Travelers v. Bollschweiler

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA,
Plaintiff/Appellee,

v.

RYAN BOLLSCHWEILER, et al., Defendants/Appellants.

No. 1 CA-CV 20-0338
FILED 5-11-2021

Appeal from the Superior Court in Maricopa County
No. CV2018-003576
The Honorable Teresa A. Sanders, Judge

AFFIRMED

COUNSEL

Snell & Wilmer L.L.P., Tucson
By Joseph A. Kroeger, Audrey E. Chastain
Counsel for Plaintiff/Appellee

Arnett & Arnett P.C., Chandler
By Wayne C. Arnett, Mark W. Arnett
Counsel for Defendants/Appellants
 TRAVELERS v. BOLLSCHWEILER, et al.
Decision of the Court

MEMORANDUM DECISION

Presiding Judge David B. Gass delivered the decision of the Court, in which
Judge Michael J. Brown and Judge David D. Weinzweig joined.

G A S S, Judge:

¶1 Ryan and Heather Bollschweiler own Redstang Enterprises
(collectively, Redstang), an unincorporated business that builds horse-
related corrals and structures. Redstang appeals the superior court’s grant
of summary judgment for Travelers Property Casualty Company of
America. Because Redstang has shown no genuine issues of material fact,
we affirm.

FACTUAL AND PROCEDURAL HISTORY

¶2 Redstang did not qualify for workers’ compensation
insurance coverage in the marketplace because it had a lapse in insurance
coverage. Redstang, therefore, applied for workers’ compensation
insurance through the National Council for Compensation Insurance
(NCCI), the designated plan administrator for Arizona’s “assigned risk
plan.” See A.R.S. § 23-1091.B. NCCI does not provide insurance coverage.
Instead, it accepts applications, estimates the annual premium based on the
application, and assigns the application to an insurer to provide coverage.

¶3 Employers apply for coverage through the assigned risk plan
using standardized application forms. Employers provide basic
information about their operations, using NCCI risk-rating codes to
describe each task their employees perform. NCCI then multiplies each
code’s rate by the percentage of payroll spent on the task to determine an
estimated premium. The application specifically notifies applicants that
insurance coverage is “afforded under the applicable Workers
Compensation Insurance Plan [WCIP] developed or administered by NCCI.”
(Emphasis added.) The application also included the following declaration:

If determined eligible under the WCIP and as further
consideration of policy issuance under the WCIP, by signing
below, the undersigned Applicant also agrees:

....

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To take no action in any form to evade the application of an
experience rating modification determined in accordance with
the applicable experience rating rules, as determined by NCCI.
(Emphasis added.)

In total, the application forms mention NCCI’s plans, policies, and
procedures more than two dozen times.

¶4 In its application, Redstang listed four employees and no
uninsured subcontractors. Redstang used three NCCI codes to describe the
tasks its employees perform: 5535, sheet metal work; 6400, fence installation
and repair; and 5059, iron or steel erection of frame structures not over two
stories in height. Based on this information, NCCI estimated Redstang’s
annual premium at about $6,850.00. NCCI then assigned the application to
Travelers, who issued a workers’ compensation policy to Redstang.

¶5 The policy expressly stated the initial premium was merely
an estimate, and “[t]he final premium will be determined after this policy
ends by using the actual, not the estimated, premium basis and the proper
classifications and rates that lawfully apply to the business and work
covered by this policy.” To that end, the policy required Redstang to “keep
records of information needed to compute premium.”

¶6 Redstang entered into a financing agreement with Imperial
PFS to pay the estimated premium. The agreement included a power of
attorney, giving Imperial the authority to cancel the policy on Redstang’s
behalf if Redstang defaulted on its installment payments.

¶7 Several months later, Redstang defaulted on its payments to
Imperial. Based on the default, Imperial exercised its authority under the
power of attorney and mailed a letter to Redstang and Travelers cancelling
Redstang’s policy. Redstang did not object to the cancellation, and
Travelers complied with Imperial’s request to cancel the policy.

¶8 Under NCCI practices and consistent with the policy terms,
Travelers conducted a cancellation audit. The audit revealed two notable
issues: (1) along with the four listed employees, two subcontractors
required coverage; and (2) Redstang’s records did not contain adequate
information to allow Travelers to segregate Redstang’s employees’ work by
classification as required by NCCI Rule 2G.

¶9 Rule 2G, titled “Interchange of Labor,” provides in relevant
part:

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Some employees may perform duties directly related to more
than one properly assigned classification . . . . Their payroll
may be divided among the properly assigned classifications
provided that:

1. The classifications can be properly assigned to the employer
according to the rules of the classification system, and

2. The employer maintains proper payroll records, which
show the actual payroll by classification for that individual
employee.

a. Records must reflect actual time spent working within each job
classification and an average hourly wage comparable to the
wage rates for such employees within the employer’s
industry.

b. Estimated or percentage allocation of payroll is not
permitted.

Note: If payroll records do not show the actual payroll
applicable to each classification, the entire payroll of the
individual employee must be assigned to the highest rated
classification that represents any part of his or her work.

(Emphasis added.)

¶10 As the result of a flood, Redstang failed to retain most of the
time records the auditor reviewed. Redstang produced the few that
survived—37—in this litigation. These surviving time sheets typically have
a few words to explain each employee’s workday—sometimes covering
more than 12 hours. Though some explicitly say “roofing,” most contain
vague descriptions such as “welding,” “sheet metal,” or “red heads.”
Others have multiple duties lumped together for a day. One timesheet
provides no work description at all listing only “47 y Greenway.”

¶11 Because Travelers could not identify “the actual time spent
working within each job classification,” it calculated Redstang’s final
premium using only “the highest rated classification,” code 5059, as Rule
2G requires. This resulted in an annual premium of $48,171.00. Redstang
disputed the audit twice and Travelers modified the rating codes for one
employee, revising Redstang’s annual premium down to $47,453.00, which
included a short-term cancellation penalty. Travelers then deducted the

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$6,849.00 estimated premium Redstang paid, leaving a balance of
$40,604.00 due on the policy.

¶12 When Redstang failed to pay the outstanding balance,
Travelers sued for breach of contract. Redstang answered, asserting
counterclaims of consumer fraud and deceptive insurance practices.
Travelers then moved for summary judgment on its breach of contract
claim and Redstang’s counterclaims. After briefing and oral argument, the
superior court found for Travelers, entering judgment against Redstang for:
$40,604.00, with interest, in contract damages; $10,000.00 in attorney fees;
and $6,405.03 in taxable costs. Redstang timely appealed. This court has
jurisdiction under article VI, section 9, of the Arizona Constitution, and
A.R.S. § 12-2101.A.1.

ANALYSIS

I. The superior court correctly granted summary judgment on
Travelers’s breach of contract claim.

¶13 Travelers’s breach of the contract claim requires it to prove
“the existence of the contract, its breach[,] and the resulting damages.” See
Thomas v. Montelucia Villas, LLC, 232 Ariz. 92, 96, ¶ 16 (2013) (quotation
omitted). Redstang argues summary judgment was inappropriate because
Travelers did not prove a breach or damages. We disagree.

¶14 Summary judgment is appropriate when “no genuine dispute
as to any material fact” exists and “the moving party is entitled to judgment
as a matter of law.” Ariz. R. Civ. P. 56(a); see also Orme Sch. v. Reeves, 166
Ariz. 301, 305 (1990). This court reviews a superior court’s grant of
summary judgment de novo, viewing the facts in the light most favorable to
the non-movant, and will affirm “for any reason supported by the record,
even if not explicitly considered by the superior court.” See KB Home Tucson,
Inc. v. Charter Oak Fire Ins. Co., 236 Ariz. 326, 329, ¶ 14 (App. 2014).

A. The NCCI Basic Manual governs insurance coverage in the
assigned risk plan.

¶15 Redstang argues it did not breach its contract with Travelers
because the NCCI Basic Manual does not control the policy. Not so.

¶16 Arizona established the assigned risk plan by statute as the
coverage of last resort for employers who cannot otherwise obtain workers’
compensation insurance. See A.R.S. § 23-1091.A. As the designated plan
administrator, NCCI must “develop a plan of operation” for the assigned

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risk plan, including “[a] method for apportioning the workers’
compensation assigned risks among all insurers.” See A.R.S. § 23-1091.D.
Travelers, in turn, must participate in the assigned risk plan because it
provides workers’ compensation insurance in Arizona. See A.R.S. § 23-
1091.G, .I. And Arizona expressly prohibits any deviation from NCCI rating
rules by providers in the assigned risk plan. See A.R.S. § 23-1091.F.

¶17 To ensure statutory compliance, NCCI must “monitor”
participating insurance carriers and “measure [their] performance against
[NCCI’s] established standards.” See A.R.S. § 23-1091.D.1. As a result, any
policy Travelers issues under the assigned risk plan—including its policy
with Redstang—must comply with the established standards and rating
classifications outlined in NCCI’s Basic Manual. See id.

¶18 Contrary to its arguments here, Redstang was on notice of
these requirements. Redstang knew it was completing an application
through NCCI—not Travelers—for insurance coverage through the
assigned risk plan. The application identified NCCI and its policies more
than two dozen times. And, by signing NCCI’s application forms, Redstang
agreed to the use of “applicable experience rating rules, as determined by
NCCI.” (Emphasis added.) NCCI assigned the application to Travelers, who
issued Redstang’s policy in compliance with Arizona law.

¶19 In short, state law, the application, and the final policy
provided notice that NCCI’s rules and procedures governed Redstang’s
insurance coverage.

B. Travelers correctly applied NCCI Rule 2G to Redstang’s
deficient payroll records.

¶20 Redstang argues its payroll records provided sufficiently
detailed information for Travelers to differentiate between class codes.
Redstang further argues its policy with Travelers “does not say anything
about what form the records need to be in.”

¶21 To begin, the issue here is not about the type of records
Redstang kept. Indeed, the record plainly shows Redstang maintained
“payroll and disbursement records” as required by the policy. Rather, the
issue we must decide is whether Redstang’s payroll records comply with
the policy’s requirement to contain “information needed to compute
premium.” They do not.

¶22 When Redstang applied for coverage in the assigned risk
plan, it multiplied the rate for each NCCI code by the percentage of payroll

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spent on the task to estimate the annual policy premium. Redstang itself
chose the rate codes and performed the calculations. The policy explicitly
notified Redstang “The final premium will be determined after this policy
ends by using the actual, not the estimated, premium basis and the proper
classifications and rates that lawfully apply to the business and work
covered by this policy.”

¶23 Accordingly, Redstang was on notice that: (1) its initial
premium was merely an estimate; and (2) its final premium would be
determined by applying the same calculations to the actual time each of its
employees spent within each NCCI rate code. Redstang, therefore, knew or
should have known its payroll records needed to contain enough
information for Travelers’s auditor to identify the specific tasks employees
performed and appropriately segregate the time.

¶24 NCCI Rule 2G, codifies this requirement in simple terms,
obligating Redstang to “maintain proper payroll records, which show the
actual payroll by classification for that individual employee.” (Emphasis added.)
Contrary to Redstang’s argument on appeal, the plain language of Rule 2G
defines “proper payroll records”:

Records must reflect actual time spent working within each
job classification and an average hourly wage comparable to
the wage rates for such employees within the employer’s
industry.

Estimated or percentage allocation of payroll is not permitted.

Note: If payroll records do not show the actual payroll
applicable to each classification, the entire payroll of the
individual employee must be assigned to the highest rated
classification that represents any part of his or her work.

¶25 Redstang’s timesheets, as contained in the record, do not meet
this standard. Indeed, some simply refer to a job location, while others
provide only generic descriptions such as “sheet metal” or “welding” and
nothing more. Though some records provide more detailed information,
they include only a single entry for the entire day showing the total hours
worked across multiple tasks. Such records fall short of “reflect[ing] actual
time spent working within each job classification” as required by Rule 2G.

¶26 In apparent recognition of this fact, Redstang’s now argues
“the records are adequate, with some clarifying information from Mr.
Bollschweiler.” (Emphasis added.) But Travelers asked for more information

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and supporting documentation when Redstang disputed the audit.
Redstang’s two-page response, as shown in the record, merely reiterates the
overly broad information listed on the time sheets and provides no
supporting documentation. This response again falls far short of the
requirements set forth in both the policy and NCCI Rule 2G.

¶27 Redstang next argues Rule 2G “does not allow Travelers to
place all of [Redstang’s] payroll into the highest rated class code.” To the
contrary, under the plain language of Rule 2G, when—as here—a
company’s payroll records “do not show the actual payroll applicable to
each classification, the entire payroll of the individual employee must be
assigned to the highest rated classification that represents any part of his or
her work.”

¶28 Based on the information Redstang provided to Travelers, the
highest rated code for most of Redstang’s employees is 5059—a code
Redstang itself provided on the application. During the dispute process,
Travelers adjusted one employee’s classification based on documents
Redstang provided and Redstang’s insistence the employee only did fence
work. But when Redstang failed to provide sufficient information to
segregate the “payroll applicable to each classification” for the other
employees, Travelers assigned the entire payroll “to the highest rated
classification” as required by Rule 2G.

¶29 Finally, Redstang waived its argument that code 5059 does
not apply to its employees. Though not first raised on appeal, Redstang did
not challenge the accuracy of code 5059 until its response to Travelers’s
motion for summary judgment. Redstang had multiple opportunities to
raise the issue earlier, including during the application process, the policy
term, the post-termination audit, its first responsive pleadings, and the
discovery process. Cf. Westin Tucson Hotel Co. v. Ariz. Dep’t of Revenue, 188
Ariz. 360, 364 (App. 1997) (arguments not adequately raised in superior
court are waived on appeal). Contrary to Redstang’s arguments here, Mr.
Bollschweiler did not “object[] to the use of the 5059 code.” Rather, the
record shows he objected to Travelers’s “refus[al] to change the coding back
to the original codes.” (Emphasis added.) The original codes Redstang itself
listed on the application were 5535, 5059, and 6400. Redstang cannot create
an issue of fact to escape summary judgment by belatedly making an
argument it should have raised during the discovery process when the
parties could have developed an appropriate record. See id. In the absence
of a record to support Redstang’s argument, the argument fails.

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C. Travelers proved its damages.

¶30 Redstang does not dispute: (1) it entered into an insurance
policy contract with Travelers; (2) it authorized Imperial to cancel the policy
if Redstang did not pay the premium; (3) Imperial asked Travelers to cancel
the policy because of Redstang’s nonpayment; and (4) Travelers cancelled
the policy in accordance with Imperial’s directions. Redstang also does not
dispute Travelers made demand on Redstang to pay $40,604.00 due on the
policy, an amount Redstang has not paid. The issue is therefore whether
Travelers followed the policy terms when calculating the final premium
and properly accounted for all payments received. Travelers did.

¶31 The policy explains, the “premium shown on the Information
Page, schedules, and endorsements is an estimate. The final premium will
be determined after this policy ends by using the actual, not the estimated,
premium basis and the proper classifications and rates that lawfully apply
to the business and work covered by this policy.”

¶32 Redstang was therefore on notice the initial premium was
merely an estimate. Redstang also was aware Travelers would calculate the
final premium after determining the actual risk exposure based on an audit
of Redstang’s workplace and its payroll-related records. As discussed
above, Travelers followed NCCI procedures and rules when reviewing
Redstang’s records and calculating the final premium.

¶33 Redstang next uses form over substance to argue Travelers
cancelled its policy and improperly added an 11% short-term rate.
Regarding cancellations and the short-term rate, the policy states:

1. If we cancel, final premium will be calculated pro rata based
on the time this policy was in force. Final premium will not
be less than the pro rata share of the minimum premium.

2. If you cancel, final premium will be more than pro rata; it
will be based on the time this policy was in force, and
increased by our short-term rate cancel[l]ation table and
procedure. Final premium will not be less than the minimum
premium.

¶34 Yes, as the insurer, Travelers must perform the actual
cancellation. But Redstang’s argument misses the point. Under the above
policy terms, the proper question is how the policy came to be cancelled—
who initiated the decision. On that point, the undisputed evidence shows
Imperial, acting on Redstang’s behalf, asked Travelers to cancel Redstang’s

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policy before the full term. Travelers complied with Imperial’s request, and
Redstang did not object to the cancellation. Because Redstang’s agent
started the early termination, Travelers—consistent with the policy’s
terms—increased Redstang’s final premium by the “short-term rate
cancel[l]ation table and procedure.”

¶35 Finally, Redstang argues Travelers disregarded “additional
payments” Redstang made beyond the estimated premium. Here again, the
record does not support Redstang’s argument. In a letter addressed to
Travelers’s counsel, Mr. Bollschweiler lists two payments Redstang made
on its policy totaling $6,849.00. Two years later, when asked during his
deposition how much Redstang paid Travelers, Mr. Bollschweiler
confirmed $6,849.00 “sounds right.” The record shows Travelers accounted
both Redstang payments when calculating the final balance. And Redstang
has identified no place in the record showing additional payments.

¶36 In short, Travelers established the premium due based on the
audit was $47,453.00, which included the short-term cancellation fee of
$4,650.00. After accounting for the $6,849.00 Redstang paid toward the
estimated premium, the balance remaining was $40,604.00—the amount of
the superior court’s award.

II. The superior court correctly granted summary judgment on
Redstang’s counterclaims.

¶37 Redstang brought two counterclaims against Travelers: (1)
consumer fraud; and (2) unfair or deceptive acts or practices in the business
of insurance. On appeal, Redstang does not contest the superior court’s
grant of summary judgment on its consumer fraud claim. It, therefore, has
waived any challenge to this ruling. See Van Loan v. Van Loan, 116 Ariz. 272,
274 (1977) (“The failure to raise an issue . . . in briefs on appeal constitutes
a waiver of the issue.”).

¶38 As for its unfair or deceptive practices claim, Redstang argues
Travelers (1) misrepresented the type of records Redstang needed to keep,
and (2) unfairly discriminated between insureds “having substantially like
insuring, risk and exposure factors, or expense elements.” See A.R.S. § 20-
448.C. To begin, as discussed above, Travelers did not raise Redstang’s
premium based on the “type of records” Redstang kept. Rather, the lack of
detailed information within the records triggered Travelers’s obligation to
use “the highest rated classification” when calculating Redstang’s final
premium. Put simply, this practice is neither unfair nor deceptive.

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¶39 Turning to Redstang’s second argument, the record contains
no evidence Travelers treated other, similarly situated companies more
favorably. And Redstang’s assertions that it has since acquired workers’
compensation insurance at much lower premiums from a different
provider does not create an issue of material fact about Travelers’s business
practices. See Aranki v. RKP Invs., Inc., 194 Ariz. 206, 209, ¶ 12 (App. 1999)
(movant may succeed on summary judgment by showing “an absence of
evidence for an essential element of the complaint”).

ATTORNEY FEES ON APPEAL

¶40 Both Redstang and Travelers request an award of attorney
fees under A.R.S. § 12-341.01. We exercise our discretion and award
Travelers, as the successful party on appeal, its reasonable attorney fees and
costs upon compliance with ARCAP 21.

CONCLUSION

¶41 We affirm the superior court’s judgment.

AMY M. WOOD • Clerk of the Court
FILED: AA

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