Atlantic Building Associates v. Trujillo

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
Atlantic Building Associates,

Appellant/Ernployer-BeloW,
C.A. No.: Nl 8A-08-0()6 SKR

V.

Julio Garcia Trujillo,

Appellee/Eniployee-Below.

Submitted: January 7, 2019
Decided: April 3, 2019

Upon Appealfrom the Ina'ustrial Accident Board:
REVERSED AND REMANDED.

Andrew J. Carmine, Esq., Elzufon Austin & Mondell, Attorney for Appellant.

Arthur M. Krawitz, Esq., Tara E. Bustard, Esq., Doroshow, Pasquale, Krawitz &
Bhaya, Attorneys for Appellee.

Rennie, J.

MEMORANDUM OPINION

Before the Court is an appeal from an August 2, 2018 decision of the Industrial
Accident Board (the “Board” or “IAB”).l This appeal originated from Julio Garcia

Trujillo’s (clainiant-below, “Trujillo”) petition for Workers’ compensation benefits

l Notice of Appeal from 8/2/2018 Industrial Accident Board Decision (Trans. ID. 62381427).

against Atlantic Building Associates (“Atlantic”). In its first decision, the Board
found Atlantic not liable for Trujillo’s Workers’ compensation claim.2 The Court
reversed that decision on appeal, finding that the Board applied an incorrect legal
standard to the case.3 On remand, the Board found Atlantic liable for Trujillo’s
claim.4 Atlantic promptly appealed. Now before the Court is this second appeal of
the Board’s decision. The issue involved here is a purely legal one: Whether the
IAB, on remand, applied the legal standard as instructed by the Court in its previous
opinion. The Court finds that it did not and hereby REVERSES AND REMANDS.
I. FACTUAL AND PROCEDURAL BACKGROUND5

Trujillo Was an employee of Gaston Santos Bautista d/b/a Santos Construction
(“Santos”).6 On April 9, 2014, Trujillo Was injured While performing framing Work
for Santos on a construction site located in Millville, Delaware.7 The framing Work
Trujillo conducted for Santos Was subcontracted by WVM Construction (“WVM”),

and WVM Was subcontracted by Atlantic.8 Trujillo filed Petitions to Determine

2 Record on Appeal (“R. on Appeal”), Tab 7, Industrial Accident Board’s April 13, 2016 Decision
(“First IAB Decision”).

3 Trujillo v. Atl. Bla'g. Assocs., 2017 WL 2591409 (Del. Super. June 7, 2017).

4 R. on Appeal, Tab 12, Industrial Accident Board’s August 2, 2018 Decision (“Second IAB
Decision”).

5 The Court Will give only a brief review of the facts in this case, as they are largely undisputed
and not material in resolving the legal question involved in this appeal. For a more detailed
recitation of the facts, please refer to the Court’s previous opinion and the two IAB decisions.

6 Trujillo, at *1 n.2.

7 Id. at *1-2.

8 ld. at *1. lt is not clear from the record whether Santos Worked directly for or Was subcontracted
by WVM. Ia’. at *1 n.3.

Compensation Due against Santos, WVM, and Atlantic.9 Santos never responded to
Trujillo’s petition.10 And Liberty Mutual, WVM’s workers’ compensation policy
carrier, denied coverage for Trujillo’s claim.11 Although the Liberty Mutual policy
was in effect at the time of Trujillo’s injury, it was a New Jersey policy that did not
apply to Trujillo’ accident, which occurred in Delaware.12 Hence, this case is now
solely between Trujillo and Atlantic.

Trujillo seeks workers’ compensation benefits against Atlantic pursuant to 19
Del. C. § 231 l(a)(5). This statute requires a contracting entity to obtain from its
subcontractor, upon signing a contract, “a notice of exemption of executive officers
or limited liability company members and/or a certification of insurance in force
under this chapter.”13 If it fails to do so, the contracting entity is deemed to insure
any workers’ compensation claims that arise from such failure.14 Trujillo’s workers’
compensation claim against Atlantic is based on the premise that Atlantic failed to
obtain from its subcontractor, WVM, a certification of insurance that was “in force

under [Chapter 23 of Title 19]” of the Delaware Code.15

9 Id. at *i.

10 First IAB Decision at 2.

11 Atlantic Building Associates’ Opening Brief at 2 (“Opening Br.”) (Trans. ID. 62570289).

12 Id.

13 19 Del. C. §2311(3)(5).

14 Id. The legislative intent behind this statute was to provide additional protection to employees
and to “put the onus on the general contractors to make sure that their subcontractors had coverage
for workers’ compensation liability.” McKirby v. A & J Builders, Inc., 2009 WL 713887, at *4
(Del. Super. Mar. 18, 2009).

15 The “notice of exemption” part of the statute is not at issue in this case.

3

There is no dispute that WVM’s insurance broker, AVS lnsurance Agency,
provided Atlantic with a certificate of insurance (“COI”) Which indicated that Wl\/IV
had worker’s compensation coverage.16 The COI contained, among other things, a
policy number, the amount of insurance coverage, and effective dates of November
25, 2013 through November 25, 2014.17 But it did not evidence the States to which
the coverage extended.18 ln addition to receiving the COI, Atlantic checked the
Delaware Division of Revenue’s website and saw that WVM had a 2014 Delaware
business license.19

The IAB held a hearing in this matter and issued a decision on April 13, 2016.
Relying on Cordero v. Gulfstream Development Corp.,20 the Board found that the
COI provided by WVM to Atlantic was “valid on its face.”21 Despite the fact that
the COl did not delineate which States were covered under WVM’s policy, the
Board found that Atlantic “acted in good faith and satisfied [] due diligence

requirements” in exercising its duties under § 231 1(a)(5), and that there were no “red

16 Trujillo, at *2.

11 ld.

111 Ia’.

19 Id.

20 56 A.3d 1030 (Del. 2012) (Cordero involved a subcontractor that allowed its workers’
compensation policy to lapse after furnishing the contractor with a COI. The Delaware Supreme
Court held that the contractor did not have a continuing duty to ensure the validity of the insurance
as long as the COI initially furnished was valid on its face as to the effective dates of the policy.
The territorial applicability of the policy was not an issue in Cora’ero.)

21 First IAB Decision at 21_22.

flags” that would have put Atlantic on notice that WVM did not have Delaware
coverage.22

On June 7, 2017, this Court reversed the lAB’s decision. The Court held that
the Board applied an incorrect legal standard when it found the COI facially valid.23
Specifically, the Court found that the plain language of the statute, which requires a
COI “in force under [Chapter 23 of Title 19],” demonstrates that there must be
workers’ compensation coverage that is applicable in Delaware. It concluded that
since the COI furnished to Atlantic did not indicate that it applied to work performed
in Delaware, it “cannot be valid on its face as to this critical fact.”24 The Court then
remanded this case for the Board to determine “whether Atlantic exercised sufficient
due diligence to verify” that the insurance coverage evidenced by the COI extended
to Delaware.25

A remand hearing was held on May l, 2018. The Board issued its second

decision in this matter on August 2, 2018, finding that Atlantic “failed to verify that

22 Id.

23 Trujillo, at *5.

24 Id.

25 Id. Trujillo filed a motion for reargument, contending that remand was unnecessary because the
Court’s finding that the COI was not facially valid was case-dispositive Trujillo v. Atl. Bldg.
Assocs., 2017 WL 3738407, at *2 (Del. Super. Aug. 29, 2017). Specifically, Trujillo asserted that
since the COI provided to Atlantic did not certify Delaware coverage, Atlantic never fulfilled its
obligation to obtain a “certification of insurance in force under this chapter.” Id. The Court
rejected Trujillo’s assertion that it wrote a “due diligence” exception into § 2311(a)(5). The Court
stated that the COl was ambiguous on its face as to the territorial information, and thus it was
incumbent on Atlantic to verify that information. Id. Whether Atlantic did so, the Court stated,
was a factual determination properly within the purview of the IAB. Id.

5

WVM’s worker’s compensation insurance was actually in force in Delaware,” and
that therefore Atlantic is liable to insure Trujillo’s injuries.26 This appeal followed.
II. PARTIES’ CONTENTIONS

The parties do not dispute that the question posed by the Court for the IAB to
consider on remand was whether Atlantic exercised due diligence in verifying that
WVM’s workers’ compensation insurance coverage applied to Delaware workers
and Delaware work-related accidents. Atlantic contends that the IAB, on remand,
failed to perform the “due diligence” analysis, but rather applied a strict liability
standard by determining whether Atlantic actually “verified” if WVM had Delaware
coverage.27 Atlantic asserts that the IAB’s August 2, 2018 decision should for that
reason be reversed and remanded for it to reconsider this case under the “due
diligence” standard.28

Trujillo acknowledges that the IAB did not use the term “due diligence” in its
August 2, 2018 opinion.29 However, Trujillo contends that the failure to use that
specific term does not, in and of itself, indicate that the IAB disregarded the Court’s
directive to determine whether Atlantic exercised due diligence30 Rather, Trujillo

asserts that the IAB “conducted an extensive analysis and thorough review” of

26 Second IAB Decision at 12.

27 Opening Br. at 7.

28 Ia’. at 30.

29 Appellee’s Answering Brief at 14 (“Answering Br.”) (Trans. ID. 62632567).
30 ld. at 16.

Atlantic’s efforts to verify that WVM’s insurance extended to Delaware,31 which,
Trujillo argues, is “the very question this Court asked the [IAB] to address.”32 ln
short, Trujillo contends that the IAB did perform a “due diligence” analysis in its
remand decision, even though it did not expressly label its analysis as such.
III. STANDARD OF REVIEW

This Court has appellate jurisdiction over IAB decisions under 29 Del. C.
§ 10142. On appeal, the Court’s review is limited to determining whether the
Board’s decision is “supported by substantial evidence” and “free from legal
error.”33 When the issue raised on appeal from a Board decision involves

exclusively a question of law, the Court’s review is de novo.34

IV. LEGAL ANALYSIS
At the outset of its remand decision, the Board reiterated the Court’s June 7,
2017 holding that the Board “applied an incorrect legal standard” and “erred in
concluding that Atlantic had acted in good faith and satisfied any due diligence
requirement in conjunction with section 231 l(a)(5).”35 But this seems to be the only

occasion where the Board in that decision used the term “due diligence” in relation

31 Id. at 14.

32 la'. at 16.

331/incth v. E. Shore Mkts., 970 A.2d 160, 163 (Del. 2009) (intemal citations omitted).

34 Ia'.

35 Second IAB Decision at 3. The Court notes that, in its June 7, 2017 opinion, it only held that
the IAB erred in concluding that the COI was facially valid. The Court did not address any of the
IAB’s due diligence analysis in that opinion.

to the legal analysis it was instructed to conduct on remand. Other than that one
single use, the Board consistently phrased its task on remand as whether Atlantic
“verified” that WVM’s workers’ compensation insurance extended to Delaware.36
Thus, the question that the Board appeared to have addressed on remand_whether
Atlantic “verified” that WVM’s insurance was in force in Delaware-is not identical
to the question it was asked by this Court to resolve_ whether Atlantic exercised
due diligence in verifying that information

Trujillo argues that, while not labeled correctly, the Board in fact did conduct
a due diligence analysis, as evidenced by a large portion of its remand decision
devoted to discussing Atlantic’s verification process.

The Court notes that the Board conducted an extensive review of the efforts
made by Atlantic to verify that the insurance coverage evidenced by the COI
extended to Delaware. The Board first summarized in detail the evidence it had
received regarding this issue, specifically Atlantic’s representative, Linda Garufi’s
testimony regarding the actions she had taken after receiving the COI produced by
WVM’s insurance broker.37 The Board thereafter analyzed Atlantic’s verification

process. lt noted that, since the territorial information was not evident from the COI,

36 See id. at 4 (“Atlantic was then required to verify . . . .”), ll (“The Court has directed the Board

. . . to make a factual determination as to whether Atlantic verified . . . .”), 12 (“The Board finds
that . . . Atlantic failed to verify . . . .”), 17 (“The Board simply was not convinced that Atlantic
verified . . . .”).

37 Id. at 4-9.

Atlantic “needed to take additional steps to confirm that WVM was insured for
Delaware work accidents.”38 lt then found that the purported additional step taken
by Atlantic_receipt of WVM’s Delaware business license_was not “sufficient to
satisfy [§]23ll(a)(5).”39 Specifically, it found that Atlantic may not presume
Delaware coverage simply based on the presence of a Delaware business license.40
The Board further noted that it was not convinced by Atlantic’s reasoning why
additional verifying efforts were not necessary, instead noting that there was “always
an option” for Atlantic to directly contact WVM’s insurance carrier or broker.41
Notwithstanding the additional evidence and testimony that the Board
analyzed relating to Atlantic’s verification process, this case still needs to be
remanded for the Board to clarify whether its analysis was conducted under the “due
diligence” standard as previously instructed by the Court. One reason is that the

Board did not use the term “due diligence” in its remand decision.42 A second

38 Id. at 13.

39 Id.

411 1a at 14.

41 Id. at 16. Atlantic contends that the Board actually applied a strict liability standard in
determining Atlantic’s compliance with § 2311(a)(5). With this the Court does not agree. The
Board did not find Atlantic liable for Trujillo’s injury solely based on the fact that WVM’s
insurance did not cover Trujillo’s incident And as discussed above, the Board took into
consideration Atlantic’s efforts in verifying Delaware coverage.

42 There was a lengthy exchange between the Hearing Officer and Atlantic’s attorney at the outset
of the remand hearing with regard to the question to be addressed on remand. See R. on Appeal,
Tab 10, Transcript of May l, 2018 IAB Hearing at 8-22. Some of the comments made by the
Hearing Officer during that exchange suggest that the Board may have misunderstood the Court’s
remand instruction. See, e.g., id. at 8 (The Hearing Officer stated “[I] think the bottom line is . .
.did [Atlantic] assure that WVM had coverage in Delaware?”).

9

remand is also supported by the fact that the Board, in its first decision, found that
Atlantic “acted with . . . proper due diligence” in exercising its duties under
§ 2311(a)(5), which appears to be inconsistent with its finding in the remand
decision.43 Although not necessarily self-contradictory,44 the Court finds that the
inconsistent findings of the Board caused confusion among the parties. lt is therefore
necessary that the Board clarify this issue. lt is undisputed that Atlantic had a duty
to verify whether WVM had Delaware workers’ compensation coverage. lt is also
undisputed that the duty is to be evaluated under a “due diligence” standard, namely,
“the care that a reasonable person exercises to avoid harm to other persons or their
property.”45 Hence, the sole issue to be addressed is whether Atlantic exercised the

care that a reasonable person would exercise in verifying that WVM’s workers’

43 See First IAB Decision at 19. The Board came to this conclusion based on the same set of facts
as provided here. Atlantic contends that the Board’s original finding of due diligence, not
disturbed by the Court in its June 7, 2017 opinion, was made under the correct legal standard.
Atlantic further argues that the Board’s contrary finding on remand must have been the result of
applying a wrong legal standard.

44 ln its first decision, the Board reached an incorrect conclusion that the COl furnished to Atlantic
was facially valid. When a COl is valid on its face, the contractor has a duty to inquire into the
validity of the subcontractor’s insurance coverage only in certain “narrow circumstances” where
the contractor “knows or has reason to believe [that] the certification is false.” Cordero, 56 A.3d
at 1037-38. ln short, with a facially valid COI, the contractor is obligated to inquire only into
those “red flags” that should have caused it to research further. lt appears that, because of this
incorrect presumption of a facially valid COl, the Board, in its first decision, focused its analysis
on whether Atlantic ignored any “red flags” and concluded that Atlantic did not, First IAB
Decision at 20-22. On remand, by contrast, there was a Court ruling that the COl was facially
invalid. Therefore, the Board’s analysis should not have been limited to whether Atlantic ignored
any obvious red flags, but whether Atlantic conducted a full-fledged due diligence investigation
in verifying the territorial information that was ambiguous from the face of the COl. ln this sense,
the Board could have made two apparently inconsistent, but reconcilable, findings.

45 Pepsi Bottling Grp. v. Meadow, 2010 WL 1068196, at *5 n.24 (Del. Super. Mar. 23, 2010)
(citing Black’s Law Dictionary (8th Ed. 2004)).

10

compensation coverage was in force in Delaware. As stated by the Court in its 2017
opinion, this is a factual question properly within the purview of the Board to
determine46
V. CONCLUSION
For the reasons stated above, the Board’s August 2, 2018 decision is
REVERSED and REMANDED to determine whether Atlantic has fulfilled its “due
diligence” obligation

IT ls so oRDEREi).
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Sfreld?)'r'i’K. Rennie, Judge

46 lt may be that no further evidence is necessary, and the Board need only make a clear written
determination based on the facts in the record, of whether Atlantic acted with due diligence in its
efforts to verify that WVM’s workers’ compensation coverage Was in force in Delaware.

11