Attorney General's Opinion
Attorney General, Richard Blumenthal
January 26, 2005
The Honorable Denise L. Nappier
Office of the Treasurer
55 Elm Street
Hartford, CT 06106-1773
Dear Treasurer Nappier:
Through your General Counsel, Catherine E. LaMarr, you requested an opinion of this Office on a matter concerning the Second Injury Fund and its assessment audit program. At issue is the meaning of the statutory language "from the date the sum should have been paid" with respect to the statutory interest penalty in Conn. Gen. Stat. §31-354(a). You indicate that the Fund has been applying the statutory interest penalty from the beginning of the audit period on any unpaid amounts resulting from accounting errors, reporting errors, or otherwise. We conclude that the language in question means that the Fund should apply the interest penalty from the time that the employer or insurer is notified by the Treasurer's Office that the amount is due.
Based on the information that we have been provided, since 1999 the Second Injury Fund has been conducting an audit program whereby a number of insurance companies and self insured employers have been audited to insure compliance with the assessment provisions of the Connecticut General Statutes and the applicable administrative agency regulations. According to your letter, the audit program has resulted in the payment of $13,637,775.00 in interest penalties based on errors in reporting that were discovered during the audits. This amount was calculated from the beginning of the audit period on any unpaid amounts resulting from accounting errors, reporting errors or otherwise. From information the Fund has provided, at least some of the audit periods in question go back to 1988, the date the interest penalty provision was enacted. Thus, it would be possible for an employer to owe an additional assessment from 1988 (discovered as due by the audit), plus interest at the rate of fifteen per cent per annum for the intervening sixteen years. Such a high interest rate, compounded annually, could result in a penalty much greater than the original assessment that the audit indicates was due in 1988.
In your letter to us, you indicate that an attorney representing an insurance company has argued that the interest provision of §31-354(a) should be applied from the date that the employer is notified that an additional amount is due, and this letter has prompted you to ask this office for an opinion on this matter. The approach suggested in the attorney's letter is different from the one that the Fund is currently using, i.e., that the interest be applied from the date the reporting errors discovered in the audit were made. The difference in these two approaches can be a substantial amount of money.
Conn. Gen. Stat. §31-354 establishes the Second Injury Fund and provides a means of funding by authorizing the assessment of all employers in the state a certain amount based on factors enumerated in the statute and the regulations adopted pursuant thereto. Prior to1988, when the interest provision was added by the legislature, §31-354 simply stated that the employers shall pay to the Treasurer a sum not to exceed five per cent of the total amount of money expended by such employer for the preceding calendar year. The statute went on to say that these assessments could be made at any time the Fund's available balance required it. The 1988 amendment to §31-354 added the following language immediately following the requirement for the payment of the Fund's assessment:
Public Act No. 88-29, Sec. 1.
With the amendment, it seems that the legislature was attempting to create a meaningful deterrent to certain employers not paying the assessment when due. Prior to this enactment, although the statute required payment of the assessment within thirty days of the notice of the assessment by the Treasurer, the only penalty for failing to comply with this requirement would have been "the denial of the privilege of doing business in this state or to self-insure under section 31-284." Conn. Gen. Stat. §31-354 (rev. 1988). Such a drastic penalty for a late payment was not a practical deterrent, since it would be so rarely pursued. Thus, in 1988, the legislature placed a provision in the statute which required the Treasurer to notify the employer of the penalty provision with the notice of assessment and placed this fifteen per cent per annum penalty on the amount not paid until it was paid.
In order to determine whether Conn. Gen. Stat. § 31-354(a) requires employers to pay the fifteen per cent per annum penalty from the date the reporting errors were actually made or from the date the employer was notified that an additional assessment resulting from the audit is due, we make "a reasoned search for the intention of the legislature.... [W]e look to the words of the statute itself, to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter." State v. Courchesne, 262 Conn. 537, 577 (2003).
"The meaning of a statute shall, in the first instance, be ascertained from the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered." Public Acts 2003, No. 03-154, § 1. Inasmuch as § 31-354(a) is not "plain and unambiguous," we look to other factors relevant to our inquiry into its meaning, including the legislative history of the statute, the circumstances surrounding its enactment and its purpose.
Our conclusion that the penalty runs from the date of notice of the additional audit assessment is supported by the legislative history. Although the Senate passed this bill (Senate Bill 79) on the Consent Calendar (Conn. S. Proc.1988 Sess., 664 (March 16, 1988)), the House did spend some time on the matter. In the introduction of the bill to the House, the bill was described as providing "for the imposition of a penalty payable as interest by any employer who fails to make payment of an assessment … within thirty days after receipt of notice of such assessment from the treasurer." Conn. H. Proc. 1988 Sess., 137 (February 3, 1988) (emphasis added). This indicates that the intent was to penalize an employer for failure to pay an assessment on time, once the Treasurer gives notice of the amount due.
Although there was little discussion of the substance of the bill itself in the House, there was some discussion of House Amendment "A", which contained the requirement that the Treasurer notify each employer that the penalty provision has in fact occurred. "I think it is a clearly technical correction just to make sure that the employer is aware of the fact that the penalty has been instituted." Conn. H. Proc. 1988 Sess., 867 (March 9, 1988) (remarks of Rep. Belden). Representative Belden went on to clarify that "[j]ust in case that maybe there's a new individual [employer] who has fouled up for the first time. At least he'll get a notification that he has a problem." Conn. H. Proc. 1988 Sess., 869 (March 9, 1988). This discussion indicates that the legislature was trying to solve a problem created by some employers who were simply not paying the assessment when billed by the Treasurer, due to ignorance or the lack of a practical penalty in the statute. This history supports the idea that the employer must first be notified that an amount is due and then be assessed the fifteen per cent penalty if he fails to pay within thirty days of the notice.
In 1995, the General Assembly, as part of a comprehensive remake of the Second Injury Fund statutes, amended §31-354 by radically changing the method of assessment of employers (Public Act No. 95-277). This changed the entire assessment process from one of a simple percentage assessment of all employers when the Fund needed money, to one requiring different processes for insured versus self insured employers, based on reported paid losses, as defined in regulations adopted by the Treasurer. The legislature did not, however, change the interest penalty language in §31-354, and that language remained the same as it was when it was enacted in 1988.
Since, in 1988 when this provision was enacted, the legislative intent appears to have been to impose a penalty in the form of fifteen per cent interest on any unpaid assessment once the employer is notified that it is due, and as this provision has not been changed, the same intent should be followed with respect to the revised assessments being made as a result of the Fund's audits. The employer should be required to pay the interest penalty only from the date of the notification from the Treasurer that the additional amount is due. An interpretation of the statute to allow interest to accumulate from the date the original reporting errors were made, at fifteen per cent per year, compounded annually, for periods of up to seventeen years, would create an absurd penalty that the legislature could not have intended.1
An analysis of the Treasurer's regulations pertaining to the audit process does not change this conclusion. The audits are authorized in §31-349g-7 of the Regulations of Connecticut State Agencies. The following section, §31-349g-8, states that "[a]ny employer who fails to pay the amount of any assessment within the time prescribed pursuant to section 31-349g-6 shall pay interest on such deficiency at the rate of fifteen per cent per annum from the due date to the payment date." Section 31-349g-6(a) states that "[e]ach Self-Insured Employer shall remit such amount to the Custodian of the Fund within thirty (30) days after … notice," (emphasis added) and §31-349g-6(b)(2) states that "[e]ach Insurer shall report and remit to the Custodian of the Fund, within forty-five (45) days following the last day of the calendar quarter, an amount equal to the [premium surcharge]." Since there is no notice from the Fund of the amount of premium surcharge that is due, as this is a figure the insurance company itself generates, the 30 day notice afforded self-insured employers does not apply to insurers. Thus, the regulations, except for those relating to automatic remittances from insurers, tie the penalty provision to notice of the assessment.
The letter also asks the question of whether the Fund's assessment is a tax, and if so, whether this would have any effect on the levying of the interest penalty. Conn. Gen. Stat. §31-355a, which is cited in the letter as possible authority for the concept that the Fund's assessments could be considered taxes, states:
Whenever the Second Injury Fund is required, pursuant to section 31-355 or subsection (c) of section 31-349, to pay benefits or compensation mandated by the provisions of this chapter for any employer or insurer who fails or is unable to make such payments, the amount so paid by the fund shall be collectible by any means provided by law for the collection of any tax due the state of Connecticut or any subdivision thereof, including any means provided by section 21-35. Tax warrants referred to in said section 12-35 may be signed by the State Treasurer.
This section applies only to those situations where an employer fails or is unable to pay benefits or compensation to a claimant which are mandated by the Workers' Compensation Act, and the Second Injury Fund is ordered to pay the amount due. In order for the amount paid by the Fund to be collected from the employer in a manner provided by law for the collection of taxes due the state, the Fund must have paid pursuant to § 31-355 "benefits or compensation" to claimants, which benefits or compensation should have been paid directly by an employer or insurer. This is a threshold requirement, without which the rest of the provision does not come into play. Since the Fund's regular assessments on employers or insurers do not reimburse the Fund for "benefits or compensation" paid to claimants under §31-355, they do not meet this threshold requirement, and the unpaid assessments do not qualify for collection in the same manner as a tax as provided in §31-355a.
1. Under Section 31-354 of the Connecticut General Statutes does the language that imposes an interest penalty on the employer, who fails to pay the assessment "from the date the sum should have been paid until the date of payment," mean from the date the liability arose due to reporting errors or the date of the completion of the audit in which the employer was noticed of an additional assessment subject to the interest provisions of the statute?
Under Conn. Gen. Stat. §31-354(a), the language that states "[a]ny employer who fails to pay [the assessment] shall pay interest to the State Treasurer on the sum at the rate of fifteen per cent per annum from the date the sum should have been paid until the date of payment," means that the employer is liable for the interest penalty from the date of notification by the Treasurer of the additional assessment due until the additional assessment is paid. This determination is based on the language of the statute and an analysis of the legislative history. Since the fifteen per cent per annum payment is characterized as a "penalty" in §31-354(a), there needs to be prior notice of the deficiency before it can be imposed.
2. Does the fact that under Section 31-355a of the Connecticut General Statutes the Treasurer is afforded all powers given to the state for the collection of taxes due in her collection of assessments due the Second Injury Fund have any bearing on the answer to question 1?
As discussed above, the provisions of §31-355a, pertaining to the powers given for the collection of money due the Fund for payments under §31-355, does not apply to the collection of assessments, which do not meet the criteria of the §31-355 payments.
3. If the Fund's current application of interest "from the date the liability incurred" rather than "the date the employer is notified of the additional amount due to the error discovered in the audit process" is determined to be improper under the statutes, regulations and case law, does the Fund have any obligation to reimburse employers and insurers interest on amounts they may have overpaid? And does the Fund have the authority to issue "certificates of credit" as does the Commissioner of Revenue Services under Section 12-35 of the Connecticut General Statutes?
Since the Fund's current method of assessing the interest penalty is not authorized by statute, the Fund does have an obligation to insure that all employers in the state are treated fairly, and this would require that those employers who have paid the interest penalty from the date of the error should be made whole. This could be done by either reimbursing the employer the amount that was overpaid or by crediting the employer's account for future assessments. Because these assessments are not taxes and do not come under the definitions in §31-355a, these credits would not be the same as the "certificates of credit" under §12-35.
4. If it is determined that the interest is assessed as of the date of "notice," does the Fund have any discretion in determining whether an employer/insurer "willfully" evaded its payment obligations such that the assessment of interest would run from the time the "liability arose?"
The provisions of §31-354(a) do not give the Treasurer the authority to determine whether the employer/insurer "willfully" evaded its payment obligations. As the statute now stands, the employer is only required to pay the interest penalty from the date that the employer was notified of the additional assessment by the Treasurer. Any additional authority to make such determinations and assess such additional penalty would have to be granted by the General Assembly.
1See Collins v. Colonial Penn Ins. Co., 257 Conn. 718, 728-29 (2001), where the Court stated: "[W]e presume that the legislature intends sensible results from the statutes it enacts.... Therefore, we read each statute in a manner that will not thwart its intended purpose or lead to absurd results." (Citation omitted; internal quotation marks omitted.)