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Grimaud v. Pennsylvania Insurance Dep't

April 28, 2010


The opinion of the court was delivered by: Judge Brobson

Submitted: February 5, 2010




Petitioner Gerald P. Grimaud d/b/a Beaver Logging (Beaver Logging) petitions for review of an Adjudication and Order of the Insurance Commissioner of the Commonwealth of Pennsylvania (Commissioner). In his Adjudication and Order, the Commissioner affirmed a determination by the Appeals Subcommittee of the Pennsylvania Compensation Rating Bureau (PCRB), denying Beaver Logging's challenge to its business's classification for purposes of calculating its workers' compensation insurance premium. For the reasons that follow, we affirm.


Beaver Logging is a Pennsylvania sole proprietorship whose business includes purchasing timber, harvesting timber (cutting/felling trees by chain saw), and hauling and marketing logs. Beaver Logging has its own log truck, a tractor trailer, which Beaver Logging principally uses to haul its logs from its staging areas to saw mills and pulp mills. Transportation of logs cut/felled by logging businesses is integral to such businesses.

Historically, either Gerald P. Grimaud (Owner), Beaver Logging's owner, or a Beaver Logging employee drives the log truck. During the period relevant to this case, Beaver logging had only one employee-a part-time truck driver. Beaver Logging employees who operate the logging truck historically have not performed any other logging or logging-related activities, such as using chain saws. Instead, they have been employed for the sole purpose of loading, unloading, driving, and mechanical work.*fn2

The parties agree, and the Commissioner found, that the skills required of a person acting as a logger and those of a truck driver are markedly different. Loggers require skills such as the operation and repair of dangerous equipment (e.g., cable, chain saws, power saws) and wear safety equipment (e.g., hard hats with earmuffs and screen, chaps and gloves and long johns, heavy shirt, coat and rain gear for cold weather, snow, mud and water). Truck drivers, by contrast, require the skills commensurate with obtaining a commercial drivers license and operate generally within the confines of a heated truck cab.

Beaver Logging must compete with other logging businesses and different businesses in hiring and retaining qualified truck drivers. Beaver Logging believes that sawmills with log trucks, and log hauling companies whose sole business is hauling logs, pay wages to their drivers that Beaver Logging itself cannot afford to pay for this work. Since purchasing its log truck on September 9, 2004, Beaver Logging has hired eight drivers and has lost seven drivers. Beaver Logging estimates that those drivers have together worked a total of 12 to 14 weeks, with its current driver working part-time since July 2007.

The PCRB is a non-governmental rating organization of private insurers. Pennsylvania Ass'n of Home Health Agencies v. Commonwealth, Ins. Dep't, 547 A.2d 824, 825 (Pa. Cmwlth. 1988). Pursuant to Section 654 of the Insurance Company Law of 1921 (Law),*fn3 the PCRB is required to file with the Commissioner for his review and amendment, modification, or approval a system of classifications of risks, underwriting rules, premium rates, and schedule or merit rating plans for workers' compensation insurance in Pennsylvania. Under Section 707 of the Workers Compensation Act (Act),*fn4 every workers' compensation insurer is required to be a member of a rating organization and must adhere to the uniform classification system of the rating organization to which it belongs. Member insurers, however, may develop subclassifications to the uniform classification system of its rating organization. 77 P.S. § 1035.7(b)(2). The PCRB filing at issue in this case is the "Pennsylvania Workers Compensation Manual of Rates, Classifications and Rating Values for Workers Compensation and for Employers Liability Insurance" with an effective date of April 1, 2007 (Manual).*fn5

The Act defines "classification" and "classification system" as "the plan, system or arrangement for recognizing differences in exposure to hazards among industries, occupations or operations of insurance policyholders." Id. § 1035.3. The PCRB uses numerical codes in its approved classification system. In Graduate Health Systems, Inc. v. Pennsylvania Insurance Department, 674 A.2d 367 (Pa. Cmwlth. 1996), this Court described the PCRB's classification system as follows:

The general provisions of the manual governing classifications provide that the objective of the classification system is to group insureds into classifications so that the rate for each classification reflects the exposures common to such distinct business enterprise. Subject to certain exceptions, it is the business of the insured within Pennsylvania that is classified, not the separate employments, occupations or operations within the business. All classifications in the manual are basic classifications; however, some occupations are common to so many businesses that special classifications, known as standard exception classifications, have been established for them. Two such standard exception classifications are clerical office employees or Code 953 and salespersons, collectors or messengers-Outside or Code 951. . . .

The manual provides further, with respect to the assignment of classifications, that the object is to assign the one basic classification which best describes each distinct business enterprise of the insured within Pennsylvania. Each classification includes all the various types of labor found in a distinct enterprise. Each classification is presumed to describe an entire business enterprise.

Graduate Health, 674 A.2d at 370-71 (citations omitted).

The Manual provides, as a general rule, that separate operations within a single business are to be considered a "single enterprise" for purposes of classification:

Single Enterprise. If a risk consists of a single operation or a number of separate operations which normally occur in the business described by a single manual classification, or separate operations which are an integral part of or incidental to the main business, that single classification which most accurately describes the entire enterprise shall be applied. The separate operations so covered may not be assigned to another classification even though such operation may be specifically described by some other classification or may be conducted at a separate location.

Manual Rule § 1, IV.C.2.b. The Manual, however, also provides for the assignment of additional classifications under certain circumstances:

a. Multiple Classifications/Multiple Enterprises (Not construction or Erection Operations -- See Paragraph 6.)

Additional classifications may be used only when valid evidence supports their authorization or in conformity with the rules stated under "Standard Exceptions" and "Exclusions." Additional classes may not be added without Bureau authorization when their use is in violation of Manual Rules or an existing bureau data card. Additional classifications shall be assigned to an insured only if the following conditions exist:

1. If the classification wording requires the assignment of an additional classification for specified employees or operations.

2. If there are distinct enterprises (meaning thereby businesses, which are specifically classified in this Manual, but not operations that normally occur in the business described by the assigned classifications, nor operations described by any of the General Inclusions), conducted in a given plant by the same insured and the entire work in each enterprise is conducted either in a separate building or on a separate floor or floors of a building, or on the same floor in separate departments divided by floor to ceiling partitions without interchange of labor and the insured conducts each of such enterprises as a separate undertaking with separate records of payroll, then such separate undertakings shall each be separately classified, (and the proper carrier rating value applied to each).

3. See Governing Classification rules for assignment of incidental operations that support more than one distinct enterprise.

Id. Rule IV.C.3.a.

Two classifications in the Manual are at issue in this proceeding. The first is Code 009, entitled "LOGGING OR LUMBERING -- ,N.O.C."*fn6 With respect to Code 009, the Manual provides:

Applicable to a logging or lumbering business principally engaged in cutting/felling trees for lumber or wood chips or clearing land of trees by chainsaws regardless of the trees' size. Includes stump removal incident to logging or lumbering by the logging business.

Also applicable to the transportation of the logs to a mill and to the construction, maintenance or extension of landings or logging roads when performed by employees of the logging business.


1. Assign Code 301 to sawmill operations conducted by a separate crew of employees.

2. Assign Code 811 to specialist contractors engaged in hauling logs for an unrelated logging or lumbering business. Assign Code 301 to log hauling performed by a sawmill business when all logging.

Manual § 5 at 41 (emphasis added). The second classification code is Code 811, entitled "TRUCKING, N.O.C.", which the Manual describes as follows:

Includes dispatchers and/or clerks on loading platforms, drivers, chauffeurs and their helpers and employees repairing vehicles.

Applicable to hauling contractors principally engaged in hauling or delivering for unrelated concerns or transporting or delivering and setting into place furniture and/or major household appliances at customers' locations under contract with a manufacturer or store. Payroll developed in the hauling of unprepared coal shall be assigned in accordance with the rules for Code 810.

Also includes the rental of cranes with operator by a specialist contractor.

Manual § 2 at A18.

Between December 17, 2001, and May 15, 2002, Beaver Logging secured its workers' compensation from Legion Insurance Company. During that time, Beaver Logging's operations were classified under Code 009 (Logging or Lumbering, N.O.C.). Beaver Logging did not carry workers' compensation insurance between May 15, 2002 and January 17, 2005.

From January 17, 2005, to May 15, 2005, Beaver Logging purchased its workers' compensation insurance from Eastern Alliance Insurance Company (Eastern Alliance). From May 15, 2005, to August 9, 2005, Beaver Logging was insured for workers' compensation by Allied Eastern Indemnity Co. (Allied Eastern), a sister company of Eastern Alliance. Prior to insuring Beaver Logging, Eastern Alliance and Allied Eastern filed with and obtained the approval of the Commissioner for a subclassification to PCRB Code 009 for "log hauling," which the companies designated as Code 5009. See 77 P.S. § 1035.7(b)(2) (regarding authority to create subclassifications). While insured by these companies, however, Beaver Logging's operations were mistakenly classified as Code 811 (Trucking, N.O.C.) instead of Code 5009. Because the rates applicable to both codes were the same, however, the mistake did not affect the premium Beaver Logging paid for its workers' compensation coverage. While insured by Eastern Alliance, Beaver Logging's insurance rate was $10.67. While insured by Allied Eastern, its insurance rate was $16.56.*fn7

In August 2005, Beaver Logging chose to change its workers' compensation insurance carrier from Allied Eastern to the Pennsylvania State Workers Insurance Fund ("SWIF"), its current insurer, because Beaver Logging was dissatisfied with the services of the agent through which the Allied Eastern coverage had been placed. SWIF is a state-created fund, the purpose of which, inter alia, is to provide workers' compensation insurance to Pennsylvania employers. Section 1504 of the Act, added by Act of June 24, 1996, P.L. 350, 77 P.S. § 2604. SWIF is expressly authorized by statute to provide workers' compensation coverage to sole proprietors engaged in logging or logging-related businesses, such as Beaver Logging. Section 1526 of the Act, added by Act of June 24, 1996, P.L. 350, 77 P.S. § 2626. As an insured of SWIF, Beaver Logging has been assigned to Code 009 (Logging or Lumbering, N.O.C.). Unlike Eastern Alliance and Allied Eastern, SWIF does not have an approved subclassification for log hauling. Historically, ...

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