers and no longer administered its injured workers claims.

        1. 5    Dellen turned over its claim files to the Department for administration and
        payment of benefits. Dellen made no further payments or handled its claims after
        turning the claims over to the Department.

        1. 6 Since January 18, 2002, Dellen had not filed annual and quarterly reports as
        required by Title 51 RCW and Department rules.

        1. 7.  Since January 18, 2002, Dellen has failed to pay assessments for the
        insolvency trust fund, administrative assessments, supplement pension fund, and
        the asbestosis fund.

        1. 8 Dellen defaulted on its self -
                                          insurance obligations including the payment of
        benefits to its injured workers, the administration of its claims, the filing of
        required reports and the payment of self -
                                                 insured assessments.

        1. 9    Dellen had appropriate notice and the right to be heard during the appeal
        process before the Board.

        1. 10 Dellen had no property interest in the proceeds of its surety upon default.

        1. 11       Dellen failed to establish that the Department' s actions violated Dellen' s
        Due Process rights.

        1. 12 The Dep[ artment] did not give Dellen notice of default or failure to pay any
        assessment.

        1. 1 [ 3]    While Dellen was not delinquent in payment of any benefit, assessment, or
        contribution       as   of   Jan[ uary] 18, 2002, Dellen intended to default on payments

        coming due in the future.

CP at 87 -88.

        The superior court also entered the following conclusions of law:

        2. 2 Dellen defaulted on its self -
                                          insured obligations, including the payment of
        benefits to its injured workers, the administration of its claims, the filing of
        required reports and the payment of self insured assessments.
                                                 -

        2. 3    Pursuant to RCW 51. 14. 020( 2),      Dellen lost all right, title to, any interest in
        and any right to control the surety.

                                                         7
No. 43636 -1 - II

          2. 4 The Board' s May 16, 20011 [sic] Decision and Order is correct for the reasons
          stated herein and affirmed.

          2. 5    Dellen was not barred from arguing that the Department violated Dellen' s
          Due Process Rights.

          2. 6 The Department did not violate Dellen' s Due Process rights.

          2. 8 The September 18, 2008 Department order is correct and is affirmed.

CPat88.

          The superior court entered judgment for the Department and awarded it statutory attorney

fees of $200 and interest from the date of the judgment' s entry. Dellen appeals.

                                                       ANALYSIS

          Dellen argues that ( 1) the Board and the superior court erred in misinterpreting " default"

for purposes of the self -
                         insured employer portions of Washington' s Industrial Insurance Act; and

 2) Dellen did not " default" for purposes of RCW 51. 14. 020( 2)( a), under which a defaulting self-

insured employer loses all right to the surety it provided (to secure its financial obligations to its

injured    employees)       when the self insured employer turns over administration of its injured
                                          -

employees'         claims   to the Department.        Br.   of   Appellant   at   14, 20.   We disagree.   Although

 default"        under RCW 51. 14. 020 includes a self insured employer' s failure to pay workers'
                                                       -

compensation benefits and assessments, this is not the only obligation for which a self -
                                                                                        insured

employer' s       failure to satisfy   will result   in default   under   the Act. We affirm the superior court' s

rulings that Dellen defaulted and that the Department did not violate Dellen' s due process rights

in retaining the surety fund       after   Dellen defaulted.
No. 43636 -1 - II

                            I. " DEFAULT" UNDER THE INDUSTRIAL INSURANCE ACT

         Dellen      argues   that the Board and the              superior court erred         in   interpreting "   default" for

purposes    of     RCW 51. 14. 020( 2)(        a)   as occurring when a self -
                                                                             insured employer stops paying

workers'   compensation         benefits     or assessments.       Br.   of   Appellant   at   18. We disagree.

                                                                                          Act14

         Both      parties agree     that Washington'     s   Industrial Insurance                  does not define " default."

                           law expressly providing                definition.     Thus, the definition        of " default"   for
They   cite no case                                           a

purposes of RCW 51. 14. 020 is an issue of first impression in Washington.

                                                    A. Standard of Review

         We review issues of statutory construction de novo, with the primary goal of carrying out

legislative intent. Cockle           v.   Dep' t   of Labor & Indus.,         142 Wn.2d 801, 807, 16 P. 3d 583 ( 2001).

The legislative intent         of    Title 51 RCW, the Industrial Insurance Act, is to                     provide " sure and

certain relief     for   workers ...        injured in their      work."      RCW 51. 04. 010.         We do not construe an

unambiguous statute where plain words do not require construction. Davis v. Dept ofLicensing,

137 Wn.2d 957, 963, 977 P. 2d 554 ( 1999).                    Instead, we discern a statute' s plain meaning from

the ordinary meaning of the language at issue, the context of the statutory provision, related

14 A worker injured during the course of employment may file a claim for benefits under
Washington' s Industrial Insurance Act.                  Either the State or a self insured employer administers
                                                                                    -
the injured   worker' s claim.            RCW 51. 14. 020,.
                                              030; ch. 296 -15 WAC. An employer has a duty to
secure the payment of its injured workers' compensation by ( 1) insuring the payment of benefits
from the State fund;          or (   2) qualifying               insurer under
                                                       as a self -                    Title 51 RCW. RCW 51. 14. 010.
To qualify as a self -
                     insured employer, an employer must first establish that it has sufficient
financial ability to pay         workers'      compensation        benefits     and assessments under          the Act.    RCW
51. 14. 020( 1).
               The Department can require a self -
                                                 insured employer to provide a surety in an
amount sufficient to ensure payment of reasonably foreseeable compensation and assessments
for the employer' s injured workers. RCW 51. 14. 020( 2).

                                                                   7
No. 43636- 1- 11

provisions, and          the statutory    scheme as a " whole."            State v. Engel, 166 Wn.2d 572, 578, 210 P. 3d

1007 ( 2009).

                               B. Reference to Other Statutory and Regulatory Language

          Because the Act does               not    define " default,"       we look to other statutory provisions for

guidance. .            For   example,     the Act describes what happens after a self insured employer
                                                                                      -

                 15                                                                           16 (
 defaults "           on "   any   obligation under    this title."    RCW 51. 14. 060( l )          emphasis added).       Use of

the   phrase "        any    obligation under      this title"    shows the legislature' s intent to encompass within

 default"        a self -
                        insured employer' s failure to pay injured workers' compensation benefits and

industrial . insurance               assessments,      one       of   several   obligations      listed    under     the        Act.17

          Consistent with this conclusion, Dellen cites WAC 296 -15 -181 and WAC 296 -15- 121( 1)

as addressing specific instances when a default results from a self -
                                                                    insured employer' s failure to

pay     workers'         compensation      benefits.       WAC 296 -15- 125( 1), 18 for example, provides that a

15
     As an alternative to defaulting under RCW 51. 14. 060, an employer may " terminate" its self -
insured    status under            RCW 51. 14. 050.      As we explain later in this analysis, Dellen did not elect
this option.

16
      The legislature          amended     RCW 51. 14. 060 in 2010.               LAWS   of     2010,     ch.   213, §     2.     The

amendments did not alter the statute in any way relevant to this case; accordingly, we cite the
current version of the statute.

17 " Default" can also encompass, for example, a self -   insured employer' s failure to meet its other
legal   obligations under chapter RCW 51. 14,       such as its duty to maintain records ( RCW

51. 14. 110), its duty to maintain an insolvency trust ( RCW 51. 14. 077), and its special duties after
termination of self -
                    insured employer status ( WAC 296 -15- 121( 8)).

1a
     WAC 296 -15 -125 provides in full:
            1)        What is a default? A default occurs when a self -
                                                                      insured employer no longer
          provides benefits to its injured workers in accordance with Title 51 of the Revised
          Code of Washington. A default can be a voluntary action of the self-insured
          employer,or an action brought on by the employer' s inability to pay the
          obligation.

                                                                      10
No. 43636 -1 - II

default occurs when a self -
                           insured employer no longer provides benefits to its injured workers

 in   accordance with           Title 51   of     the Revised Code      of   Washington."       Similarly, the language of

WAC 296 -15- 181( 1) contemplates default as encompassing a self -
                                                                 insured employer' s failure to

pay    worker       compensation         benefits (   unless   the default     results   from    a "    claims     administration

              19
decision").

          2) What happens when the department first learns a self -
                                                                  insured employer has
         defaulted         on   its   obligation?      The. department first corresponds with the self -
         insured employer to determine if the self -
                                                   insurer will resume the provision of
         benefits.         If the self insurer does not respond to the department and resume the
                                       -
         provision of benefits within ten days, the self -
                                                         insured employer is determined to
         have defaulted.
          3) What happens when the department confirms that a self insurer has defaulted
                                                                   -
         on   its   obligation?        There are two actions that the department takes when a default
         by a self insured employer is confirmed:
                   -
                      a)    First, the      department assumes jurisdiction of the                      claims of the
                     defaulting self -
                                     insurer and begins to provide benefits to those injured
                     workers.

                      b) Second, the department makes demand upon the surety provided by
                     that   self insurer
                                 -            for the full     amount of      the surety.   The proceeds of the
                     surety are deposited with the department and accrue interest, which will be
                     used to supplement the surety in providing benefits to those injured
                     workers.

          4) What happens to              a self insured employer' s certification when
                                                 -                                                   it defaults? The
          employer         surrenders       its         insurance
                                                   self -                      Any
                                                                      certification   when      it     defaults.
         remaining employment in the state would need industrial insurance coverage
         through the state fund effective with the default by the employer.
19
     WAC 296 -15- 181( 1) provides:
                    When        a [        insurer]
                                      self -          stops    paying   workers'      compensation benefits or
          assessments, and the default is not due to a claims administration decision, the
          department will take over its surety and claim.
 Emphasis added).

                                                                 11
No. 43636 -1 - II

          We also look to other jurisdictions' workers' compensation statutes that define " default"

                                20
by         insured employers.
      self -                         Like Washington' s Act, Mississippi' s workers' compensation act,

for   example, allows employers       to   self insure.
                                                -         See MISS. CODE ANN. § 71 - 3 - 151 to - 181.    A self-

insurer in Mississippi " defaults" when it fails to fulfill any of its multiple legal obligations under

Mississippi' s Act, including its workers' compensation benefits:

            Self-insurer in default" means an individual self - insurer or a group self -
                                                                                        insurer
          as defined by this chapter that has defaulted or failed for any reason to satisfy any
          of its obligations under the Workers' Compensation Law, including, without
          limitation, all obligations for payment of indemnity compensation, disability,
          expenses of medical, hospital, surgical, rehabilitation and other services, death
          benefits and funeral expenses, whether such default or failure is the result of
          insolvency or bankruptcy or receivership or otherwise.

MISS. CODE ANN. §         71- 3- 157( f) (
                                         emphasis         added).    Other states such as Virginia, Georgia,

Louisiana,    and   South Dakota have similarly             adopted    broad interpretations   of "   default" to

encompass a self -
                 insured employer' s failure to comply with various enumerated obligations

under their respective workers' compensation acts, including failure to pay injured employees

workers'    compensation     benefits.      See GA. CODE ANN. §           34 -9 -381;   LA. REv. STAT. ANN. §

23: 1168. 3; S. D. CODIFIED LAWS § 62 -5 - 10; W. VA. CODE § 5A- 3- 10a( 3). ,

          Considering Washington' s statutory scheme as a whole, the related WAC provisions, and

other   jurisdictions'   analogous statutes, we       hold that            insured employer' s "
                                                                    a self -                       default" under

Washington' s Industrial Insurance Act encompasses a self -
                                                          insured employer' s failure to satisfy

any of its multiple legal obligations under the Act, not solely its failure to pay workers'

compensation benefits and assessments.

20
     In addressing an issue of first impression, we may look to other jurisdictions for guidance. See
In    re Dependency of M. L., 124 Wn. App. 36, 40, 96 P. 3d 996 ( 2004).
                          J.

                                                           12
No. 43636 -1 - II

         II. SUBSTANTIAL EVIDENCE SUPPORTS THAT DELLEN " DEFAULTED" UNDER THE ACT

         Dellen next argues that the Board and the superior court erred in concluding that it

 Dellen) " defaulted"       under   the Act because ( 1)             it intended to " terminate" its self -
                                                                                                          insurance

obligations, not    to declare   or   to be in " default"       under      the Act; ( 2)      it was current on all its self -

insurance    obligations,    even when      it   ceased      being    a         insured
                                                                           self -             employer; (   3)   it intended to

                                                                           21
continue    making "`   whatever payments were required' ,                      to the Department; ( 4)     it had provided a

surety in   excess of   its injured   workers'        claims; and (       5) it   used   the term " default" in its letter to

the Department only because the Department                     had    so   instructed.        Reply Br. of Appellant at 3.

These arguments fail.

                                                A. Standard of Review

         In reviewing a Board decision under the Industrial Insurance Act, a superior court

considers   the issues de    novo,    relying    on   the   certified     Board     record.    Watson v. Dep' t ofLabor &

Indus., 133 Wn.      App.   903, 909, 138 P. 3d 177 ( 2006), RCW 51. 52. 115.                     Our review of a superior

court' s decision is limited to examining the Board record to determine whether substantial

evidence supports the superior court' s de novo review findings and whether the court' s

conclusions of      law flow from     those   findings. Ruse          v.   Dep' t   of Labor & Indus., 138 Wn.2d 1, 5-

6, 977 P. 2d 570 ( 1999).        When reviewing factual issues, the substantial evidence standard is

highly   deferential to the agency fact finder.              Chandler v. Office of Ins. Comm' r, 141 Wn. App.

639, 648, 173 P. 3d 275 ( 2007),         review       denied, 163 Wn.2d 1056 ( 2008).                  We do not weigh the

evidence or substitute our       judgment        about witness        credibility for that       of   the agency.    Chandler,

141 Wn. App. at 648.

21
     Reply Br. of Appellant at 3 ( quoting AT at 44).

                                                               13
No. 43636 -1 - II

                                         B. Dellen " Defaulted" under the Act

          Dellen      challenges       the        superior    court' s        findings      of    fact that it " defaulted"          on its

obligations and        that Dellen did            not "   terminate" its status as a self -
                                                                                          insured employer under the

Act.    Dellen argues that the superior court erred in entering these findings because ( 1) Dellen

defaulted on paying its employees benefits and after ending its status as a self -
                                                                                 insured employer,

 2) Dellen failed to file           annual or      quarterly      reports, (    3) Dellen failed to pay assessments, and ( 4)

Dellen'   s    January   2002 letter         informing        the Department of                  its    election    to " default"   did not

constitute a       default   under    the Act because Dellen                   used   the   word "       default"    only because of the

Department' s instructions and Dellen instead intended the letter to be 'a notice of "termination"

of self -
        insurer status under RCW 51. 14. 050. Br. of Appellant at 20. These arguments fail.

                                             1.    Dellen' s letter elected " default"

          Under WAC 296 -15- 125( 1),                     a " default" occurs when a self -
                                                                                          insured employer no longer

provides      benefits to its injured         workers        in   accordance with           Title 51 RCW.             A default can be a

 voluntary         action"   of the self -
                                         insured employer or an action precipitated by the self insured
                                                                                                -

employer'      s   inability   to   pay its industrial insurance                 obligations.           WAC 296 -15- 125( 1).        When

such a default occurs, the Department takes over administration of the former self -
                                                                                   insured

                                                                    22
employer' s        injured   workers'   benefits          claims.        RCW 51. 14. 060( 2).

          In   contrast, when an employer "                  terminates" its self insured status, the Department does
                                                                                  -

not    take over the     employer' s      injured         workers'       benefits     claims.          Instead, the former self -
                                                                                                                                insured

employer       remains       responsible          for managing           claims   for its        employees'        injuries that occurred

22
   In connection with the Department' s taking over administration of a former self -    insured
employer' s injured workers' benefits claims, RCW 51. 14. 020( 2) expressly provides that such a
defaulting self -
                insured employer loses all rights and title to its surety fund.

                                                                         14
No. 43636 -1 - II

when it was self insured; the employer can pay a third party administrator to manage these
                 -
                                                                                     23
claims or continue       to   maintain staff         to   manage     these claims.        RCW 51. 14. 03024; WAC 296 -15-

121( 8).      To qualify      as    a "   termination"      under RCW 51. 14. 050, a self -
                                                                                          insured employer must

provide written notice of "termination" to the Department:

            Any employer may at any time terminate his or her status as a self -    insurer by
            giving the [ Department] director written notice stating when, not less than thirty
            days thereafter, such termination shall be effective, provided such termination
            shall not be effective until the employer either shall have ceased to be an
            employer or shall have filed with the director for state industrial insurance
            coverage under this title.

RCW 51. 14. 050( 1).          But Dellen' s January 2002 letter said nothing about " terminating" its status

as          insurer, as
     a self -                 the   statute requires        if it   was   electing termination.    Instead, Dellen' s letter

expressly stated that it elected to " default ":

            Per our discussion, this letter is to notify the Department that Dellen Wood
            Products, Inc, elects to default on its payment of claims under the self insured
            program and requests that the Department take over administration of the claims.

AR     at   111 (   emphasis added).          Dellen argues that it used the word " default" only because the

Department instructed it to default. Br. of Appellant at 20. But substantial evidence supports the

superior court' s      contrary      finding    of   Dellen'    s   intent to default: Dellen called the Department in

2001 and asked whether the Department could take over administration of Dellen' s injured

employee claims.          The Department responded saying that to take over administration of these

23 Unlike a default, termination of self insured status does not result in the employer' s automatic
                                         -
loss   of right and    title to its surety fund. WAC 296 -15- 121( 9); RCW 51. 14. 020( 2).

24
     The legislature      amended           RCW 51. 14. 030 in 2005.             LAWS of 2005,       ch.   1145, §   3.   The

amendments did not alter the statute in any way relevant to. this case; accordingly, we cite the
current version of the statute.

                                                                     15
No. 43636 -1 - II

                                                 25
claims,   Dellen    would     have to default .       Given that the only way for the Department to take over

a former self -
              insured employer' s worker' s compensation claims is if the employer defaults under

chapter 51. 14 RCW, Dellen' s only option under the law to accomplish his request was to default.

Consistent with the law and the Department' s advice, Dellen expressly elected to default in its
                         26
January   2002 letter.

        2. Dellen did not " terminate" its self -
                                                insured employer status under RCW 51. 14. 050

          An employer who elects to terminate its self -
                                                       insured status under RCW 51. 14. 050 must

nevertheless    continue        to   fulfill   ongoing   statutory   obligations   under   the   Act,   such   as (   1)

maintaining money, securities, or surety bonds the Department deems sufficient to cover the

employer' s    entire    liability    under    RCW 51. 14. 050( 2); ( 2)   paying benefits on injured worker

claims    incurred     during   its preceding                    insurance;
                                                  period of self -              ( 3)   filing quarterly and annual

reports, unless     the employer requests         and receives release   from   such   reporting   requirements; (    4)

paying insolvency trust assessments for three years after terminating its self -
                                                                               insurer status; and

25
     In contrast, termination would not have allowed the Department to take over Dellen' s claims.
See WAC 296 -15- 121( 8).             Nor did Dellen meet the basic statutory requirements for filing a
notice of   termination.        RCW 51. 14. 050( 1).      As the superior court noted, and Dellen conceded,
Dellen did not provide written notice stating that in not less than 30 days, the termination of its
self -
     insurer status would be effective:
         THE COURT:] But you didn' t give the [ Department] director written notice
          stating   when,      not   less than 30 days thereafter, such terminations would be
          effective.

           DELLEN' S COUNSEL:]                 We did not say " 30 days" in the letter.
RP ( Mar. 30, 2012) at 28.

26 That Dellen later claimed to have misunderstood or to have had a different intent than that
which it stated in this letter does not undermine the superior court' s or the Board' s findings.

                                                             E
No. 43636 -1 - II

                                                                                                                       27
 5) paying     all expenses   for   a   final   audit of       its        insurance program.
                                                                     self -                    WAC 296 -15- 121( 8).

         The record supports the superior court' s findings that Dellen failed to meet these

obligations for termination of self -
                                    insurance status.

                       a. Failure to continue paying workers' compensation benefits

         Under WAC 296- 15- 121( 8)(            a),    an employer that terminates its self -
                                                                                            insured status must

pay benefits on already pending workers' compensation claims incurred during its period of self-

insurance and administer workers' claim re- openings and new claims filed during the period of
                  21
self-insurance.        WAC 296- 15- 121( 8)(          a).    Dellen asserts it continued to provide for payment of

27
     WAC 296 -15- 121( 8)       provides        that    when "        a self insurer ends its self insured workers'
compensation program,"          such "    former"                insured employer "
                                                            self -                    must continue to do all of the
following ":
         a) Pay benefits on claims incurred during its period of self insurance. Claim re-
        openings and new claims filed for occupational diseases incurred during the
         period of self insurance remain the obligation of the former self insurer.
         b) File quarterly                        long as quarterly reporting is required. A
                               and annual reports as

         former self insurer may ask the department to release it from quarterly reporting
         after it has had no claim activity with the exception of pension or death benefits
         for a full year.
          c)    Provide surety at the department required level. The department may                       require
         an    increase in surety based on annual reports as they continue to be filed.                    Surety
         will not be reduced from the last required level ( while self insured) until three full
         calendar years after       the   certificate was      A bond may be cancelled for
                                                                     terminated.

         future obligations, but it continues to provide surety for claims occurring prior to
         its cancellation.
          d) Pay insolvency trust assessments for three years after surrender or withdrawal
         of certificate.

          e) Pay all expenses for a final audit of its self insurance program.
 Emphasis added).

28
  These pre- existing worker compensation benefits payments cannot come from the employer' s
surety fund if the employer is " terminating" its self -
                                                       insured status under the Act. Rather, these
payments can come          from the surety fund only if the                    insured employer "
                                                                          self -                    defaults."   See RCW
51. 14. 060, WAC 296- 15- 121( 1)( b).

                                                                     17
No. 43636 -1 - II

injured   employee      benefits   and assessments and;          therefore,        it " terminat[ ed]" its self insured status
                                                                                                                -

under   the Act ( rather than " default[ ing]         ").      Br.   of   Appellant       at   22.     Dellen' s assertion that it

continued      payments,        however,    stems    from its         provision      of    a "$      422, 853. 81"   surety to the

Department when Dellen defaulted and asked the Department to take over administration of

Dellen'   s   injured   employees'    claims.       Br.   of   Appellant      at    22.    Provision of this surety neither

transformed Dellen' s default into a termination of self insured status nor fulfilled its obligations
                                                         -

for termination of self -
                        insured status under the Act.

          As    we      have     previously     noted,         WAC        296- 15- 121( 8)(       a)    requires     an   employer

 terminating" its self -
                       insured status to continue using its own funds to pay benefits on injured

workers' claims previously incurred during its self -
                                                    insured status; in other words, a former self-

insured employer that " terminates" its self insured status cannot make these payments from the
                                             -

surety it     provided    to the Department.              Therefore, contrary to Dellen' s assertion, its having

provided      the Department       with   the $ 422, 853. 81     surety does not constitute a payment of benefits

under WAC 296- 15- 121( 8)( a) for purposes of showing that Dellen complied with statutory

termination claims payment requirements.

          Dellen further asserts that the payment of workers' compensation benefits is the only

obligation that RCW 51. 14. 050 imposes on former self insured employers. This assertion is also
                                                       -

incorrect.     WAC 296 -15- 121( 8) expressly states that an employer electing to terminate its self-

insured status must comply with all the requirements listed under WAC 296 -15- 121( 8),

including taking        responsibility for     new   claims.         WAC 296- 15- 121( 8)(             a).   Here, however, after

sending its January 2002 letter electing default, Dellen turned over its injured worker claims files

to the Department         for   administration of     its injured         workers'     claims.         And, as Dellen concedes,

                                                                 18
No. 43636 -1 - II

after sending this letter, it stopped administering its own injured workers' claims and stopped

paying benefits.

         Because Dellen did not pay benefits on its injured workers' claims incurred during its

previous self insurance period and it did not administer claim re- openings or new claims, we
              -

hold that Dellen did not comply with WAC 296- 15- 121( 8)( a) and, thus, as the superior court

ruled, did not terminate its self -
                                  insured status under the Act.

                                   2. Failure to file reports to the Department

         Under WAC 296- 15- 121( 8)( b),           an employer terminating its self insured status must
                                                                                    -

continue     to   file quarterly   and   annual   reports   with   the Department.       Dellen argues that the

superior court erred in finding that it defaulted, based on Dellen' s failing to file annual or

quarterly reports, because, Dellen asserts, no applicable statute or regulation defines " default" as

a failure to file reports. Br. of Appellant at 25. This argument also fails.

         Dellen concedes that it did not file quarterly and annual reports with the Department;

again,   Dellen    asserts   that the Department told it     not   to do   so.   The record does not support this

assertion.    Instead, the record shows that the Department did not notify Dellen to continue filing

reports because Dellen had sent the Department a letter electing to default and asking the

Department to take over administration of Dellen' s workers' compensation benefit payments;

accordingly, the Department understood Dellen to be in default status, for which continued
                              29
reporting    was not required .

29 In contrast, had Dellen not elected to default, and had elected instead to terminate its self -
insured status, the Department would have sent a notice of late reporting.

                                                            IR
No. 43636 -1 - II

           Furthermore, WAC 296- 15- 121( 8)( b)                         provides that the Department may release an

employer terminating its self insured status from its reporting requirement when no activity
                              -

occurs     for   a    full   year on    any   of   the employer' s            injured   worker claims.      Dellen' s last injured

employee claim activity occurred in 2004; thus, if Dellen had terminated its self insured status
                                                                                  -

 instead     of      defaulting), it would have been required to file quarterly reports until 2005.

Accordingly, Dellen' s failure to file such reports ( 1) would have constituted a failure to comply

with WAC 296- 15- 121( 8)( b) termination requirements; and ( 2) further supports the superior

court' s finding that Dellen did not terminate its self -
                                                        insured status, but instead was in default.

                                                   3.   Failure to pay assessments

           WAC 296- 15- 121( 8)( d) also requires a former self -
                                                                insured employer to pay insolvency

trust assessments for three years after surrender or withdrawal of its self -
                                                                            insured certificate.

Nothing in the WAC or Title 51 RCW states that the Department must give a former self insured
                                                                                      -

employer notice when that employer fails to pay a required assessment; on the contrary, the
                                                                                                                                   30
regulations          state   only that    a   former               insured
                                                              self -           employer    has   a   duty   to pay   assessments

regardless of whether it receives notice from the Department. Absent any authority requiring the

Department to give a former self -
                                 insured employer notice of failure to pay an assessment,

Dellen' s    argument          fails.    The record shows that Dellen failed to pay any assessments after

30
     See former WAC 296- 15- 221( 4)(                   a)(   iii)(B) ( 2001) (   employers no longer self insured must pay
                                                                                                           -
adjusted assessment rate until one year after all self -
                                                       insurance liabilities and responsibilities are
terminated); former            WAC 296- 15- 221( 4)(             a)(   iv)( B) ( 2001) ( self -
                                                                                              insurers must maintain minimum
balance     of $ 200, 000         in their "   second          injury fund "); RCW 51. 14. 077; former WAC 296- 15 -
221( 4)(   a)( v) (    2001) (
                       insolvency trust members who voluntarily surrender their self -    insurance
certificates must continue to pay an assessment for three years after the date of surrender).

                                                                         20
No. 43636 -1 - II

January     2002.        Thus, we hold substantial evidence supports the superior court' s finding that

Dellen failed to pay any assessments.

           We hold that substantial evidence supports the Board' s and the superior court' s findings

that Dellen' s letter expressed its intent to default and that Dellen' s subsequent actions were

                                                                     31
consistent        with   its   expressed      intent to default.          We further hold that the superior court' s

findings support its conclusions of law that Dellen defaulted on its obligations as a self -
                                                                                           insured

employer and that its actions did not qualify as a termination under RCW 51. 14. 050.

                                               IIl. PROCEDURAL DUE PROCESS

           Dellen next argues that the superior court erred in ruling that the Department did not
                                                                                                                           32
violate    its    procedural      due    process   rights   in retaining its surety fund       after   Dellen defaulted.

31
     The   superior court        did   not enter   this   finding   in its judgment   order.   But during the hearing, it
stated:

                  I' m prepared to find the time of default as the time of submission of what I
           think    you   identified     as   Exhibit 2, the letter from Dellen dated
                                                                            January 18, [ 2002].
           To me, that' s clearly a statement of Dellen' s intent, and all of the actions Dellen
           took after that were consistent with that statement of intent. And so I would find
           that as the date of default, and at that moment in time, under [ RCW] 51. 14. 020,
           the fund transfers to the Department.

           I can only determine which of these two options the actions of the parties support,
           and the only one that makes sense to me is default, because the other one, the
           termination, requires this notice with particular requirements. That clearly wasn' t
           done in this        case.    And it also anticipates that Dellen will continue to fulfill other
           certain obligations, which Dellen did not do.
RP ( Mar. 30, 2012) at 57 -58.

32
     Dellen      also   argues   for the first time in its reply brief that ( 1)         it is entitled to an immediate
refund of        its surety    as a matter of    equity;    and ( 2) under   WAC 296 -15- 121( 9), it is " entitled" to a
refund in May 2015 because an employer is entitled to such a refund at least ten years after
release from monthly reporting requirements.     Reply Br. of Appellant at 14. We do not address
arguments raised for the first time in reply briefs. RAP 10. 3( c); Cowiche Canyon Conservancy

v. Bosley, 118 Wn.2d 801, 809, 828 P. 2d 549 ( 1992).

                                                                    21
No. 43636- 1- 11

Dellen asserts that the Department violated its right to due process by failing to give notice that it

had forfeited its entire surety fund and failing to provide a meaningful hearing " at a meaningful

time."   Br.   of   Appellant   at    27 ( citations       omitted).    Again, this argument fails.

         Constitutional issues              are   issues   of   law,   which we review      de    novo.     State v. Blilie, 132

Wn.2d 484, 489, 939 P. 2d 691 ( 1997).                      The due process clause of the Washington Constitution

provides   that "[   n] o person shall be deprived of life, liberty, or property, without due process of

law."    WASH CONST.            art.    I, §      3.   Procedural due process refers to the procedures that the

government must         follow before it deprives                a person of   life,   liberty,   or   property.   See Nieshe v.

Concrete Sch. Dist., 129 Wn.                   App.    632, 640, 127 P. 3d 713 ( 2005). "`              When a state seeks to

deprive a person of a protected interest, procedural due process requires that an individual

receive notice of the deprivation and an opportunity to be heard to guard against erroneous

deprivation. "'      Speelman v. Bellingham /Whatcom County Hous. Authorities, 167 Wn. App. 624,

631, 273 P. 3d       t035 ( 2012) ( quoting Amunrud v. Bd. ofAppeals, 158 Wn.2d 208, 216, 143 P. 3d

571 ( 2006)).       Due process does not require actual notice; rather, it requires the government to

provide "`     notice reasonably calculated, under all the circumstances, to apprise interested parties

of the pendency of the action and afford them an opportunity to present their objections. "'

Speelman, 167 Wn.         App.         at   631 ( internal      quotation marks omitted) (         quoting Jones v. Flowers,

547 U.S. 220, 226, 126 S. Ct. 1708, 164 L. Ed. 2d 415 ( 2006)).

         A claimant alleging deprivation of due process must first establish a legitimate claim of

entitlement.        Haberman     v.    Wash. Pub. Power            Supply   Sys., 109 Wn.2d 107, 142, 744 P. 2d 1032,

750 P. 2d 254 ( 1988).          Legitimate claims of entitlement entail vested liberty or property rights.

Haberman, 109 Wn.2d at 142 ( citing In re Marriage of MacDonald, 104 Wn.2d 745, 748, 709

                                                                       22
No. 43636 -1 - II

P. 2d 1196 ( 1985)).       A vested right must be something more than a mere expectation based upon

an anticipated continuance of the existing law; it must have become a title, legal or equitable, to

the present or future enjoyment of property, a demand, or a legal exemption from a demand by

another.    Caritas Servs., Inc.         v.   Dep' t   of Soc. & Health Servs.,     123 Wn.2d 391, 414, 869 P. 2d 28

 1994).

          Here, Dellen did not have a legitimate claim of entitlement to the surety, which it had

provided when it defaulted and asked the Department to take over administration of Dellen' s

injured    workers'   claims.       Our state legislature expressly provided that a self -
                                                                                         insured employer

defaulting on its Act obligations loses all right and title to, any interest in, and any right to

control the surety it provided under RCW 51. 14. 020( 2) to secure payment of its employees'

workers'    compensation claims:

          In the event of default the self insurer loses all right and title to, any interest in,
                                           -
          and any right to control the surety.    The amount of surety may be increased or
          decreased from time to time                  by   the director.    The income from any securities
          deposited may be distributed currently to the self -
                                                             insurer.

RCW 51. 14. 020( 2) (      emphasis added).             Thus, under Washington' s Industrial Insurance Act, when

Dellen defaulted on its obligations as a self -
                                              insured employer, it lost all " right and title to, any
                                                                 33
interest in,   and   any   right   to   control"   its surety.         RCW 51. 14. 020( 2).   Dellen' s loss of its title to

the surety was not by virtue of some governmental action; on the contrary, this loss was a result

33
     Moreover, WAC           296- 15- 121( 9)(         a)   provides    only that the    Department " may        consider"
releasing a surety to a former self -
                                    insurer, or its successor, if all claims against the self insurer
                                                                                              -
are closed and the self insurer has been released from quarterly reporting for at least ten years.
                         -
This regulation' s use of the permissive words " may" and " consider," however, imply that such
return of a surety is not mandatory and that, instead, such decision falls within the Department' s
discretion. Thus, under the plain language of this regulation, Dellen is not " entitled" to a return
of its surety.

                                                                  23
No. 43636- 1- 11

of its election instead to default as a self -
                                             insurer under the Act and to turn over administration of

its workers' compensation benefits to the Department to pay on Dellen' s behalf from Dellen' s

surety fund.

           Furthermore, again contrary to Dellen' s assertions, Dellen did have meaningful notice

and    an    opportunity      to    be heard.          By virtue of the language of the Act and Dellen' s

communications with the Department, Dellen had, at a minimum, constructive notice that a self-

insured     employer' s "     default"      results    in forfeiture      of   its surety:     When Dellen contacted the .

Department to inquire how the Department could take over administration of Dellen' s workers'

compensation claims,          the Department told Dellen this               could   happen if Dellen " defaulted,"          which

Dellen then        elected    to do    so.     AT      at   44.    In addition, the consequences of a self -
                                                                                                           insured

                                                                                   34;
employer' s       default   are   plainly    stated   in RCW 51. 14. 020( 2)             and it is well settled that a person

is   presumed      to know the law       such   that ignorance       of   the law is     not a. defense.   35 Harman v. Dep' t

of Labor & Indus., 111 Wn.              App.     920, 927, 47 P. 3d 169 ( 2002).             And this statutory notice was

reasonably        calculated as a matter of           law to "`   apprise   interested    parties "'   36 about the default and

surety forfeiture procedures under the Act.

34
      As    Wilkinson       later    explained        in his      declaration, Dellen         defaulted     and,    under   RCW
51. 14. 020( 2),    such a defaulting self -
                                           insurer loses its right and title to its surety.
35
     We    note   that Dellen     was not an unsophisticated            entity:    To qualify as a self insured employer
                                                                                                        -
it had to         show   that it had the financial capacity to                        insure
                                                                                 self -         its    employees.     See RCW
51. 14. 020( 1).

36 See Speelman, 167 Wn. App. at 631 ( quoting Jones, 547 U. S. at 226).

                                                                   24
No. 43636 -1 - II

        Moreover,        during    Dellen'   s     2005   bankruptcy        proceeding,   Wilkinson    provided   a

declaration that Dellen had defaulted and that under RCW 51. 14. 020( 2) a defaulting self -
                                                                                           insurer

loses its    right and   title to its surety.      Thus, Wilkinson' s declaration also served as constructive

notice of the consequences of Dellen' s default under the Act, including forfeiture of its surety.

Dellen also had an opportunity to be heard when, in 2008, it asked for a release of its surety and

the Department       rejected   this   request.    Dellen had received, and exercised, its opportunity to be

heard   by    an   IAJ, the Board,     and   the   superior   court.   We hold that Dellen had notice that its

default would result in forfeiture of its surety and that the Department did not violate Dellen' s

procedural due process rights.

        We affirm.

                                                                       J.                       e- "

                                                              25