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IN THE COURT OF APPEALS OF IOWA No. 9-847 / 09-0040 Filed December 17, 2009 THE TRAVELER'S INDEMNITY COMPANY, Plaintiff-Appellant, vs. D.J. FRANZEN, INC., Defendant-Appellee. ________________________________________________________________

Appeal from the Iowa District Court for Polk County, Douglas F. Staskal, Judge.

Traveler's Indemnity Company appeals from the district court's order granting D.J. Franzen, Inc.'s motion for summary judgment. AFFIRMED.

CeCelia C. Ibson and Laurie J. Wiedenhoff of Smith, Schneider, Stiles & Serangeli, P.C., Des Moines, for appellant. Stanley J. Thompson, of Davis Brown Law Firm, Des Moines, for appellee.

Considered by Eisenhauer, P.J., and Potterfield, J., and Zimmer, S.J.* *Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2009).

2 POTTERFIELD, J. I. Background Facts and Proceedings In 2003, D.J. Franzen, Inc. (Franzen), an over-the-road trucking company, applied for insurance coverage through the assigned risk plan.1 The National Council on Compensation Insurance (NCCI), as administrator of Iowa's assigned risk plan, selected Traveler's Indemnity Company (Traveler's) to be Franzen's workers' compensation insurance carrier. On its application, Franzen was

required to identify the class code of each employee to be covered under the insurance policy as well as a total number of employees and their total estimated annual payroll. The rate of insurance varies based on the class code of the insured employees and their total payroll. Franzen's application listed seven

code 8810 clerical office employees with a total estimated payroll of $230,000 and zero code 7229 hauling employees (drivers) with a total estimated payroll of zero dollars. Based on this information, Traveler's calculated Franzen's deposit premium to be $1775. NCCI prepares reports each year that include data for the insured for the three years prior to the date of the report. NCCI's report dated September 15, 2003, revealed that in the previous three years, Franzen carried workers' compensation insurance for its code 7229 hauling employees in addition to its clerical employees. Franzen informed Traveler's that it had sold all of its trucks, and former 7229 employees were now owner-operators, for whom they were not

1

The assigned risk plan is a statutory mechanism that serves to make insurance available for employers who are unable to obtain workers' compensation insurance in the traditional insurance market.

3 required to provide workers' compensation insurance.2 A Traveler's underwriter became concerned about the status of Franzen's 7229 employees, especially after discovering Franzen owned a truck leasing company, Heartland Lease Inc. Traveler's unsuccessfully attempted to obtain Franzen's cooperation in conducting a preliminary audit. On December 13, 2003, Traveler's sent a letter stating that Franzen's policy would be placed in cancellation status effective January 14, 2004. The letter further stated coverage would not be reinstated until Franzen fully cooperated with the preliminary audit. Franzen then provided the requested information. After reviewing the sample contract between Franzen and its drivers, Joseph Pinto, a Traveler's fraud examiner, noted that "it is apparent that anyone who signs this contract is an owner-operator and not an employee." Traveler's informed Franzen that drivers who had signed a contract would be considered owner-operators, but all other drivers would be considered 7229 employees and included in the workers' compensation policy. Traveler's conducted a second audit in July of 2004 and decided that eight of Franzen's drivers were owneroperators, but the rest of the drivers, some of whom leased trucks from Heartland Lease, were to be included in the insurance policy. On September 23, 2004, Traveler's issued a premium adjustment notice to Franzen showing that Franzen's total premium due had increased to $552,436. No workers' compensation claims had been filed during the coverage
2

"With some exceptions . . . Iowa employers are required by law to obtain insurance covering their liability for workers' compensation benefits." Traveler's Indem. Co. v. Comm'r of Ins., 767 N.W.2d 646, 647 (Iowa 2009). One such exception is in the case of an independent contractor, who is not considered an employee and may be excluded from the employer's workers' compensation policy. Iowa Code

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