CO: Workers' Compensation Division To Review Fine

Denver, CO (WorkersCompensation.com) – Colorado’s Supreme Court has ruled that the Colorado Division of Workers’ Compensation must review whether or not the fines it levied against a company for failing to carry workers’ compensation coverage were excessive. If the department finds the fines were excessive, it would be a violation of the state’s excessive fines clause.

On Monday, the court reversed and remanded a previous decision in Colorado Department of Labor and Employment v. Dami Hospitality LLC where the plaintiff, Dami, argued a $841,000 fine was excessive, noting the fine exceeded the amount the company pays in payroll in a year.

According to court documents, Dami, a hotel based in Denver, allowed its workers’ compensation coverage to lapse in 2005. When the Colorado Division of Workers’ Compensation informed the motel of the issue, the motel acknowledged the problem and paid a fined in 2006. The motel allowed coverage to lapse again from August 2006 to June 2007, and again from Sept. 2010 to July 2014.

In February 2014, the state requested from Dami information regarding the lapse and to ensure that the company had coverage during those periods. The company did not respond initially, but later faxed certification for coverage effective July 2014 through July 2015.

Colorado law provides that insurance lapses can result in a fine of up to $250 for an initial violation, and $500 for subsequent violations. The state calculated that the motel was without workers’ compensation insurance for 1,698 days – resulting in a fine of $841,200.

The company, arguing that its payroll per year was less than $50,000 and that the fine exceeded its gross annual income, requested a lower fine. The state reduced the fine by half to $425,000, the minimum under the statute.

In response, Dami filed a petition to review, arguing that the company believed it was in compliance and that the state did not provide timely notice of noncompliance. The company also argued that the fine was constitutionally excessive and in violation of the Excessive Fines Clause of the Eighth Amendment of the state’s constitution.

The division rejected Dami’s arguments stating that both a daily fine and a large fine were constitutional.

“To begin, the Supreme Court has upheld a court's authority to impose daily fines under a statute that lacked both a cap and a deadline for notifying the offending parties of accumulating fines,” the division argued, according to court documents. “Likewise under Colorado law, daily penalties that accumulated for continuing violations have been upheld.”

Although the claim was initially dismissed by the Industrial Claim Appeals Office, the Colorado Court of Appeals found that the division abused its discretion in failing to take Dami’s circumstances into consideration.

The division appealed the matter to the state’s Supreme Court, which found that the state’s Excessive Fine Clause does give companies protection against excessive fines and that the division should consider the company’s ability to pay the fine.

The state’s Supreme Court also noted that the U.S. Supreme Court has applied a “gross disproportionality” test to fines as an evaluative measure, and that the division should weigh the fine against the gravity of the underlying offense.

The court noted that the division did not inform Dami of noncompliance for years, which led to the “staggeringly high-dollar” fine, but said compliance is ultimately the responsibility of the company.

The court remanded the case back to the Division of Workers’ Compensation, which must evaluate whether the daily fine imposed on the company was excessive.

Daniel Goodwin, the attorney representing Dami, was quoted as saying the court’s decision will help companies faced with large fines in the future, but does not address his client’s case.

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