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Nbl Flooring, Inc. v. Trumbull Insurance Co.

United States District Court, E.D. Pennsylvania

February 12, 2014

NBL FLOORING, INC., on behalf of itself and all others similarly situated, Plaintiff,
v.
TRUMBULL INSURANCE CO., et al., Defendants.

MEMORANDUM OPINION AND ORDER

CYNTHIA M. RUFE, District Judge.

NBL Flooring, Inc. has sued Trumbull Insurance Co., [1] alleging that Trumbull improperly charged it for workers' compensation insurance in breach of their contract for insurance. NBL sues on its own behalf and on behalf of other Pennsylvania companies that purchased workers' compensation policies from Trumbull and has moved the Court to certify a class. Trumbull opposes the certification of a class. For the reasons set forth herein, the motion for class certification will be denied.

I. BACKGROUND

NBL is a carpet sales and installation company. Although NBL has a small number of management and sales employees, it alleges that it does not employ carpet installers. Instead, NBL uses independent contractors for all carpet installation work.

NBL alleges that it purchased workers' compensation insurance policies issued by Defendant Trumbull Insurance Co. ("Trumbull") in 2007 and 2008. The policies described the process for calculating the workers' compensation insurance premiums due, which involved multiplying a rate by a "premium basis." The premium basis is calculated based on payroll and other remuneration paid or payable for the services of the companies officers and employees engaged in covered work and "all other persons engaged in work that could make [Trumbull] liable under" the policy, including employees of independent contractors unless NBL could provide "proof that the employers of these persons lawfully secured their workers compensation obligations."[2] At the time the policies were in effect, under Pennsylvania law, an independent contractor who did not have employees but worked alone was ineligible to carry his own workers' compensation insurance, and NBL was not required to provide coverage for that individual. However, when an independent contractor utilized one or more employees for a project, rather than working alone, that contractor's employees were required to be covered by a workers' compensation policy.[3] The coverage could be provided by the independent contractor for whom the employees worked, but if it was not, NBL's insurer would necessarily provide workers' compensation coverage for the contractor's employees while they performed work for NBL.[4] Therefore, Trumbull included remuneration paid to the contractor's employees in calculating NBL's premium unless NBL demonstrated that they had some other source of coverage.

Each contract year, Plaintiff paid estimated premiums in advance for the policies, as "[t]he precise amount of the premium could not be determined until after the end of the year, because the calculation depended on the number of employees and other covered individuals during the year."[5] The policies required Plaintiff to submit to audits by Trumbull after the policy period ended, so that accurate final premiums could be calculated. One important objective of the audits was to assess whether a purported independent contractor without employees was, in fact, an employee of NBL and not an independent contractor at all.[6] If an individual was determined to be an employee and not an independent contractor, remunerations paid to that individual were also included in the premium basis. In addition, during an audit Trumbull would examine the likelihood that an independent contractor reported to have performed work alone had actually used one or more employees. If Trumbull believed that a contractor had utilized employees, and NBL could not establish some other source of workers' compensation insurance coverage for those employees, Trumbull included remuneration it found was paid to the contractor's employees in calculating NBL's premium. NBL's complaint alleges that Defendants breached their contractual obligations to NBL by failing to conduct its audits in good faith, and thus Trumbull improperly charged NBL thousands of dollars in additional premiums in breach of their contract.

Plaintiff also asserts these claims on behalf of a class of other companies insured by Trumbull. Plaintiff alleges that there are approximately 279 companies in Pennsylvania that were insured by Trumbull and that were audited and then charged premiums for individuals the insured company claimed were independent contractors without employees. Plaintiff argues that Trumbull used the same problematic audit criteria to determine whether a worker was an independent contractor or an employee when auditing all of its customers, and therefore liability can be determined on a class-wide basis.

II. DISCUSSION

Plaintiff's motion asks the Court to certify the following class:

All businesses in Pennsylvania who contracted to purchase workers' compensation insurance from either Defendant (including policies sold by The Hartford through any of its wholly owned subsidiaries) in the period September 1, 2006 through the present ("The Class Period"), were subject to improper audits inconsistent with Pennsylvania Law and Defendant's contractual obligations and were charged for coverage of Independent Contractors.

However, because the Court has dismissed NBL's claims against Defendant Hartford Financial Services Group by Memorandum Opinion and Order dated January 28, 2014, this opinion will consider an appropriately modified proposed class definition:

All businesses in Pennsylvania who contracted to purchase workers' compensation insurance from Trumbull Insurance Company in the period September 1, 2006 through the present ("The Class Period"), and were subject to improper audits inconsistent with Pennsylvania Law and Defendant's contractual obligations, and were charged for coverage of Independent Contractors.

A. The Rule 23 Standard

For a class to be certified, Plaintiff must satisfy the four requirements of Rule 23(a): 1) numerosity of class such that joinder of all members is impracticable; 2) commonality of questions of law or fact; 3) typicality of the claims or defenses of the representative party; and 4) adequacy of representation of the interests of the class by the lead plaintiff. Plaintiff must also satisfy at least one requirement of Rule 23(b). Here, Plaintiff argues that it may proceed under Rule 23(b)(1)(A), as a Court ruling would have the effect of injunctive relief, guiding Defendant's conduct in the future, [7] and proceeding with individual claims would create a risk of "inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class."[8] Plaintiff also argues that ...


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