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Louisiana Safety Association of Timbermen v. Will Transport, L.L.C.

Court of Appeals of Louisiana, Second Circuit

February 28, 2018

WILL TRANSPORT, L.L.C. Defendant-Appellant

         Appealed from the Eighth Judicial District Court for the Parish of Winn, Louisiana Trial Court No. 40287 Honorable Jacque D. Derr, Judge

          PROVOSTY, SADLER & DELAUNAY, APC, Joseph J. Bailey John Dexter Ryland Eli Jules Meaux Counsel for Appellant, Louisiana Safety Association of Timbermen - Self Insurers Fund, Brett Brunson, Trustee

          PAUL LOY HURD Counsel for Appellant/ Third Party Petitioner, Will Transport, L.L.C.

          McKEITHEN, RYLAND & CHAMPAGNE By: Joseph W. Grassi Counsel for Appellee, K.P. Trucking, L.L.C., Karl Pentecost d/b/a Ouachita Truck & Trailer

          BAKER DONELSON BERMAN CALDWELL & BERKOWITZ, PC By: Gregory E. Bodin Robert L. Blankenship Counsel for Appellee/ Third Party Defendant, Lexington Insurance Company

          Before BROWN, WILLIAMS, and GARRETT, JJ.

          GARRETT, J.

         The defendant, Will Transport, L.L.C., appeals from a trial court judgment which held that it owed almost $670, 000 in unpaid premiums for long haul truck drivers under a workers' compensation insurance policy for the years 2004 to 2006. It maintains that the drivers were statutorily exempt from coverage and benefits under the Louisiana Workers' Compensation Act (hereinafter "LWCA"). Will Transport also appeals from the dismissal of its third-party demand against Lexington Insurance Company, its contingent liability insurer. The plaintiff, Louisiana Safety Association of Timbermen - Self Insurers Fund (hereinafter "LSAT"), appeals the trial court's dismissal of two other defendants which it contends were solidarily liable with Will Transport. For the reasons set forth below, we affirm in part and reverse in part the trial court judgment.


         This suit, which began with the filing of a simple one-and-a-half page petition, has spawned more than a decade of litigation, including numerous motions, two writ applications, and now two appeals. To understand the issues currently before us, which date back to events occurring years ago, some background information is necessary.

         In 1996, Karl Pentecost started K.P. Trucking, L.L.C. (hereinafter "K.P."). This company owned 18-wheeler trucks which were leased to various freight haulers and employed drivers. In 2000, Pentecost created another entity, Will Transport, a contract hauler which secured shipping contracts and subcontracted cargo pick-up and delivery of the contracts to independent drivers. After Will Transport was created, K.P. provided trucks and drivers only to it. However, Will Transport also utilized drivers not affiliated with K.P. The cargo included roll stock paper, recycled paper, and lumber products from customers such as Georgia-Pacific and Graphic Packaging. Pentecost owned 95% of each of the two L.L.C.s, with the remaining 5% being owned by office manager Janet Hill. He was also the sole owner of Ouachita Truck & Trailer (hereinafter "Ouachita"), which performed repairs for a number of trucking companies, including K.P. All three business had the same street address, and the payroll for all three entities flowed through Will Transport. K.P.'s drivers were employees who received W-2 tax forms. Other drivers who provided services for Will Transport did so under a written contract which was labelled "Equipment Lease." These drivers received 1099 tax forms for the compensation they received, and they are the drivers at issue in this case.

         In 2003, seeking a better rate for workers' compensation insurance, Pentecost submitted an application for membership with LSAT on behalf of Will Transport. He signed these documents as "manager LLC"; however, he attached member financial statements for both Will Transport and K.P. Additionally, a workers' compensation application was submitted to LSAT by the insurance agency used by Pentecost. The application was made on behalf of both Will Transport and Ouachita and signed by Pentecost. In a box specifying "additional coverages/endorsements, " there was a notation to add K.P. as a named insured. The federal employer identification numbers ("FEIN") for each of these three entities were included on the application next to their names.

         LSAT provided workers' compensation coverage for Pentecost's companies for the policy years 2004 to 2006. Its certificate of self-insurance provided as follows for the computation of the premiums:


Premium for each work classification is determined by multiplying a rate times a premium basis. Remuneration is the most common premium basis. This premium basis includes payroll and all other remuneration paid or payable during the policy period for the services of:
1. all your officers and employees engaged in work covered by this policy; and
2. all other persons engaged in work that could make us liable under Part One (Workers' Compensation Insurance) of this certificate of coverage. If you do not have payroll records for these persons, the contract price for their services and materials may be used as the premium basis. This paragraph 2 will not apply if you give us proof that the employers of these persons lawfully secured their workers' compensation obligations. [Emphasis added.][1]

         In 2004, the Louisiana legislature passed a workers' compensation bill designed "to exempt 'owner operators' from being classified as employees." See Acts 2004, No. 188, ' 1, which became effective on June 10, 2004. It amended the definition of "independent contractor" and added a definition of "owner operator" in La. R.S. 23:1021. Specifically, La. R.S. 23:1021(7) was amended to add the last sentence:

(7) "Independent contractor" means any person who renders service, other than manual labor, for a specified recompense for a specified result either as a unit or as a whole, under the control of his principal as to results of his work only, and not as to the means by which such result is accomplished, and are expressly excluded from the provisions of this Chapter unless a substantial part of the work time of an independent contractor is spent in manual labor by him in carrying out the terms of the contract, in which case the independent contractor is expressly covered by the provisions of this Chapter. The operation of a truck tractor or truck tractor trailer, including fueling, driving, connecting and disconnecting electrical lines and air hoses, hooking and unhooking trailers, and vehicle inspections are not manual labor within the meaning of this Chapter. [Emphasis added.]

La. R.S. 23:1021(10) was enacted and states:

(10) "Owner operator" means a person who provides trucking transportation services under written contract to a common carrier, contract carrier, or exempt haulers which transportation services include the lease of equipment or a driver to the common carrier, contract carrier, or exempt hauler. An owner operator, and the drivers provided by an owner operator, are not employees of any such common carrier or exempt hauler for the purposes of this Chapter if the owner operator has entered into a written agreement with the carrier or hauler that evidences a relationship in which the owner operator identifies itself as an independent contractor. For purposes of this Chapter, owner operator does not include an individual driver who purchases his equipment from the carrier or hauler, and then directly leases the equipment back to the carrier or hauler with the purchasing driver.

         Before the law changed, Pentecost did not exclude any of his contract drivers from his workers' compensation policy. He collected payment for the coverage from the drivers and remitted it to the insurer on their behalf. He exempted them from this reimbursement procedure if they had their own workers' compensation policy. According to Pentecost, the owner operators wanted to be exempt to reduce their costs. If Pentecost allowed them to be exempt, it was a competitive advantage in recruiting for him against other trucking companies. Because of legal uncertainty arising from the 2004 changes in the law, which was viewed as a "gray area, " Pentecost sought a solution from his insurance agent in order to protect against suits and claims by the contract drivers. He was presented with a package of an AIG occupational accident policy combined with a Lexington contingent liability policy.

         The proposal designed for Will Transport stated, in relevant part:

[In the Truckers Occupational Accident Insurance portion]
[In the Contingent Liability Insurance portion]
The Contingent Liability Program is a policy which is purchased by the motor carrier to help fill the gray area that exists between owner-operator drivers and employee drivers. It does pay benefits which may be equivalent to those that would be payable in accordance with workers' compensation law.
Contingent Liability responds only in the event that an owner-operator is deemed, or is seeking to be deemed, an employee of a motor carrier by a workers' compensation board, bureau or court.
The Contingent Liability Program is available in all states except Delaware and requires an AIG Occupational Accident Program with at least $500, 000 Combined Single Limit coverage. The Contingent Liability Program cannot be written as a stand-alone product[.] [Emphasis theirs.]

         The AIG and Lexington policies were issued to Will Transport, effective July 1, 2004. The AIG policy contained a notation, again stating that its coverage was not workers' compensation coverage and not a substitute for such coverage. The declarations page of the Lexington policy, which was a companion policy to the AIG occupational accident ...

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