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Allied Interstate, Inc v. Sessions Payroll Management

February 16, 2012


APPEAL from a judgment of the Superior Court of Los Angeles County. Donna Fields Goldstein, Judge. (Los Angeles County Super. Ct. No. EC049905)

The opinion of the court was delivered by: Chaney, J.



Defendant Sessions Payroll Management, Inc. (Sessions) appeals from a judgment entered after a court trial in which it was found to have breached a contract for workers' compensation insurance by failing to pay the premium. Defendant contends the trial court erred in finding that it, rather than its successor, was obliged to pay the premium and in finding that the premium was properly increased by application of a 121 percent experience modifier. We affirm.


The facts are taken from the reporter's and clerk's transcripts and trial exhibits lodged on appeal. There is no material dispute over the facts, only over their legal effect.

Sessions is a payroll company that contracts with motion picture production companies to provide administrative services. It issues payroll checks to movie extras, calculates and deducts appropriate withholding taxes, remits taxes to the appropriate agencies, obtains workers' compensation insurance coverage, processes workers' compensation claims, and makes quarterly unemployment reports to the California Employment Development Department (EDD).

Sessions' employees fall under two classification codes for purposes of workers' compensation insurance underwriting: clerical personnel and motion picture personnel. Sessions is only a nominal employer of the motion picture personnel, as it does not meet with or hire or fire the movie extras, supervise them, visit their work sites, control their hours, wages, or working conditions, or maintain a continuing relationship with them postproduction.

Sessions was owned by its founder, Jim Knight, from its inception in 1979 to January 1, 2005, when Knight sold the corporation to John Heffernan, one if its officers. Heffernan subsequently formed Entertainment Production Services, Inc. (EPSI) and transferred Sessions to it. The payroll operations continued under the dba Sessions Payroll Management until 2008, at which time Heffernan returned Sessions to Knight's ownership.

The State Compensation Insurance Fund (SCIF), a public enterprise fund that provides workers' compensation insurance to employers (Ins. Code, §§ 11770, 11773),*fn1 issued policies to Sessions from 2002 to 2004. On January 5, 2005, Sessions, through its broker, applied to SCIF for renewal of its workers' compensation policy. The application stated that Sessions was 100 percent owned by Knight (though by this time Knight had sold the business to Heffernan) and employed 12 clerical personnel full time and 550 movie production personnel part time. The estimated payroll for the clerical staff was $500,000 and for the movie production personnel $7 million. The application showed that Sessions had been insured by SCIF in 2002, 2003 and 2004 and by Kemper Insurance in 2000 and 2001.

On March 8, 2005, SCIF issued workers' compensation policy number 1672784-05 to Sessions for the period January 1, 2005 through January 1, 2006 (the policy). The policy identified "Sessions Payroll Management, Inc." as the insured, stated it covered Sessions' liability to its employees, not "the liability of any [other] employer," and obligated Sessions to inform SCIF immediately when the information contained in the declarations regarding Sessions' operations was no longer accurate.

The policy provided that the "estimated" premium would be calculated by multiplying pertinent base rates by the reported payroll of "all [Sessions'] employees eligible for benefits under [the] policy."*fn2 This premium would then be enhanced or reduced by application of "any duly authorized experience modification."*fn3

Part five of the policy provided that the premium thus calculated was only an estimate; the final premium would be calculated after a postterm audit was conducted to verify Sessions' payroll for the policy term. The final premium, like the estimated premium, would be reduced or enhanced by any "rates and rating plans that lawfully apply to the business and work covered by th[e] policy." The policy provided that Sessions would accept any increased final premium calculated under a rating plan approved by the California Insurance Commissioner and would pay all premiums when due.*fn4

To determine the experience rating applicable to the policy, SCIF forwarded Sessions' payroll and operations information to the Workers' Compensation Insurance Rating Bureau (the Rating Bureau). After considering Sessions' estimated payroll, type of work, and workers' compensation claims experience for 2001, 2002 and 2003, in June 2005 the Rating Bureau directed that an experience modifier of 121 percent be applied to the policy premium. Accordingly, on June 28, 2005, SCIF issued an endorsement agreement that provided, "It is agreed that the policy contract premium earned at the base rates shall be modified by 121 [percent] in accordance with the Workers' Compensation Experience Rating Plan."

In a disclosure statement, Sessions was informed that it could request that the Rating Bureau reconsider any "decision, action, or omission to act" or review the manner in which its rating system was applied. If Sessions was dissatisfied with the results of any such request, it could appeal to the Insurance Commissioner within 30 days of receiving notice of SCIF's or the Rating Bureau's decision or 120 days after the request was made if no notice was given.

Sessions made monthly premium payments for most of 2005, calculating the premium due each month by multiplying the interim base rate for each of its two employee classifications--clerical and movie production--by that classification's payroll for the month. Beginning with the July payroll period, Sessions increased its payments by 21 percent in accordance with the experience rating issued by the Rating Bureau (i.e., Sessions multiplied the premium by the bureau's 121 percent experience rating).

In November 2005, Sessions notified SCIF it had been sold to Heffernan (which had actually occurred 11 months earlier) and requested that the policy be canceled and a new policy issued. SCIF thereafter canceled the ...

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