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Long v. Injured Workers' Insurance Fund

Court of Appeals of Maryland

June 22, 2016

PATRICK LONG
v.
INJURED WORKERS' INSURANCE FUND, ET AL.

          Argued: May 10, 2016

         Circuit Court for Montgomery County Case No. 381364-V

          Barbera, C.J., Greene, Adkins, McDonald, Watts, Harrell, Jr., Glenn T. (Retired, Specially Assigned), Battaglia, Lynne A. (Retired, Specially Assigned) JJ.

          OPINION

          Watts, J.

         Under the Maryland Workers' Compensation Act ("the Act"), Md. Code Ann., Lab. & Empl. (1991, 2008 Repl. Vol.) ("LE") §§ 9-101 to 9-1201, a "covered employee" is entitled to compensation from his or her employer for an accidental personal injury. See LE § 9-501(a)(1) ("Except as otherwise provided, each employer of a covered employee shall provide compensation in accordance with this title to[] the covered employee for an accidental personal injury sustained by the covered employee[.]" (Paragraph break omitted)). Pursuant to LE § 9-227(b), for purposes of workers' compensation, "[a] sole proprietor may elect to be a covered employee if the proprietor devotes full time to the business of the proprietorship." In other words, under certain circumstances, a sole proprietor may elect to be a "covered employee" for purposes of workers' compensation. Under the Act, the amount of compensation that is due to a "covered employee" who "has a permanent total disability resulting from an accidental personal injury" is based on the covered employee's "average weekly wage" ("AWW"). LE § 9-637(a)(1). Specifically, the amount of compensation that is due to the covered employee in such a circumstance is two-thirds of the covered employee's AWW, provided that the AWW does not exceed the State's AWW or equal less than $25. See LE § 9-637(a)(1).

         This case involves a matter of first impression in Maryland-namely, how to calculate the AWW of a sole proprietor who has elected coverage under the Act. Specifically, we must decide whether the AWW of a sole proprietor who elects coverage under the Act should be calculated based on the sole proprietorship's gross receipts or gross income (without deducting business expenses)[1] or net profit (the gross receipts less business expenses). We hold that the AWW of a sole proprietor who elects coverage under the Act is to be calculated based on the sole proprietorship's net profit, not on the sole proprietorship's gross receipts or gross income. The sole proprietorship's net profit is the best approximation of the earnings that a sole proprietor actually takes home because net profit does not include the sole proprietorship's business costs and expenses.

         BACKGROUND

         Patrick Long ("Long"), Petitioner, is the self-employed sole proprietor and owner of Long's Floor Works ("the Employer"). Before 2011, Long elected to obtain workers' compensation coverage as a covered employee. In 2011, Long was working as a subcontractor for Ryan Floors, Incorporated. Ryan Floors, Incorporated paid the Employer based on the number of hours that Long worked. In July 2011, Long injured his back while installing carpet during the course of his employment. Long's injury required surgery, and, according to Long's counsel, Long is likely "going to be disabled for life."

         Almost six months later, on January 23, 2012, Long filed with the Workers' Compensation Commission ("the Commission") a "Notice of Employee's Claim, " seeking workers' compensation benefits. On July 16, 2012, the Commission conducted a hearing on Long's claim. On July 19, 2012, the Commission issued an "Award of Compensation, " finding that: (1) Long "sustained an accidental injury arising out of and in the course of his employment"; (2) Long's disability was the result of the work-related accidental injury; (3) Long was temporarily totally disabled from August 20, 2011 to September 20, 2011, and from November 1, 2011 "to the present and continuing"; (4) Long was temporarily partially disabled from September 21, 2011 to October 31, 2011; (5) the authorization for medical treatment as recommended by Long's doctor was allowed; (6) the insurer, the Injured Workers' Insurance Fund ("IWIF"), Respondent, [2] and the Employer would pay causally-related medical expenses as stipulated by the Commission's Medical Fee Guide; and (7) Long's AWW was $1, 500, "subject to verification." Accordingly, based on its findings, the Commission ordered that IWIF and the Employer compensate Long for temporary total disability for his past and continuing temporary total disability at a rate of $940 per week, and that IWIF and the Employer pay the causally-related medical expenses. The Commission also ordered IWIF and the Employer to compensate Long for his temporary partial disability at a rate of 50% of the difference between Long's AWW "and his wage[-]earning capacity in the same employment or otherwise if less than before the accident, but not to exceed fifty per centum of the State [AWW] for the period" September 21, 2011 to October 31, 2011.

         On July 28, 2012, Long filed with the Commission a "Request for Document Correction, " asking that two "errors" in the Commission's Award of Compensation be corrected. Specifically, Long asked that the Commission amend the date of the accidental injury from July 24, 2011 to July 31, 2011, as he had "amended the date of the accident at the hearing[.]" Long also stated that the Commission's calculation of his AWW was incorrect, and asked that the Commission amend the AWW from $1, 500 to $1, 737.11 in accordance with a "Wage Statement" that he attached to the Request for Document Correction. The attached Wage Statement demonstrated that Long had calculated his AWW to be $1, 737.11 by adding his "gross wages" from the fourteen weeks preceding the injury, and dividing the total by fourteen. Long also attached a statement from Ryan Floors, Incorporated showing the Employer's gross receipts throughout 2011.

         On August 7, 2012, the Commission issued an amended Award of Compensation, amending in its findings the date of the accidental injury from July 24, 2011 to July 31, 2011, and changing Long's AWW from $1, 500 to $1, 737.11. The Commission made no changes to any other aspects of the Award of Compensation. In other words, IWIF and the Employer were still required to compensate Long for temporary total disability at the rate of $940 per week and to compensate Long for temporary partial disability at a rate of 50% of the difference between Long's AWW "and his wage[-]earning capacity in the same employment or otherwise if less than before the accident, but not to exceed fifty per centum of the State [AWW] for the period" September 21, 2011 to October 31, 2011.

         On August 16, 2012, IWIF filed with the Commission a motion for rehearing on the AWW amount, stating that Long's AWW should be $225.90, not $1, 737.11. Almost one year later, on August 12, 2013, the Commission conducted a rehearing on the amount of Long's AWW. During the rehearing, IWIF alleged that Long's "gross wages" in 2011 were between $11, 000 and $12, 000. IWIF based its figures on Schedule C of Long's 2010 federal income tax return, [3] which showed a net profit of $11, 747, and IWIF's premium audit report for the Employer from May 2010 through May 2011, which showed Long's "gross wages" as $11, 077.[4] IWIF argued that Long's AWW should be based on the Employer's net profit, which is the money that Long received after subtracting his business expenses from his gross receipts. IWIF's counsel noted that dividing the net profit of $11, 747 by fifty-two, the number of weeks in a year, would yield an AWW of $225.90. Long responded that a calculation of his AWW had to be based on the Employer's gross receipts, not net profit, because gross receipts are the equivalent of gross wages for a sole proprietor. Indeed, Long argued that nothing under Maryland law supported calculating a sole proprietor's AWW based on net profit. Long further asserted that IWIF based its insurance premiums on the Employer's gross receipts, not on the Employer's net profit. IWIF replied that a self-employed individual's net profit essentially constitutes wages, as the net profit is the amount that the individual takes home after business expenses.

         During the rehearing, various documents were submitted to the Commission. Schedule C of Long's 2010 federal income tax return showed the Employer's gross receipts as $38, 748 and the Employer's net profit as $11, 747. Long's 2011 federal individual income tax return (Form 1040), including Schedule C and Schedule SE (Self-Employment Tax), were also submitted. Long's 2011 federal individual income tax return stated that he received no wages. Line 12 of Long's 2011 federal individual income tax return, however, listed his business income as $16, 879, the figure that was identified in Schedule C and Schedule SE as the Employer's net profit.[5] Also in Schedule C of Long's 2011 federal income tax return, the Employer's gross receipts are shown as $44, 606, and the total business expenses are shown as $27, 727. Thus, the Employer's net profit was $16, 879, which is the gross receipts of $44, 606 less the business expenses of $27, 727.[6]

         Also submitted was correspondence from IWIF to Long concerning the Employer's insurance premiums. For the policy that was effective from May 15, 2008 through May 15, 2009, one document showed an estimated premium of $2, 196 based on an audited payroll of $36, 900. Additionally, in response to a Premium Audit Report for the policy that was effective from May 15, 2010 through May 15, 2011, in a pre-printed form dated May 23, 2011-only two months before the accidental injury-Long stated that there was zero employee payroll and that his "gross wages" were $11, 077.[7] Another document from IWIF dated March 16, 2012 showed that the premium for May 15, 2011 through May 15, 2012 was $2, 416, and that the estimated renewal premium for May 15, 2012 through May 15, 2013 was $2, 905, subject to an audit. And, in a letter dated May 15, 2012, as to the policy that was effective from May 15, 2011 through May 15, 2012, IWIF stated that the premium for the "policy was based on your estimated payroll" and that "[t]he information provided on this Premium Audit Report will determine the proper premium based on the actual payroll."

         On August 13, 2013, the Commission issued an order finding that Long's AWW was $496.44. The Commission explained its reasoning as follows:

[Long] submitted his 2011 [federal individual] tax return. This document is the best evidence of the correct [AWW].
[Long] earned a total of $16, 879.00 in 2011. Previous Orders of the Commission reveal that [Long] only worked from 1/1/11 to 8/19/11 and was out of work for the remainder of the year[, ] with the exception of a brief period when he worked part-time from 9/21/11 to 10/31/11.

         The period from 1/1/11 to 8/19/11 is 34 weeks.

Thus, the correct [AWW] is $496.44[, ] which was calculated by taking the full earnings for the year ($16, 879.00) and dividing that figure by 34 weeks. The Commission recognizes that this number is slightly higher than the actual [AWW] because[, ] to be precisely accurate[, ] the amount earned while working from 9/21/11 to 10/31/11 should be deducted from the 2011 earnings before dividing by 34, but the Commission does not have that post-injury wage information available.

         On August 23, 2013, Long filed with the Commission a Request for Rehearing and a Motion for Rehearing as to the Commission's finding that his AWW was $496.44. In the motion, Long contended that the Commission erred in calculating his AWW based on his net profit because IWIF allegedly charged him an insurance premium "based upon his gross revenues or gross earnings and not his net profit[]." (Underlining omitted). In other words, Long argued that his AWW should be calculated based on his gross receipts because that is the figure that IWIF supposedly used to determine his insurance premiums. According to Long, if IWIF could calculate his AWW based on his net profit, IWIF would receive a "windfall profit" because IWIF "would be allowed to have collected premiums that bore no risk of loss." On September 4, 2013, the Commission denied the Request for Rehearing.

         On September 12, 2013, Long filed a petition for judicial review in the Circuit Court for Montgomery County ("the circuit court"). On October 2, 2013, IWIF filed a response to the petition for judicial review. Thereafter, the parties filed cross-motions for summary judgment. Long attached to his motion for summary judgment a signed affidavit, in which he averred that an IWIF representative had told him that his insurance premium for the policy year beginning on May 15, 2012 "would be based upon [his] gross profit[] of $48, 000.00."[8]

         On February 12, 2014, the circuit court conducted a hearing on the cross-motions for summary judgment. During the hearing, Long's counsel contended that Long's AWW should be calculated based on the Employer's gross income in the weeks preceding the accidental injury because that "is how normal employees' [AWW]s are computed." Long's counsel argued, alternatively, that Long's AWW should be calculated based on the Employer's gross income because, before the accidental injury, IWIF allegedly based insurance premiums on the Employer's gross receipts. At the conclusion of the hearing, the circuit court orally granted IWIF's motion for summary judgment, thereby affirming the Commission's decision, and denied Long's motion for summary judgment. On the same day, the circuit court issued orders to the same effect.[9]

         On February 28, 2014, Long filed a notice of appeal. In a reported opinion dated September 30, 2015, the Court of Special Appeals affirmed the circuit court's judgment granting IWIF's motion for summary judgment and affirming the Commission's decision. See Long v. Injured Workers' Ins. Fund, 225 Md.App. 48, 72, 123 A.3d 562, 577 (2015). Specifically, the Court of Special Appeals held that a sole proprietor's "gross wages" and "gross income" are not synonymous, and that, under the circumstances of the case, "the Commission did not err in concluding that AWW should be based on Long's net profit[.]" Id. at 57, 66, 123 A.3d at 568, 573. The Court of Special Appeals reasoned: "To disregard [Long]'s business expenses in calculating the AWW of a sole proprietor would lead to an unjustifiably inflated AWW figure-a figure far higher than the economic advantage Long gained by working." Id. at 66, 123 A.3d at 573 (citation omitted). The Court of Special Appeals further rejected Long's alternative argument that, if insurance premiums are based on a sole proprietorship's gross income, then AWW must also be calculated on that basis. See id. at 66-67, 72, 123 A.3d 573, 576-77. As to that argument, the Court of Special Appeals stated: "Adoption of such a rule in a case like the one at bar would result in a sole proprietor being able to recover an AWW far greater than the amount of money he or she was out-of-pocket as a result of not being able to work." Id. at 72, 123 A.3d at 577.

         Long thereafter filed a petition for a writ of certiorari, which this Court granted on January 27, 2016. See Long v. Injured Workers' Ins. Fund, 446 Md. 218, 130 A.3d 507 (2016).

         DISCUSSION

         The Parties' Contentions

         Long contends that the Commission incorrectly calculated his AWW because Maryland law requires that the AWW be based on his gross wages, or gross income, that were earned in the fourteen weeks preceding the accident. Long argues that Code of Maryland Regulation ("COMAR") 14.09.03.06 unambiguously requires that the AWW be calculated using gross wages, without regard to whether an individual is a regular employee who works for a separate employer or a self-employed sole proprietor. Long asserts that case law establishes a relationship between the premiums that are charged by a workers' compensation insurer and the benefits that are paid to an injured insured, and that, as a result of that relationship, the AWW is to be based on the amount that is utilized by an insurer to calculate premiums. According to Long, the Commission disregarded this relationship when it calculated his AWW based on net profit instead of "gross receipts/payroll." In other words, Long maintains that the AWW must be calculated on the same basis as insurance premiums are calculated-here, gross payroll.

         Long further contends that, to the extent that the term "gross wages" in the context of a sole proprietor is ambiguous, such ambiguity must be construed in his favor to mean "gross payroll." Long argues that he will not receive a windfall if his AWW is calculated based on his gross receipts because he paid insurance premiums based on his gross payroll. Long asserts that cases from other jurisdictions are largely distinguishable from this case, and maintains that certain other jurisdictions have rejected the use of net profit to calculate the AWW. Alternatively, Long contends that this Court should remand the case to the Commission for a hearing to determine a different computation method for AWW, "such as what figure [] Long would have to pay a general manager to do the work he did[.]"

         IWIF[10] responds that the Commission was correct in calculating Long's AWW by dividing the Employer's net profit-not gross receipts-by the number of weeks that Long had worked in the year that he was injured. IWIF contends that the Commission is permitted to deviate from the AWW calculation method set forth under the Act and in COMAR 14.09.03.06, and argues that the Commission was correct in deviating in this case because, as a sole proprietor, Long did not receive wages from the Employer. IWIF asserts that other jurisdictions have taken the position that the best method of calculating a sole proprietor's AWW is through using net profit or net taxable income.

         IWIF maintains that an employer's gross receipts are not analogous to an employee's gross wages because gross receipts include business expenses and do not reflect the money that is actually available to the sole proprietor. According to IWIF, Long's 2011 federal individual tax return-specifically Schedule C and the Employer's net profit-provides the best evidence from which to calculate Long's AWW. IWIF contends that, unlike gross receipts, net profit represents the money that the sole proprietor earned and that is available to the sole proprietor after business expenses are taken into account. As to a relationship between the AWW and insurance premiums, IWIF contends that no Maryland court has held that insurance premiums dictate AWW and argues that using insurance premium estimates to calculate the AWW would be speculative. As a final matter, IWIF asserts that using the Employer's gross receipts to calculate Long's AWW would result in a "windfall benefit" that is far beyond what Long actually earns.

         Standard of Review

         In Hranicka v. Chesapeake Surgical, Ltd., 443 Md. 289, 297-98, 116 A.3d 507, 512 (2015), we set forth the applicable standard of review, stating:

Generally, in an appeal from judicial review of an agency action, we review the agency's decision directly, not the decision of the circuit court or the Court of Special Appeals. We must respect the expertise of the agency and accord deference to its interpretation of a statute that it administers; however, we may always determine whether the administrative agency made an error of law. The Commission's decision "is presumed to be prima facie correct[.]" LE § 9-745(b)(1). That presumption, however, does not extend to questions of law, which we review independently. We do, though, afford the Commission a degree of deference, as appropriate, in its formal interpretations of the Workers' Compensation Act.
We have explained that an agency's interpretation of a regulation is a conclusion of law, and that a great deal of deference is owed to an administrative agency's interpretation of its own regulation. Nevertheless, despite the deference, it is always within our prerogative to determine whether an agency's conclusions of law are correct. Accordingly, we determine whether the agency's conclusions are plainly erroneous or inconsistent with the regulation. When we construe an agency's rule or regulation, the principles governing our interpretation of a statute apply. Thus, we look to the regulation's plain language as the best evidence of its own meaning, and when the language is clear and unambiguous, our inquiry ordinarily ends there.

(Some brackets, citations, and internal quotation marks omitted). Moreover, we have stated that, in cases involving the Act, "we also endeavor to interpret its provisions liberally, where possible, in order to effectuate the broad remedial purpose of the statutory scheme." W.M. Schlosser Co. v. Uninsured Emp'rs Fund, 414 Md. 195, 204, 994 A.2d 956, 961 (citation omitted).

         As to the method for calculating a covered employee's AWW, we have stated that the issue essentially is a question of law. See Gross v. Sessinghause & Ostergaard, Inc., 331 Md. 37, 48, 626 A.2d 55, 61 (1993) ("Where the [AWW] issue in a workers' compensation case has not depended upon a resolution of disputed facts, but instead has concerned the method for determining the injured worker's [AWW], this Court has held that the question is one of law." (Citations, emphasis, footnote, and internal quotation marks omitted)).

         Calculation of the AWW in Maryland

         Under the Act, LE § 9-637(a), concerning payment of compensation, provides:

(a) Amount of payment. - (1) Except as provided in paragraph (2) of this subsection, if a covered employee has a permanent total disability resulting from an accidental personal injury or an occupational disease, the employer or its insurer shall pay the covered employee compensation that equals two-thirds of the [AWW] of the covered employee, but may not:
(i) exceed the State [AWW]; or
(ii) be less than $25.
(2) If the [AWW] of the covered employee is less than $25 at the time of the accidental personal injury or last injurious exposure to the hazards of the occupational disease, the employer or its insurer shall pay the covered employee weekly compensation that equals the [AWW] of the covered employee.
(3) Payments under paragraph (1) or (2) of this subsection may not exceed a total of $45, 000.[11]

LE § 9-602(a), in turn, describes the general computation of a covered employee's AWW, providing:

(1)Except as otherwise provided in this section, the [AWW] of a covered employee shall be computed by determining the average of the weekly wages of the covered employee:
(i) when the covered employee is working full time; and
(ii) at the time of:
1.the accidental personal injury; or
2.the last injurious exposure of the covered employee to the hazards of an occupational disease.
(2) For purposes of a computation under paragraph (1) of this subsection, wages shall include:
(i) tips; and
(ii) the reasonable value of housing, lodging, meals, rent, and other similar advantages that the covered employee ...

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