I.C. NO. 944502, JAMES GOODSON, Employee, Plaintiff, and N.C. DEPARTMENT OF INSURANCE, ex rel. JAMES LONG, Commissioner, Intervenor v. RFS ECUSTA, Assuming Employer, and P.H. GLATFELTER CO., Original Self-Insured Employer, and N.C. SELF-INSURANCE GUARANTY ASSOCIATION, Defendants.  OPINION AND AWARD by GEORGE R. HALL, III, Deputy Commissioner, N.C. Industrial Commission.  Filed 5 June 2003.

            This case was heard before the undersigned in Raleigh, North Carolina on December 19, 2002.  At the call of the case for hearing, the parties submitted an executed Pre-Trial Agreement, which is incorporated herein by reference as though fully set out herein, wherein factual stipulations and stipulated documents were submitted into the evidentiary record.  Additionally, at the evidentiary hearing, Ron Ennis, Senior Financial Analyst with the North Carolina Department of Insurance and Shirley Pennell, head of the Statistics Department for the North Carolina Industrial Commission presented testimony and the parties entered into evidence by stipulation, stipulated documents #15-20.  Subsequent to the evidentiary hearing, the deposition testimony of Don Bowman, Corporate Insurance and Credit Manager, was obtained on March 4, 2003.  By Order dated March 18, 2003, Stipulated Exhibits 21-24 were received into evidence. Upon receipt of the parties’ contentions, the record in this matter was closed and is now ready for decision.

A P P E A R A N C E S

            Plaintiff:                Neil S. Fuleihan, Attorney, Brevard, North Carolina; Neil S. Fuleihan and Timothy Finger, appearing.

            Intervenor:             Attorney General’s Office, Attorneys, Raleigh, North Carolina; Clementine Peterson, Assistant Attorney General, appearing for Department of Insurance.

            Defendant:             Young, Moore & Henderson, Attorneys, Raleigh, North Carolina; J. D. Prather and Robert Paschal, appearing for P. H. Glatfelter Company.

                                          Stuart Law Firm, Attorneys, Raleigh, North Carolina; Catherine Stuart and Charles Kyles, appearing for NC Self Insurance Guaranty Association.

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            The undersigned finds as fact and concludes as matters of law the following, which were entered into by the parties as:

STIPULATIONS

            1.         Plaintiff was employed by Defendant Glatfelter from November 13, 1989 to August 9, 2001 and RFS Ecusta from August 9, 2001 forward.

            2.         From June 24, 1987 to August 9, 2001, Defendant P.H. Glatfelter Company, (hereinafter “Glatfelter”), a Pennsylvania corporation, operated a paper mill in Transylvania County, North Carolina, known as the Ecusta Division, which had three or more employees at all relevant times.

            3.         Plaintiff/Intervenor North Carolina Department of Insurance (hereinafter “NCDOI”) is the state agency responsible for the licensing and regulation of the self-insured employers pursuant to N.C. Gen. Stat. §97-165 et. seq.

            4.         Defendant North Carolina Self-Insurance Guaranty Association (hereinafter “NCSIGA”) is a statutorily created, nonprofit, unincorporated legal entity pursuant to N.C. Gen. Stat. §97-130 et. seq. (hereinafter “Guaranty Act”) created to pay only “covered claims” against insolvent member self-insurers.

            5.         The aforementioned parties are subject to and bound by the applicable provisions of the North Carolina Workers’ Compensation Act and the Guaranty Act.

            6.         On May 23, 1999, Plaintiff sustained an injury by accident arising out of and in the course of his employment, which was admitted as a compensable injury by Defendant-Employer Glatfelter.

            7.         On May 23, 1999, an Employee/Employer relationship existed between Plaintiff and Defendant-Employer Glatfelter.

            8.         On May 23, 1999, Defendant-Employer Glatfelter was self-insured for its workers’ compensation liability.

            9.         Pursuant to an Form 60 filed May 23, 2000, a Form 62 filed August 3, 2001, and a Form 62 filed July 29, 2002, Plaintiff Goodson was paid compensation for temporary total disability at the rate of $440.11 per week.

            10.         Plaintiff’s most recent period of compensation for temporary total disability paid pursuant to an award of the Commission was from May 28, 2002 to September 30, 2002, at which time RFS Ecusta stopped payment without following statutory procedures to terminate compensation.

            11.       The NCDOI, pursuant to Glatfelter’s application, afforded Glatfelter a license to self-insure as of January 7, 1992 and thus, Glatfelter was deemed a member self-insurer of the NCSIGA in accordance with N.C. Gen. Stat. §97-131.

            12.       As a requirement to be a self-insured employer in North Carolina, Glatfelter posted a statutory deposit in the form of a surety bond, number 04S100046333BCA-18, which was in the amount of $1.6 million.

            13.       On or about June 18, 2001, Glatfelter informed the NCDOI that it was “in the process of selling its Ecusta Division, along with the workers’ compensation liabilities.”

            14.       On August 9, 2001, Glatfelter executed an Amended and Restated Acquisition Agreement (hereinafter the “Agreement”) for the sale of its Ecusta Division, which in pertinent part purportedly transferred the Glatfelter self-insured workers’ compensation liabilities of certain Glatfelter employees, including the Plaintiff Goodson, from Glatfelter to the purchaser[s] of the Ecusta Division.

            15.       On August 9, 2001, Glatfelter and RFS Ecusta, Inc. executed an Assumption Agreement, whereby RFS purported to assume the self-insured workers’ compensation liabilities of certain Glatfelter employees, including the Plaintiff Goodson.

            16.       On or about August 24, 2001, Ron Ennis, Senior Financial Analyst with the NCDOI, confirmed receipt of a certificate of deposit by RFS in the amount of $1.6 million to replace the Travelers Surety Bond previously posted by Glatfelter and the NCDOI released the Travelers Surety Bond.

            17.       Glatfelter requested the NCDOI terminate its license to self-insure and the NCDOI approved the request, terminating Glatfelter’s period of self-insurance effective August 24, 2001.

            18.       RFS purchased workers’ compensation insurance for its employees for the period of August 8, 2001 through September 23, 2003.

            19.       On October 23, 2002, RFS, U.S., Inc. and RFS Ecusta, Inc. filed a Chapter 11 Petition in Bankruptcy in the United States Bankruptcy Court for the District of Delaware (Case No. 02-13110 and 02-13111).

            20.       Glatfelter is not now and has never been declared insolvent.

            21.       The NCDOI continues to hold the $1.6 million Certificate of Deposit to secure the workers’ compensation liabilities that arose during P. H. Glatfelter’s period of self-insurance.

            22.       Pursuant to the Pre-Trial Agreement, the following documents are entered into evidence by stipulation of the parties:

1.               North Carolina Industrial Commission Form 60 dated May 23, 2000;

2.               North Carolina Industrial Commission Form 62 dated July 29, 2002;

3.               NCDOI Surety Bond No. 04S100046333BCA-18;

4.               Bowman correspondence to NCDOI dated June 18, 2001;

5.               Ennis correspondence to Bowman dated June 21, 2000;

6.               Certain pertinent parts of the Amended and Restated Acquisition Agreement dated August 9, 2001: (a) Introduction, Page 1, (b) Article I, Definitions, (c) Article II, Section 2.1, (d) Article II, Section 2.3, (e) Article V, Section 5.5, (f) Schedule 2.3(a), (g) Schedule 2.3(b), (h) Schedule 3.9, and (i) Schedule 5.5(a);

7.               Assumption Agreement dated August 9, 2001;

8.               Ennis to Bowman email correspondence dated August 24, 2001;

9.               Ennis correspondence to Bowman dated August 24, 2001;

10.            Summaries of RFS Insurance Policies from August 8, 2001 through September 23, 2003;

11.            Glatfelter’s self-insurance license;

12.            Glatfelter’s Application for Certificate of Authority as a Foreign Corporation;

13.            Glatfelter’s Form 11-WC, Agreement and Undertaking of Employer Granted the Privilege of Paying Compensation as a self-insurer;

14.            North Carolina Industrial Commission Form 62 dated August 3, 2001.

            Pursuant to the Pre-Trial Agreement, the contested issues are as follows:

            Plaintiff Goodson, Plaintiff Intervenor NCDOI and Defendant NCSIGA agree that the issues for determination are:

1.               Whether the August 9, 2001, Amended and Restated Acquisition Agreement operated to relieve Defendant-Employer Glatfelter, in whole or in part, of its obligations created by Article I of the North Carolina Workers’ Compensation Act.

2.               Whether Defendant Glatfelter is liable to Plaintiff for payment of his workers’ compensation claim.

3.               Whether Defendant Glatfelter is liable for the payment of workers’ compensation claims, which arose during the period of its self-insurance.

4.               Whether SIGA is liable for the payment of Plaintiff’s workers’ compensation claim upon the default of RFS to pay the claim.

5.               Does the default by RFS on the payment of workers’ compensation claims, which arose during Defendant-Employer Glatfelter’s period of self-insurance, impose any liability on NCSIGA?

6.               Whether, upon the posting of substitute security with the NCDOI and upon the resolution of any bankruptcy issues with regard to RFS, the $1.6 million statutory deposit being held by NCDOI is available for payment of Defendant-Employer Glatfelter’s workers’ compensation claims, which arose during its period of self-insurance.

            Defendant Glatfelter contends that the contested issues are those set out in Chief Deputy Commissioner Steve Gheen’s December 3, 2002 Order.

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            Based upon all the competent evidence of record, the undersigned finds as fact and concludes as a matter of law the following:

FINDINGS OF FACT

            1.         During the period of June 24, 1987 to August 9, 2001, Defendant Glatfelter, a Pennsylvania corporation, operated a paper mill in Transylvania County, North Carolina, known as the Ecusta Division, which had three or more employees at all relevant times.  Plaintiff worked for Defendant Glatfelter from November 13, 1989 to August 9, 2001.

            2.         The NCDOI is the state agency responsible for the licensing and regulation of self-insured employers pursuant to N.C. Gen. Stat. §97-165, et seq.  NCSIGA is a statutorily created, nonprofit, unincorporated legal entity pursuant to N.C. Gen. Stat. §97-130, et seq., created to pay “covered claims” against insolvent self-insurers.

            3.         The North Carolina Industrial Commission, created by statute, is primarily an administrative agency of the State, charged with the duty of administering the Workers’ Compensation Act pursuant to N.C. Gen. Stat. §97-77, et seq.

            4.         On January 17, 1992, Defendant Glatfelter was licensed to self-insure its workers’ compensation liabilities.  Defendant Glatfelter posted the requisite statutory bond in the form of a commercial surety bond issued by Travelers Casualty and Surety Company of America in the amount of $1.6 million.  Defendant Glatfelter was a self-insured from January 17, 1992 through August 24, 2001 and a member of the NCSIGA, which subjected it to assessments pursuant to N.C. Gen. Stat. §97-165, et seq.

            5.         On May 23, 1999, Plaintiff sustained an injury by accident arising out of and in the course of his employment, which was admitted as a compensable injury by Defendant Glatfelter on a Form 60 filed May 23, 2000.  Pursuant to the Form 60, a Form 62 filed August 3, 2001, and a Form 62 filed July 29, 2002, Plaintiff was paid temporary total disability compensation at the rate of $440.11 per week.

            6.         A June 18, 2001 letter from Donald Bowman (hereinafter the “Bowman”), Corporate Insurance and Credit Manager for Glatfelter, to the Ronald Ennis (hereinafter the “Ennis”), Senior Financial Analyst with the NCDOI, stated that, “The P.H. Glatfelter Company is in the process of selling its Ecusta Division along with the Workers’ Compensation liabilities.  After the sale we will no longer want or need to be Self-Insured in the State of North Carolina for Workers’ Compensation and therefore would like to cancel the Surety Bond we now have.”  [Emphasis added]  The letter also said, “In addition, I would appreciate if you would let me know exactly what, if anything else is needed from us to withdraw from being Self-Insured.”

            7.         A June 21, 2000 [sic] letter from Ennis to Bowman, regarding Glatfelter’s termination of their self-insured status, said “According to your letter the North Carolina division of the Company is being acquired by a third party that is assuming all past workers’ compensation liabilities accrued during the Company’s operation of the division.”  The letter went on to say, “The surety bond that you have in place may be cancelled by giving the Commissioner 60 days written notice.  The Surety will remain liable for all obligations and liabilities of the Principal that arose under Chapter 97 of the North Carolina General Statutes.  If the acquiring company provides a replacement bond, then the Department will release the Surety Company of any past, present or future liabilities.”  [Emphasis added]

            8.         RFS Ecusta posted a $1,600,000 bond with the NCDOI.

            9.         An August 24, 2001 email message from Ennis to Bowman states, “The NC Department of Insurance received confirmation that RFS Ecusta made a deposit in the amount of $1,600,000 to the Department’s correspondent bank to secure the assumption of the liabilities of PH Glatfelter worker’s [sic] compensation reserve loss claims.  In connection therewith, liability is discharged for all past, present, existing and potential liability for the Travelers Casualty and Surety Company of America, under surety bond 04S100046333BCA-18 effective August 24, 2001, with PH Glatfelter Company as Principal.  I will provide to you the original bond and corresponding endorsements in a mailing next week.  This also is notification that PH Glatfelter has voluntary [sic] terminated their status as a Self-Insured Employer in the state of  North Carolina effective August 24, 2001.  If you have any questions call me at 919.733.5633 ext. 250.”  [Emphasis added]

            10.       Glatfelter’s bond was released by the NCDOI and returned to Glatfelter with the August 24, 2001 letter from Ennis.

            11.       The NCDOI never asked Glatfelter to deposit a special release bond.

            12.       Bowman believed that Glatfelter was released from all of its workers’ compensation liabilities when the NCDOI accepted the 1.6 million dollar CD from RFS Ecusta as a substitution for Glatfelter’s bond.  However, when asked if he was ever directly informed that Glatfelter’s obligations under as an employer in North Carolina were fully discharged under the North Carolina Workers’ Compensation Act, Bowman testified, “I don’t recall getting anything saying that we were discharged . . . .”

            13.       The NCDOI he did not have the authority to release Glatfelter from liability for its self-insured workers’ compensation claims existing as of August 24, 2001.  And while Ennis testified that he did not release Glatfelter from its liabilities under the North Carolina Workers’ Compensation Act for existing claims, a September 25, 2001 memorandum to Jo Ann Thorpe of the North Carolina Industrial Commission reveals that he attempted to exercise authority he did not have.  Ennis’ memorandum reads, “P.H. Glatfelter Company, Inc. recently sold their North Carolina affiliate to RFS Ecusta, a non self-insured employer.  Effective August 24, 2001 RFS Escuta [sic] assumed P.H. Glatfelter’s outstanding workers’ compensation claim liabilities in reference with the sale.  In connection therewith, P.H. Glatfelter Company terminated their status as self-insured in North Carolina and RFS Escuta [sic] is the sole entity responsible for P.H. Glatfelter’s open claims.”  [Emphasis added]

            14.       NCDOI, through its Senior Financial Analyst, Ennis, allowed a substitution of security by allowing the release of Travelers Surety Bond, thereby, releasing Travelers from the liability of its principal, Glatfelter, by means of substitution of RFS Ecusta’s $1.6 million Certificate of Deposit.  Ennis did not require Glatfelter to post a special release bond issued by a corporate surety upon Glatfelter’s cessation as a self-insured employer under the Act on August 24, 2001.

            15.       Bowman’s belief that Glatfelter had been released from its liability for payment of existing claims during the period of self-insurance in favor of RFS Ecusta is not well founded.  The NCDOI, through its Senior Financial Analyst, Ennis, in an internal memorandum with his supervisor and an external communication with Jo Ann Thorpe of the Statistics Department of the Industrial Commission, reported that RFS had assumed liability for Defendant Glatfelter’s self-insured workers’ compensation claims.  It should be noted that Ennis’ October 2, 2001 memorandum to Jo Ann Thorpe was written after Glatfelter had executed the purchase agreement with RFS Ecusta and there is no evidence that Bowman was aware of Ennis’ memorandum at the time.  Glatfelter did not rely on any representations of the Department of Insurance or the North Carolina Industrial Commission prior to entering in the acquisition agreement.  Glatfelter received a letter dated August 9, 2001 from the Law Offices of Ballard, Spahr, Andrews & Ingersoll regarding the effect of the Amended and Restated Acquisition Agreement.  Glatfelter’s own attorneys stated “The opinions expressed herein are limited to the federal laws of the United States of America, the General Corporation Law of the State of Delaware and the laws of the Commonwealth of Pennsylvania, and we express no opinion concerning the laws of any other jurisdiction.”  Glatfelter, therefore, did not have a legal opinion as to the effect of the Amended and Restated Acquisition Agreement in North Carolina.

            16.       RFS Ecusta, Defendant Glatfelter’s purported successor in interest for its workers’ compensation liabilities, never applied for, or submitted the requisite documentation necessary to qualify as a licensed self-insured employer under the North Carolina Workers’ Compensation Act.  The NCDOI did not require RFS Ecusta to become self-insured in order to post the replacement bond.  RFS Ecusta was insured for the period 8/8/01 through 8/8/02 by PMA Insurance Company, from 8/8/02 through 9/23/02 and 9/23/02 through 9/23/03 by Travelers Insurance Company.

            17.       Despite Ennis’ testimony that he did not purport to release Glatfelter from liability for its existing workers’ compensation claim liability when Glatfelter ceased its status as a licensed self-insurer, Ennis’ action in permitting RFS Ecusta to post a bond instead of requiring a special release bond and his memorandum to Jo Ann Thorpe strongly suggest that Ennis may have believed at the time that RFS Ecusta would assume Glatfelter’s existing workers’ compensation liabilities.  These facts support Bowman’s testimony that “it was my opinion that we were relieved from the State with what Mr. Ennis sent” based on his communications with Ennis that RFS Ecusta could and was lawfully assuming Glatfelter’s existing liabilities.  Therefore, Glatfelter’s defense of this claim is not without reason.  In addition, it appears the legal issues in this case are of first impression in North Carolina.

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            Based upon the foregoing stipulations and findings of fact, the undersigned makes the following:

CONCLUSIONS OF LAW

            1.         The North Carolina Industrial Commission has subject matter jurisdiction over this action and personal jurisdiction over each of the parties.  N.C. Gen. Stat. §§97-1; 97-91; North Carolina Ins. Guar. Ass’n v. International Paper Co., 152 N.C. App. 224, 569 S.E.2d 285 (2002).  No other parties are necessary in this cause of action, in that RFS Ecusta was the only “Buyer” who purported to assume any liability for Glatfelter’s workers’ compensation obligations and they are subject to the protection of the United States Bankruptcy Court for the District of Delaware.

            2.         “No contract or agreement, written or implied, no rule, regulation, or other device shall in any manner operate to relieve an employer in whole or in part, of any obligation created by this Article, except as herein otherwise expressly provided.”  N.C. Gen. Stat. §97-6.  There was no valid transfer of Glatfelter’s workers’ compensation liabilities to RFS Ecusta. N.C. Gen. Stat. §97-6.

            3.         Plaintiff is entitled to have Glatfelter pay his workers’ compensation claim, which arose during its period of qualification as a self-insured employer.  N.C. Gen. Stat. §§97-3; 97-9; and Roberts v. City Ice and Coal Company, 210 N.C. 17, 185 S.E. 438 (1936).

            4.         “If a self-insurer ceases to self-insure or desires to replace securities with an acceptable surety bond or bonds, the self-insurer shall notify the Commissioner, and may recover all or a portion of the securities deposited with the Commissioner upon posting instead an acceptable special release bond issued by a corporate surety in an amount equal to the total value of the securities.  The special release bond shall cover all existing liabilities under the Act plus an amount to cover future loss development and shall remain in force until all obligations under the Act have been discharged fully.”  N.C. Gen. Stat. §97-185(g).  [Emphasis added]  ‘ “Corporate surety” means an insurance company authorized by the Commissioner to write surety business in this State.’  N.C. Gen. Stat. §97-165(5).

            5.         “If a self-insurer ceases to self-insure, no deposits shall be released by the Commissioner until the self-insurer has discharged fully all of the self-insurer’s obligations under the Act.”  N.C. Gen. Stat. §97-185(h).  [Emphasis added]  P.H. Glatfelter’s bond should not have been released without the posting of a “special release bond” as Glatfelter has not fully discharged all its obligations under the Act.  The bond posted by RFS Ecusta does not qualify as a “special release bond,” as RFS Ecusta was not a “corporate surety” as defined in N.C. Gen. Stat. §97-165(5).

            6.         There is no mechanism in the statutory scheme that permits a self-insured employer to transfer its potential liabilities for workers’ compensation claims by private contractual agreements.  While Glatfelter can cease to be self-insured, the self-insured must still fully discharge all of the self-insurer’s obligations under the Act.  N.C. Gen. Stat. §97-185.

            7.         RFS Ecusta’s surety bond is not at issue at this time as Glatfelter has never been declared insolvent or in hazardous financial condition, nor has it fully discharged all of its obligations under the Act.  N.C. Gen. Stat. §§97-143, 97-185.  The NCSIGA’s potential liability is not at issue.

            8.         Glatfelter’s defense of this claim was not unreasonable.  N.C. Gen. Stat. §97-88.1.

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            Based upon the foregoing stipulations, findings of fact, and conclusions of law, the undersigned enters the following:

A W A R D

            1.         Defendant Glatfelter is hereby ORDERED to make payment of disability compensation and medical compensation to Plaintiff for payment of his admittedly compensable workers’ compensation claim and is hereby ORDERED to secure its obligations under the Act as required by N.C. Gen. Stat. §97-93.

            2.         The parties’ request for attorneys’ fees pursuant to N.C. Gen. Stat. §97-88.1 is hereby DENIED.

            3.         Glatfelter shall pay the costs.

            It is further ORDERED that this case be REMOVED from the Raleigh hearing docket.

Code:  123

Read Chief Deputy Commissioner Stephen T. Gheen's December 3, 2002 Order.

Read Chairman Lattimore's November 8, 2002 Memorandum.

Read NCSIGA's October 28, 2002 Letter.