KELLY GRIFFITH APPELLANT v. TY COLWELL RONALD LAMB RON ELECTRIC HON CHRIS DAVIS ADMINISTRATIVE LAW JUDGE WORKERS COMPENSATION BOARD AND UNINSURED EMPLOYERS FUND APPELLEES

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Court of Appeals of Kentucky.

KELLY GRIFFITH APPELLANT v. TY COLWELL;  RONALD LAMB D/B/A RON'S ELECTRIC;  HON. CHRIS DAVIS, ADMINISTRATIVE LAW JUDGE;  WORKERS' COMPENSATION BOARD;  AND UNINSURED EMPLOYERS' FUND APPELLEES

NO. 2012–CA–001963–WC

Decided: May 24, 2013

BEFORE:  COMBS, STUMBO AND VANMETER, JUDGES. BRIEF FOR APPELLANT:  Katherine J. Hornback Jonathan D. Gray Lexington, Kentucky BRIEF FOR APPELLEE UNINSURED EMPLOYERS' FUND:  Jack Conway Attorney General Patrick M. Roth Assistant Attorney General Frankfort, Kentucky

NOT TO BE PUBLISHED

OPINIONREVERSING AND REMANDING

Kelly Griffith petitions for review of an opinion of the Workers' Compensation Board (Board).   The sole issue on appeal is whether Griffith is a contractor, as that term is defined in Kentucky Revised Statutes (KRS) 342.610(2)(b) and KRS 342.700, and consequently liable to Ty Colwell for “up-the-ladder” workers' compensation benefits.   Because the Board construed the statutory definition too expansively, we reverse and remand for further proceedings.

Griffith, a licensed motor vehicle dealer, is the owner and operator of Auto Connection Used Trucks and Cars, a business which sells and trades used automobiles and trucks.   In 2007, he purchased an empty lot in Junction City, Kentucky, where he planned to construct a new building for his dealership.   In order to save ten to fifteen percent on construction costs, Griffith served as his own general contractor, hiring various subcontractors to perform the different tasks necessary for the construction of the building.   These subcontractors graded and excavated the property, placed gravel and poured concrete, framed the building and installed plumbing.   One of these subcontractors, Ron Lamb d/b/a Ron's Electric, was hired by Griffith to complete some electrical work left unfinished by another electrical subcontractor.   Lamb in turn hired Ty Colwell to assist him in completing the electrical work on Griffith's new building.   Colwell was subsequently injured when a ladder he was standing on slipped while he was installing some wiring in the ceiling.   Ron Lamb did not have any workers' compensation insurance.   Colwell filed for benefits from the Uninsured Employers' Fund (UEF).   The UEF joined Griffith as a party, alleging that he was a contractor who had up-the-ladder liability pursuant to KRS 342.610(2) and 342.700(2).   The Administrative Law judge agreed with the UEF. The Board affirmed the ALJ's opinion and this appeal followed.

Our standard of review requires us to show deference to the rulings of the Board.

The function of further review of the WCB in the Court of Appeals is to correct the Board only where the Court perceives the Board has overlooked or misconstrued controlling statutes or precedent, or committed an error in assessing the evidence so flagrant as to cause gross injustice.

Western Baptist Hosp. v. Kelly, 827 S.W.2d 685, 687–88 (Ky.1992).

Under KRS 342.700, a contractor may be held liable for workers' compensation benefits owed to the employees of a subcontractor if the subcontractor does not have workers' compensation coverage.  KRS 342.700(2) provides that “[a] principal contractor, intermediate, or subcontractor shall be liable for compensation to any employee injured while in the employ of any one (1) of his intermediate or subcontractors and engaged upon the subject matter of the contract, to the same extent as the immediate employer.”

KRS 342.610(2) provides that

A contractor who subcontracts all or any part of a contract and his or her carrier shall be liable for the payment of compensation to the employees of the subcontractor unless the subcontractor primarily liable for the payment of such compensation has secured the payment of compensation as provided for in this chapter.   Any contractor or his or her carrier who shall become liable for such compensation may recover the amount of such compensation paid and necessary expenses from the subcontractor primarily liable therefor.

The statute was later amended to include the following expanded definition of “contractor:”

A person who contracts with another:

(a) To have work performed consisting of the removal, excavation, or drilling of soil, rock, or mineral, or the cutting or removal of timber from land;  or

(b) To have work performed of a kind which is a regular or recurrent part of the work of the trade, business, occupation, or profession of such person

shall for the purposes of this section be deemed a contractor, and such other person a subcontractor.   This subsection shall not apply to the owner or lessee of land principally used for agriculture.

The Kentucky Supreme Court has explained that the purpose of this provision was “to discourage a contractor from subcontracting work that is a regular or recurrent part of its business to an irresponsible subcontractor in an attempt to avoid the expense of workers' compensation benefits.”  General Elec. Co. v. Cain, 236 S.W.3d 579, 585 (Ky.2007).

The ALJ found that Griffith was acting as a general building contractor in constructing the new dealership building, and therefore qualified as a contractor for purposes of workers' compensation liability.   The ALJ explained his reasoning as follows:

In this claim Griffith, by his own uncontradicted testimony, was in the process of constructing his own building and place of business to sell cars.   To that end he intentionally chose to not retain or hire a general contractor.   By his own admission he chose to act as his own general contractor.   He did this in order to save the 10–15% surcharge that he believed a separate general contractor would charge.   To further this end he contacted multiple sub-contractors and had them perform work for him in furtherance of the construction of his building.

In other words, and regardless of whether or not this is the first and last time he will ever do such a thing, he did everything that a general contractor would do to construct a building.   Further, he knowingly and intentionally was acting in the place of a general contractor as a business decision to reduce his costs.   The undersigned can accept that Griffith acted in good faith and knows he strenuously objects to even being involved in this claim.   Nonetheless, given the statute and the facts it is clear that Griffith was acting, within the meaning of the Workers' Compensation Act, as a general contractor.   He is therefore liable under the Workers' Compensation Act for the benefits payable to the Plaintiff.

The Board agreed with the ALJ that Griffith was a contractor:

Effectively Griffith was wearing two hats on the date of the accident.   First, he sold cars through his business known as Auto Connections.   Second, he was a general contractor on a construction project.   By undertaking the role of general contractor, albeit for a building he was constructing for himself, Griffith availed himself [of] both the protections and liabilities of being a statutory or up-the-ladder employer.   To rule otherwise would circumvent the purpose of the Kentucky Workers' Compensation Act.

Griffith contends that he was not acting as a contractor for purposes of the statute because “[o]rdinarily, in common usage, a ‘contractor’ is one who undertakes to perform work for another.”  Bright v. Reynolds Metals Co., 490 S.W.2d 474, 476 (Ky.1973).   In acting as his own general contractor, Griffith contends he was working only for himself, not pursuant to a contract with another.   Hiring an electrical subcontractor such as Lamb to install wiring in a building would be within the regular and recurrent business of a general building contractor.   Griffith argues that he does not meet the definition of a “contractor” under KRS 342.610(2)(b) because electrical construction work is not a regular or recurrent part of his business as a car salesman.

In Fireman's Fund Ins. Co. v. Sherman & Fletcher, 705 S.W.2d 459 (Ky.1986), the Kentucky Supreme Court discussed the significance and scope of the definition of a contractor found at KRS 342.610(2)(b).  The Court first described the state of the law prior to the passage of that amended definition by reference to Bright v. Reynolds Metals Co. In that case, Reynolds was acting as its own general contractor in constructing a new rolling mill.   Reynolds hired various contractors to perform excavating, masonry, and plumbing on the mill.   One of the employees of the excavating business was injured and brought a negligence action against Reynolds, which argued that it was a “principal contractor” within the meaning of the workers' compensation act and therefore immune from tort liability.   Because Reynolds was not performing work for another, it was not deemed to be a principal contractor and hence “was held to have no liability for compensation to the employee of a subcontractor and a tort claim was therefore allowed.”  Fireman's Fund, at 461–462.

The decision in Bright v. Reynolds Metal Co., supra, pointed out that the statutes of many states provided that a person who contracted for work to be done by another which was of the kind he usually performed for himself was construed to be a principal contractor.   Our statute had no such provision at that time.

Following the decision in Bright v. Reynolds Metals Co., supra, the General Assembly enacted K.R.S. 342.610 in its present form which provides that a person who contracts with another to do work of a kind which is a recurrent part of the work of the trade or occupation of such person shall be deemed a contractor.   We construe this to mean that a person who engages another to perform a part of the work which is a recurrent part of his business, trade, or occupation is a contractor.   Even though he may never perform that particular job with his own employees, he is still a contractor if the job is one that is usually a regular or recurrent part of his trade or occupation.

Id. at 462 (emphasis supplied).

“[A]s used in KRS 342.610(2)(b), ‘regular’ means that the type of work performed is a ‘customary, usual or normal’ part of the premises owner's ‘trade, business, occupation, or profession,’ including work assumed by contract or required by law.”  General Elec. Co., at 586–587 (emphasis supplied).   Under these interpretations, Griffith does not meet the definition of a contractor pursuant to KRS 342.610(2)(b) because he, as the premises owner, did not engage Ron Lamb to perform a part of the work which is a recurrent part of his business, trade or occupation as a used car dealer.

The question presented is one of law on which the employee is entitled to a liberal construction.   However, it is neither the duty nor the prerogative of the judiciary to breathe into the statute that which the Legislature has not put there.   The humane spirit of the statute [Kentucky Workers' Compensation Act] does not warrant its extension beyond its legitimate scope.

Gateway Const.   Co. v. Wallbaum, 356 S.W.2d 247, 248 –249 (Ky.1962) (citations omitted).

Although the Board commendably wished to further the public policy of discouraging the engagement of irresponsible subcontractors, and to ensure that Colwell received workers' compensation benefits, we are nonetheless compelled by the plain wording of the statute and its interpretation by our highest court to reverse the Board's opinion and remand for further proceedings.

VANMETER, JUDGE, CONCURS.

COMBS, JUDGE, DISSENTS AND FILES SEPARATE OPINION.

COMBS, JUDGE, DISSENTING:  Although Griffith was primarily in the auto dealership business, he deliberately undertook a second occupation as a general construction contractor.   As the Board determined, he voluntarily assumed a dual role.   And as a building contractor, construction matters were the principal part of that business.

When Griffith embarked upon the occupation of general contractor of his new auto dealership building, numerous legal implications arose concerning whether he became liable for payment of workers' compensation.

As a threshold matter, we must consider the nature of the work that he performed.  KRS 342.610(2) provides as follows:

A contractor who subcontracts all or any part of a contract and his or her carrier shall be liable for the payment of compensation to the employees of the subcontractor unless the subcontractor primarily liable for the payment of such compensation has secured the payment of compensation as provided for in this chapter․  A person who contracts with another:

(a) To have work performed consisting of the removal, excavation, or drilling of soil, rock, or mineral, or the cutting or removal of timber from land ․ shall for the purposes of this section be deemed a contractor, and such other person a subcontractor.  (Emphasis added.)

Griffith's project involved excavation.   In addition, dozer work, grading, hauling gravel, and concrete work were all required.   Thus, he is a contractor under this statute.

Another issue to be considered at the outset is the very application process for the building permit.  KRS 342.610(5) provides in mandatory language as follows:

Prior to issuing any building permit pursuant to KRS 198B.060(10), every local building official shall require proof of workers' compensation coverage from the builder before a permit is issued.   A person who is exempt under the exception contained in KRS 342.650(2), and any contractor otherwise exempt from this chapter, shall so certify to the local building official, in writing and on a form prescribed by the commissioner, in lieu of providing proof of workers' compensation coverage.  (Emphasis added.)

There is no evidence in the discussion of this case to indicate that Griffith ever certified in writing the exemption that he claims for himself from the requirement that he provide proof of workers' compensation coverage.   Thus, having failing to so certify, he cannot now assert entitlement to the exemption.

One additional factor that affects the characterization of Griffith as a “contractor” is how the expenditures were treated for tax purposes.   That issue is discussed at length in General Elec. Co. v. Cain, 236 S.W.3d 579, 588–589 (Ky.2007):

When characterizing a project as being routine repair or maintenance versus a capital improvement, a relevant consideration is whether the premises owner capitalized and depreciated its cost for tax purposes or deducted its cost as a business expense.   Capitalized costs tend to indicate that the business was not the injured worker's statutory employer, while expensed costs tend to indicate that the owner was the statutory employer.   This factor is not conclusive, however, because even projects performed entirely with a premises owner's workforce may be capitalized depending on their character.   It is irrelevant when a contractor's employees are used to supplement the premises owner's workforce.   Stated simply, KRS 342.610(2)(b) refers to work that is customary, usual, normal, or performed repeatedly and that the business or a similar business would perform or be expected to perform with employees.

We need not address this additional factor, however, since the other statutory provisions noted above indicate Griffith's status as a contractor.   But as reiterated in Cain, the real focus is upon the nature of the work performed – whether it is customary, usual, normal, or repeatedly performed in the course of business.   The work involved in this case was clearly not usual or customary in selling cars.   It strictly pertained to the separate role that Griffith performed as general contractor for his new building.   He was not even utilizing the services of dealership employees.   Colwell was the employee of an electrical subcontractor.

I agree that the Board properly found him liable for up-the-ladder responsibility when it analyzed and defined his function – a function that he admitted during his own testimony.   The circumstances are admittedly unique, but I believe that the Board applied the law properly.   Thus, I would affirm the opinion and order of the Workers' Compensation Board.

STUMBO, JUDGE: