Zurich American Ins. Co. of Illinois v. VForce Inc.

• Court: District Court, E.D. California
• Decided: September 4, 2024
• Docket: 2:18-cv-02066
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 ZURICH AMERICAN INSURANCE No. 2:18-cv-02066-DAD-CKD COMPANY OF ILLINOIS, 12 Plaintiff, 13 ORDER DIRECTING PLAINTIFF TO v. PROVIDE SUPPLEMENTAL EVIDENCE IN 14 SUPPORT OF ITS PENDING MOTION FOR VFORCE INC., et al., SUMMARY JUDGMENT 15 Defendants. (Doc. No. 189) 16

17 VFORCE INC., 18 Cross-Claimant and 19 Third-Party Plaintiff, 20 v. 21 CORTECH, LLC, et al., 22 Cross-Defendant and 23 Third-Party Defendants.

24 25 This matter is before the court on the motion for summary judgment filed by plaintiff 26 Zurich American Insurance Company of Illinois (“Zurich”) on July 8, 2024. (Doc. No. 189.) The 27 pending motion was taken under submission on August 2, 2024. (Doc. No. 202.) For the reasons 28 explained below, the court will order plaintiff to provide supplemental evidence with regard to 1 one limited issue and will defer ruling on plaintiff’s pending motion for summary judgment until 2 the court receives that supplemental evidence. 3 BACKGROUND 4 This case arises from defendant VForce Inc. (“VForce”), a staffing company, allegedly 5 failing to pay the additional insurance premium owed to plaintiff in breach of their workers’ 6 compensation insurance contract. 7 On March 2, 2021, plaintiff filed its first motion for summary judgment, seeking summary 8 judgment in its favor and against defendant VForce on its sole claim for breach of contract.1 9 (Doc. No. 92.) On February 5, 2024, the court granted plaintiff’s first motion for summary 10 judgment in part. (Doc. No. 182.) Rather than repeat the entire factual and procedural 11 background included in that order, the court incorporates that background section by reference 12 herein. 13 In the February 5, 2024 order, the court granted partial summary judgment in favor of 14 plaintiff and against VForce as to the first, second, and third elements of its breach of contract 15 claim (i.e., that the workers’ compensation insurance policy was a valid contract, Zurich 16 performed under the contract, and VForce breached the contract by failing to pay additional 17 premiums due under the contract). (Id.) The court denied plaintiff’s motion for partial summary 18 judgment as to the fourth element, the issue of the amount of damages, because plaintiff had “not 19 established that the $612,656.00 amount of additional premium it seeks in damages is an accurate 20 figure, let alone an undisputed amount.” (Id. at 29.) In particular, the overall accuracy of the 21 audit Zurich used to determine the additional premium owed by VForce was called into doubt due 22 to a few admitted errors in that audit, as summarized in the court’s February 5, 2024 order as 23 follows: 24 It is undisputed that Zurich’s audit of the VForce Policy is not entirely accurate in all respects. In preparation for the filing of the 25 pending motion, Zurich reanalyzed the payroll audit results reflected in the Audit Adjustment of Premium, and determined that 26 there are minor errors in some of the manually input rates of class 27 1 Plaintiff did not move for summary judgment against defendant Cortech, LLC, the only other 28 defendant named in its operative first amended complaint. (See Doc. No. 6 at ¶ 13.) 1 codes added by endorsements, and that VForce had actually paid a slightly higher deposit premium than noted. Zurich offers as 2 supporting evidence the affidavit of Mike Berrenson, a field technical director in Zurich’s premium audit division, who 3 reviewed the Audit Adjustment of Premium. In his affidavit, Mr. Berrenson states that “[t]he manual input errors regarding class 4 code rates add up to $2,681.00 in additional premium that should have been charged to VForce,” but he does not specify which class 5 code rates contained errors or what those errors were in particular. When asked at his deposition if he recalled in this instance what the 6 exact errors were, Mr. Berrenson answered, “No, I do not. I would have no idea.” As for the deposit premium that VForce paid, 7 Zurich’s records indicate that VForce made payments totaling $1,314,563.00 but was only given credit for $1,314,498.00—a 8 difference of $65.00. The net amount of the errors would add $2,616.00 to the amount of additional premium stated as owed by 9 VForce to Zurich in the Audit Adjustment of Premium. However, as noted above, Zurich is seeking only the (admittedly inaccurate) 10 amount of $612,656.00 in damages. 11 (Doc. No. 182 at 12) (internal citations omitted). 12 DISCUSSION 13 In connection with its pending second motion for summary judgment, plaintiff asserts as 14 an undisputed fact the following: 15 In preparation for this motion, Zurich re-analyzed the purported “manual entry” errors totaling $2,681.00 reported in Zurich’s last 16 motion for summary judgment, and determined that those errors were in another Zurich data collection system called CESAR that 17 has nothing [sic] with premium audits and had no impact on the actual audit results yielding a premium owed after payroll audit of 18 $612,656.00. 19 (ZUF ¶ 17.)2 In other words, plaintiff clarifies that there were actually no manual input errors in 20 its payroll audit, and $612,656.00 is the correct amount of additional premium due under the 21 Policy. (Doc. No. 189-1 at 2–3, 8–10.) To support this assertion, plaintiff submits as new 22 evidence the affidavit of Julie Miller, Zurich’s premium audit technical consultant in the 23 Technical Operations Center (“TOC”) with 28 years of experience in auditing at Zurich. (Doc. 24 No. 189-5.) In her affidavit, Ms. Miller provides the following explanation: 25

2 The relevant facts that are new to the second motion for summary judgment are undisputed 26 unless otherwise noted and are derived from the undisputed facts as stated by plaintiff and 27 responded to by defendant VForce (Doc. No. 195-1 (“ZUF”)), as well as the exhibits attached to the affidavits filed by plaintiff in support of its motion (Doc. Nos. 189-3–189-6). Defendant 28 VForce did not file any exhibits or affidavits in support of its opposition to the pending motion. 1 In Zurich’s previously filed Motion for Summary Judgment there was some confusion on the part of one of my colleagues and [he] 2 erroneously provided information to the Court about purported errors in the calculations of the Total Earned Premium in the audit 3 recap. The information was relayed (but not created) by Mike Berrenson in his affidavit in support of Zurich’s Motion. In his 4 Affidavit, Mr. Berrenson repeated information that had been provided to him that the Total Earned Premium was incorrect in 5 VForce’s favor in the amount of $2,681.00 due to “manual input errors regarding class code rates.” I have reviewed the information 6 provided to Mr. Berrenson and recited in the affidavit. The manual input errors are from a data collection system called “CESAR” 7 which is not used for Premium Audits. 8 The CESAR system is a statistical information repository. It includes manual input of policy terms and rates. Manual input 9 errors on the CESAR system have no impact on the accuracy of the audit recap because CESAR does not create the audit recap; the 10 Premium Audit system, with the actual electronic policy terms and rates does. Therefore, the manual input errors on the CESAR 11 system discovered by my colleague did not impact the audit results, and there is no error of $2,681.00 in the Total Earned Premium in 12 the audit recap. 13 (Id. at ¶¶ 15, 16.) 14 In opposing plaintiff’s pending motion, defendant does not meaningfully dispute Ms. 15 Miller’s affidavit, which explains that the errors previously identified by Mr. Berrenson were 16 errors in a data collection system that is not used in the premium audit process and did not impact 17 the audit results. Rather, defendant contends that plaintiff has presented the court with two 18 diametrically opposed conflicting facts, which cannot be resolved by the court on summary 19 judgment. (Doc. No. 195 at 10.) The court does not agree with defendant’s characterization, 20 however, because Ms. Miller’s affidavit provides clarification and context as to the errors that Mr. 21 Berrenson had previously identified. Critically, those errors were made in an unrelated system 22 that is not part of the audit. Defendant has not offered any evidence to rebut or contradict Ms. 23 Miller’s explanation in this regard. Moreover, when coupled with Mr. Berrenson’s deposition 24 testimony that he did not recall the exact errors and “would have no idea” what they were—which 25 the court had emphasized as being a cause for concern with regard to the accuracy of the audit— 26 Ms. Miller’s explanation helpfully clarifies the errors Mr. Berrenson referenced and addresses the 27 court’s earlier concern that those errors called into question the accuracy of the audit. 28 ///// 1 In addition to addressing those CESAR manual input errors, Ms. Miller has now also 2 declared that she reviewed the Policy and the Audit Adjustment of Premium (referred to as an 3 “audit recap”) and “confirmed that the rates, schedules, credits, debits, modifiers, and multipliers 4 (including, but not limited to, schedule debits, increased limits and experience modifications) in 5 the audit recap are the same rates, schedules, credits, debits, modifiers and multipliers that are 6 included in the terms of the [Policy], and also match the [Department of Insurance] and/or the 7 [Workers Compensation Insurance Rating Bureau (“WCIRB”)] issued rates, modifications and 8 multipliers.” (Doc. No. 189-5 at ¶¶ 10–11.) Ms. Miller further explained that an auditor in the 9 premium audit division “audits an insured’s payroll and Workers Compensation classification 10 documents, and the allocation of that payroll to the applicable Class Codes, and inputs that 11 information into the Premium Audit system.” (Id. at ¶ 8.) But it is the TOC that 12 takes the payroll and classification/exposure information from the audits, collected and uploaded into Zurich’s audit system by the 13 field auditors, cross-references with the policy terms, including endorsements to the policy, the DOI filed and approved rates, and 14 cross-references with the appliable state bureaus (WCIRB in California), and then applies the rates, schedules, credits, debits, 15 modifiers and multipliers in the policy to the audit data determining the exposure to calculate the additional policy premium owed by 16 the insured to Zurich, or the refund premium owed by Zurich to the insured. 17 18 (Id. at ¶ 9.) Thus, while defendant argued in opposition to plaintiff’s first motion for summary 19 judgment that the audit results could not be trusted in part because the auditors Mr. Hawkins and 20 Mr. Berrenson did not verify class codes and ex mod ratings—and the court shared similar 21 concerns (see Doc. No. 182 at 29)—Ms. Miller’s affidavit now clarifies that those concerns are 22 unfounded because Mr. Hawkins and Mr. Berrenson were not responsible for those tasks; rather, 23 it is the TOC that undertakes them. Furthermore, as noted above, Ms. Miller, who is in the TOC, 24 confirmed that the audit recap was accurate; she “checked the math/performed the calculations” 25 and “found all calculations for the ‘Total Earned Premium’ of $1,927,154 listed on the last page 26 of the audit recap is accurate based on [Policy] rates, schedules, credits, debits, modifiers and 27 multipliers multiplied by the audited exposure.” (Doc. No. 189-5 at ¶ 13.) 28 ///// 1 Here too, defendant has not offered any evidence to dispute the total earned premium 2 calculation of $1,927,154. By contrast, plaintiff has supported its calculation with evidence of the 3 type courts rely on when granting summary judgment on breach of contract claims like the one 4 brought in this action. Zurich Am. Ins. Co. v. UGS Priv. Sec., Inc., No. 22-cv-1163-GW-EX, 5 2023 WL 4291811, at *1 (C.D. Cal. Mar. 1, 2023) (“Plaintiffs provided ample evidence 6 documenting the audit itself, i.e., how the audit calculations were performed, where the audit data 7 derived from, and why the audits were reviewed and reperformed.”). Defendant focuses instead 8 on its contention that Mr. Mani Kontokanis, VForce’s president/CEO and Accuire’s owner, did 9 not participate in the audit. (ZUF ¶ 14; Doc. No. 195 7–8.) But defendant’s focus in this regard 10 is misplaced because defendant has not shown how Mr. Kontokanis’s participation (or lack 11 thereof) is material. Importantly, in addition to the Miller affidavit, plaintiff also filed with the 12 court another affidavit from Mr. Hawkins, who provides additional information regarding the 13 sources of the information he received for the audit—namely, VForce’s designated point of 14 contact, Brad Brozaitis. (Doc. No. 189-4 at ¶¶ 12–20.) Notably, defendant does not dispute that 15 Mr. Brozaitis provided VForce’s information to Mr. Hawkins for the audit, nor does defendant 16 even attempt to contest the accuracy or thoroughness of the information that was provided to Mr. 17 Hawkins. Further, in his affidavit, Mr. Hawkins has explained that: 18 For my purposes as an auditor, it does not matter whether Mr. Kontokanis as President of VForce was directly involved in the 19 audit. In my career, I have performed thousands of Premium Audits. Often I and the staff I now supervise are not dealing with 20 the President of the company when we conduct audits. Instead, it is a bookkeeper, an accountant, a controller, an assistant to a CFO, or 21 an outside agent. When I was a field auditor, I made my first contact with the person designated in the policy documents or 22 communications with Zurich as the point of contact for the audit. In this case that designated contact for VForce was Brad Brozaitis. 23 Rather than the title of the person or people that I am working with at the insured company, what is important to me is that I receive 24 accurate payroll and job classification information needed to conduct the audit. 25 26 (Doc. No. 189-4 at ¶ 18.) In short, defendant has simply not established that there is a genuine 27 dispute of material fact with regard to the total earned premium calculation of $1,927,154, from 28 which defendant’s deposit premium amount is subtracted to arrive at the amount of additional 1 premium due. See UGS Priv. Sec., Inc., 2023 WL 4291811, at *1 (granting summary judgment in 2 favor of the plaintiff insurance company and explaining that the “Defendant does not supply any 3 precise contention or supporting evidence as to what exactly is incorrect with the audits as 4 performed and, therefore, the results,” and “[g]iven the Plaintiffs’ established assertions and 5 concomitant admissible evidence, the burden falls on Defendant to dispute particular aspects of 6 the audit calculations but it does not do so”). 7 However, plaintiff’s pending motion for summary judgment is silent as to the other error 8 plaintiff had previously identified: that VForce paid a deposit premium of $1,314,563.00 but was 9 only given credit for $1,314,498.00—a difference of $65.00, which, according to plaintiff, should 10 have been a set-off/credit for VForce against the additional premium owed. (See Doc. Nos. 92-1 11 at 9–10; 92-8 at ¶ 11.) In its first motion for summary judgment, because plaintiff was 12 accounting for the $2,681.00 in manual input errors, the $65.00 offset was subtracted from 13 $2,681.00 and plaintiff, at that time, had concluded that technically VForce owed it $2,616.00 on 14 top of the $612,656.00 amount, but it was willing to accept just $612,656.00. (Doc. No. 92-1 at 15 9–10.) Due to its silence on this issue in its second motion for summary judgment, it is unclear to 16 the court whether that previously identified $65.00 error was actually not an error at all (leading 17 $612,656.00 to be the correct amount due), or whether plaintiff simply forgot to account for that 18 $65.00 error in preparing its second motion for summary judgment. Under that latter scenario, 19 VForce’s amount due would be subject to a $65.00 setoff, and thus the additional premium 20 amount due would be $612,591.00—not $612,656.00. The additional premium due is arrived at 21 by calculating the difference between the total earned premium and the deposit premium that 22 VForce already paid. As explained above, the court finds that the evidence before the court on 23 summary judgment establishes that $1,927,154 is the total earned premium amount. The only 24 remaining question is whether the correct deposit premium to subtract from that amount is 25 $1,314,498.00 (with no $65.00 error) or $1,314,563.00 (accounting for the $65.00 error). The 26 court recognizes that in dealing with such large sums, a difference of $65.00 is de minimis. 27 Nonetheless, to prevail on its second motion for summary judgment, plaintiff bears the burden to 28 establish that there is no genuine dispute of material fact as to the amount of damages. 1 Rather than deny plaintiff's motion and compound the effect that plaintiffs 2 || inattentiveness to detail and apparent oversight with regard to the $65.00 error has had on the 3 | court’s limited judicial resources, the court will direct plaintiff to provide supplemental evidence 4 | on this point. 5 CONCLUSION 6 Within seven (7) days from the date of this order, plaintiff shall file a supplemental brief 7 | with a supporting affidavit(s) to clarify whether there was a $65.00 error in crediting VForce for 8 | the premium deposit it paid. To the extent defendant has evidence it wishes to submit regarding 9 || the deposit premium amount and the previously identified $65.00 error, defendant may also file a 10 | supplemental affidavit for that purpose by the same deadline. To be clear, the court will not 11 | entertain any further evidence or argument with regard to the amount of total earned premium or 12 | any other aspect of plaintiff's second motion for summary judgment. 13 IT IS SO ORDERED. | Dated: _ September 3, 2024 □□□ A. 2, ye 15 DALE A. DROZD 6 UNITED STATES DISTRICT JUDGE

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