        IMPORTANT NOTICE
   NOT TO BE PUBLISHED OPINION
                                  '   I




THIS OPINION IS DESIGNATED "NOT TO BE PUBLISHED."
PURSUANT TO THE RULES OF CIVIL PROCEDURE
PROMULGATED BY THE SUPREME COURT, CR 76.28(4)(C),
THIS OPINION IS NOT TO BE PUBLISHED AND SHALL NOT BE
CITED OR USED AS BINDING PRECEDENT IN ANY OTHER
CASE IN ANY COURT OF THIS STATE; HOWEVER, _
UNPUBLISHED KENTUCKY APPELLATE DECISIONS,
RENDERED AFTER JANUARY 1, 2003, MAY BE CITED FOR
CONSIDERATION BY THE COURT IF THERE IS NO PUBLISHED
OPINION THAT WOULD ADEQUATELY ADDRESS THE ISSUE
BEFORE THE COURT. OPINIONS CITED FOR CONSIDERATION
BY THE COURT SHALL BE SET OUT AS AN UNPUBLISHED
DECISION IN THE FILED DOCUMENT AND A COPY OF THE
ENTIRE DECISION SHALL BE TENDERED ALONG WITH THE
DOCUMENT TO THE COURT AND ALL PARTIES TO THE
ACTION.
                                              RENDERED: DECEMBER 14, 2017
                                                      NOT TO BE PUBLISHED




                                  2015-SC-000637-WC



PNINSURED    EMPLOYERS~       FUND ·                                     APPELLANT


                       ON APPEAL FROM COURT OF APPEALS
v.                        CASE NO'. 201 l-CA-001322-WC
                        WORKERS' COMPENSATION BOARD
                               NO. 08-WC-96697
                                                                    ~.
                                                                                       :I



                          l
JULIAN HOSKINS; KENTUCKY                                                 APPELLEES
                                                                               '   .
EMPLOYERS' MUTUAL INSURANCE
COMPANY; BEACON ENTERPRISES, INC.;
BETTER INTEGRATED SYSTEMS, INC.;
FOUR STAR TRANSPORTATION, INC.;
KENTUCKY WORKERS' COMPENSATION
BOARD; AND HONORABLE R. SCOTT
                                                             )
BORDERS, ADMINISTRATiVE LAW JUDGE



                  MEMORANDUM OPINION OF THE COURT

                                     AFFIRMING


      Appellant, Uninsured Employers' Fund (UEF), appeals from a decision of

the Court of Appeals holding that Appellee, Kentucky Employers' Mutual

Insurance Company .(KEMI), was not the insurance carrier at risk for injuries

sustained by Julian Hoskins in the course of his employment as· a truck driver
                   .                      '
                              \
for Four Star Transportation, Inc. (Four Star), a Michigan-based   tru~k.ing
 company with business operations in Louisville.· For reasons set forth below,

 w.,e affirm the decision of the Court of Appeals.

       We addressed this case previously in Kentucky Uninsured Employers'

 Fund v. Hoskins, 449 S.W.3d 753 (Ky. 2014) (Hoskins J).I In Hoskins I, we

 determined that the Workers' Compensation Board (the Board) and the Court

 of Appeals erred by. resolving the case using principles of law applicable to the_

 loaned servant doctrine. Specifically, the Board and Court of Appeals held that

 because Hoskins had no personal knowledge of his employment relationship

 with the efuployee leasing companies, Better Integrated Services, Inc., or

 Beacon Enterprises, Inc., those companies and their workers' compensation

 insurance carrier could not be liable for his workers' compensation award. The

 result of that ruling left UEF with no recourse.

       In Hoskins I, we recognized the Board and the Court of Appeals

 misconceived the nature of the parties' relationships. We concluded from the

 evidence, as· did the administrative law judge (AW), that the parties were not

 engaged in a loaned servant situation, but were instead participating in, or

 purporting to participate in, an employee· leasing arrangement subject to KRS

 342.615. Thus, we determined that Hoskins' ignorance of the fact that his

 legal employer was an employee leasing company could not eliminate that

. company~s liability for his workers' compensation benefits.




       1This Court initially rendered
                                  I
                                      an opinion in this case which is published at 440
                                                                                     .
 S.W.3d 370 (Ky. 2013). However, we granted a motion for rehearing and subsequently
 rendered this superseding opinion.

                                           2
          Consequently, we reversed and remanded the case to the Court of·

    Appeals for the resolution of other iss1:1es raised on appeal but left unaddressed

    by that court's initial opinion. Upon remand, the Court of Appeals again

    affirmed the Board's decision, this time based upon its conclusion that the

    Board properly rejected the AW's findings material to the imposition of liability

    upon KEMI. For the reasons stated below, we affirm.


                    I. FACTUAL AND PROCEDURAL BACKGROUND
          The case arises from an intricate web of poorly-documented inter-

    corporate arrangements creating a complex shell-game of who, for purposes of

    workers' compensation coverage, "employed" Hoskjns at the tirrie of his. injury,

· and whether that "employer" had workers' compensation insurance with KEMI.

    A summary of the essential facts is in order.

          In November of 2007, Julian Hoskins saw a "help wanted" sign at Four

    Star's Louisville office on Ralph Avenue at a trucking terminal Four Star shared

    with three other trucking companies. Four Star had recently. expanded its

'
    pperations into .Kentucky. Hoskins applied for the job as a truck driver; he was

    hired by Four Star's terminal manager, Sean Green. After traiping and testing

    at another Four Star facility, Hoskins began driving trucks marked with Four

    Star's signage. His work assignments came from Four Star managers. ·

    Hoskins perceived himself to· be an employee of Four Star; he. was aware of no

    other entity purporting to be his legal employer.

          Hoskins' paychecks came in envelopes imprinted with a     ~our   Star

    address, but like Sean Green's paychecks, they were issued on a bank account

                                            3
    of Better Integrated Services. Hoskins-testified that his health insurance card
                  I
    may also have had "Better Integrated" on.it, but he.was not sure. He had no

    idea who or what Better Integrated was and apparently saw no reason to
            .                                   \          '                         .



    inquire about it.

            Better Integrated (Better) was an employee leasing company serving

    trucking companies in several states, most notably Indiana and\Michigan.

    Before expanding into Kentucky, Four Star was a client of Better, using Better's

    ,employee leasing services to provide workers' compensation iJ'.l.surance for Four
(

    Star's workforce. Because Four Star "leased" its entire workforce from Better,
        -                                                               '
    Four Star did not have its own workers'         compensatio~   coverag9.

            Better was owned by Vincent Manzo and his son, Salvatore. Each owned

    a 50% share of Better, but Vincent ran tpe company. The Manzos were also

    involved ip. at least two other employee leasing companies. Beacon Industrial _

    Services was owned 49% by Salvatore, 25~5% by V1ncent, and 25.5% by

    Vincent's wife, Rosaria.2 A third company, Beacon Enterprises (Beacon), was

    owned soldy by Salvatore, but Vincent served as its treasurer.· Rosaria held-

    the office of president, but apparently, she took no       par~   in the operation of the·

    company. The overlapping ownership and closely-connected management of

    these companies, coupled with their apparent aversion to accurate

    documentation,      make~   it difficult to parse with confidence the relationship of

    each leasing company and. the trucking firms they served.



          2 Beacon Industrial Services is not a party, and .it has no significant
    involvement in this case.                                     '

                                                4
        Better had no Kentucky clients when Four Star decided to expand into

 Kentucky. Better was nqt registered with the Kentucky Department of

 Workers' Claims and was not authorized to provide employee leasing services to

 Kentucky employers. However, Beacon provided employee leasing services to a

 trucking company in Louisville named Rush Trucking. Beacon had a policy

 with KEMI to satisfy its obligation to provid.e workers' compensation insurance

 for the Rush Trucking workforce.

        On January 31, 2008, Hoskins sustained a work-related injury. He

 promptly informed Sean Green at Four Star of his injury arid applied for

 workers' compensation benefits.

        Hoskins' injury and the subsequent filing of his workers' compensation

 claim exposed the questions of who was Hoskins' true "employer" and how was

 that employer covering its workers' compensation liability. The UEF covered

 the claim and reserved its right to be indemnified for those benefits. Four Star

    .
 had no workers' compensation insurance because it relied upon
                                                           .
                                                               Better to

 provide the coverage for Four Star's workforce. Because Better was not

 registered to do business in Kentucky and until Four Star's expansion into

 Kentucky had no Kentucky-based clients, Better had no workers'

 compensation policy in place for Four Star's Kentucky employees, which

 numbered from four to twelve persons including Hoskins. To provide the

. necessary coverage, Better claims that it leased the Four Star workforce to its

 kindred business, Beacon, thus securing the required coverage through




                                         5
   Beacon's policy with KEMI.3 KEMI denied that its policy with Beacon included

   any part of Four Star's'workforce.

         Through the testimony -of the Manzos and Charles         Gar~vaglia, 4   the

   consultant and c'!Jrporate representative· for both Beacon and Better, Better

   claimed that before Hoskins was injured, it had a written employee leasing

   contract by which Beacon "leased" Hoskins and assumed the obligation to

   provide his workers' compensation coverage. No copy of an actual signed
     '                                                                      \..


   contract was ever produced, but a      blan~   form said to be identical to the one

   used was put into evidence. No other documents or corporate records were

   produced to establish when,    o~if,   Beacon "leased" Hoskins and acquired the

   responsibility for his workers' compensation coverage.

         KEMI's audit records showed that at about the same time as Four Star's
                                                          !
, . expansion into Kentucky, Beacon's Kentucky payroll substantially increased

   from $2,000,000.00 to $5,073,459,00. Correspondingly, Beacon's premium for

   KEMI's policy increased from about'$300,000.00 to $749,001.72. 'Beacon



         a Although withesses spoke in terms of Better "leasing" Hoskins to Beacon, and
   Beacon, in turn "leasing" him to Four Star, it should be u;nderstood that, consistent
   with Hoskins' testimony, he was not physically moved from lessor to lessee; in the
   relevant time frame, he was always .part of Four Star's workforce. What the witnesses
   mean by "leasing" him is that, through leasing company exchanges, the legal
   responsibilities for his employment were transferred.from one company to the other.
          4 Garavaglia was_ well versed in emp~oyee leasing companies in the trucking
   industry, having owned a number of such companies, including Better, which he sold
   to Vincent Manzo sever8.1 years prior to Hoskins' injury. Garavaglia served as a
   business consultant to the Manzos and others engaged in trucking company employee
   leasing. Garavaglia was also convicted of mail fraud and conspiracy for his role in a
   scheme to use his employee leasing firms to defraud workers' compensation insurance
   companies. See United States v. Garavaglia, 178 F.3d 1297 (6th Cir. 1999).



                                              6
 reported to KEMI that it had taken on "new clients" at a second Louisville

 address, the same Ralph Avenue terminal from which Four Star operated.

       KEMI, however, presented evidence establishing that the calculation of

- the premium charged to Beacon never included any employees on Better's

 payroll and was not based upon claims experience derived from either Better or

 Four Star. Accqrding to KEMI, the increase in Beacon's premium was based

 entirely upon Beacon's previous underestimation or underreporting of its

 payroll. KEMI had no-knowledge of a three-way employee leasing arrangement

 between Four Star, Better, and Beacon.

       KEMI denied any workers' compensation responsibility for the workers at

Four Star's Ralph Averiue terminal subject to lease by Better. Moreover, KEMI
        /                 (                           1'                  -



demonstrated that on three occasions Beacon had expressly sought to include

Better as a named insured party under the KEMI-Beacon workers'

compensation policy, but each time KEMI refused. KEMI declined the request

because Better was not authorized to do business in Kentucky, because Better
                                                                     tJ

had no corporate presence in Kentucky, and because KEMI had no information

upon which to base an accurate evaluation of the risk involved in underwriting

Better's workers' compensation exposure and determining the proper premium.

KRS 432.615(4) requires that when a workers' compensation insurer (KEMI)- _

provides coverage to ari: employee leasing company   (Beac~n),   "[tJhe exposure

and experience of the lessee (Four Star) shall"be used in determining the

premium for the policy and shall include coverage for all leased employees."




                                        7
       From these circumstances, the AW deduced that Better and. Beacon

 agreed to lease the Four Star·workforce from Better to Beacon, thereby

 transferring the employer responsibilities for Hoskins from Better to Beacon,

 bringing Hoskins (and Four Star's other workers) within the coverage afforded

 by. KEMI's workers' compensatjon policy.

       The Board disagreed and reversed the AW's findings. The Board

concluded that because "Hoskins' testimony and all the other evidence

. establish[ed] he was hired by Four Star in Louisville" and that he "had no

interaction with or knowledge of Better Integrated" he could not be a leased

employee of either Better or Beacon. The Court of Appeals agreed. On _

discretionary review in Hoskins I, we agreed with the factual premises, but we

disagreed with the legal conclusion drawn from those facts. Hoskins could

indeed be a leased employee despite his ignorance of that fact.
                            ,.,.--            .      .
       The Board had also reversed the AW's finding on other g;rounds. .With

respect to KEMI's premium, the Board found "no evidence to support" the AW's

findingthat Beacon's payroll increase of over $3 million was due to the

addition of Four Star's workforce at Ralph Avenue (which according to

Garavaglia was four to twelve workers) and "no evidence to support" the finding

that KEMI collected an . additional $449,-000.00 premium
                                                       I
                                                         to cover those

workers. The Board also concluded that no evidence was presented which

would reasonably support the. finding of any relationship between Hoskins an~

Beacon giving rise to a workers' compensation obligation. On remand from

Hoskins I, the Court of Appeals affirmed those conclusions of the Board.

                                        8
                                          II. ANALYSIS .

          Pur_suant to KRS 342.285, the AW               ~n   a workers' compensation

    proceeding is the finder of fact with exclusive authority. to judge the weight,

.   credibility, substance, and inferences to be drawn from the evidence. AK Steel              .


    Corp. v. Adkins, 253 S.W.3d 59, 64 (Ky. 2008) (citation omitted). "Where the

    party with the burden of proof fails to prevail before the finder of fact, his
                                                     j




    burden   on appeal is to prove that the evidence in his favor was so
    overwhelming that it compelled a      ~nding         in his favor a,nd that no reasonable
                                      .      .
    person would have failed to be persuaded by it." Bullock v. Peabody Coal Co.,

    882 S'.W.2d 676, 678 (Ky. 1994) (citations omitted).

          It is acknowledged that KEMI had the burden of proof before the AW to
                                                         '      '
    establish that Hoskins was not covered by the workers' compensation policy

    issued by KEMI to Beacon. Having failed to persuade the· AW, KEMI bears the

    burden set forth above. We conclude that it met that burden.

          KEMI established without contradiction that it had eJtpressly rejected

    Beacon's request to add Better's workers' compensation exposure to Beacon's

    policy. Neither Better nor Four Star is named as an insured entity in Beacon's

    policy. KEMI also demonstrated that the premium increase.of $449,000.00

    could. not have been generated by the inclusion of Better's payroll because: 1)

    the increase was due to an earlier underestimation of Beacon's payroll; and 2)

    KEMI never got the information about Better's Four Star. payroll upon which to

. calculate an added· premium. That was one of the reasons KEMI declined to
                                  \                                 .
    insure Better; it was not·given the information needed to evaluate the risk and


                                                 9
calculate the cost of und~rwriting Better's exposure.     Sine~   KRS 432.615(4)

requires that the premium be based upon the "[t]he exposure and experience of
                                   '                                I

                                                                            ..,   -
th~   lessee (Four Star)," KEMI had a right to accurate information about the

true lea,se before agreeing to provide coverage. Beacon's failure to supply that
              -                                 .     .                 I

information justified KEMI's refusal to add Better's employees working for Four

Star.

        We can be virtually certain that Four Star's workers were not included in

Beacon's payroll for premium assessment purposes be.cause itjs· undisputed

that Ho.skins and Sean Green were at all times paid by :J3etter. Had they

actually been leased· to Beacon at the time of the ·injury, then Beacon would

have been issuing their paychecks. No evidence was presented that any Four

_Star worker was ever paid by Beacon. These facts compel the conclusion that,

at the time of hi;:; injury,
                       -
                             neither Hoskins nor the rest of Four Star's
                                                                     .
                                                                         workforce

was leased to Beacon .. Significantly, there was no written documentation in the
                           .                                                      .
form of employee leasing contracts, assignments, payroll, or tax records to

prove otherwise.

        The AW inferred that KEMI had actual knowledge that Beacon had

undertaken the workers' compensation responsibility for Four Star's workers at

the Ralph Avenue location because that address was mentioned on Beacon's

2007 application to renew its workers' compensation policy. The AW

suggested that KEMI's failure to investigate that location to see who was

working there     undermines~its   denial.of coverage for Hoskins. We'acknowledge

that KEMI could have investigated further, but it had no duty to do so,

                                           10
 especially when Beacon could easily pr9vide its empl9yee information. In any

 event, KEMI's failure to inquire about the address does not make it the de facto .

 workers' compensation insurer for·all the workers at the Ralph Avenue facility

' where four different trucking companies operated.

        Certainly, the testimony of Salvatore Manzo and Charles Garavaglia

 provides "some" evidence to suppo.rt      ~he   finding that upon starting hisjob at

 Four Star, Hoskins became an employee of Better, who then leased him to

 Beacon. However, nothing supports that testimony, and all of the

 documentary evidence points in the opposite direction. We are well satisfied

 that the evidence in    tot~   compels ·a finding that Hoskins was not covered as a

 Beacon employee subject to KEMI's p0licy. No reasonable person. could fail to

 . be persuaded by it.
                                  .                                '   .
        KEMI further contends that because neither Beacon nor Better had

 -complied with the registration requirements of KRS 342.615 and 803 KAR

 25:230, any obligation KEMI might otherwise
                                         .
                                             have for H'oskins' benefits is ."a

 nullity."5 Because we affirm the Board and the Court of Appeals for the reason

 stated above, we need not determine whether an employee leasing company's




        s The cited registration laws require employee leasing companies doing business
 in Kentucky to provide, among other things; their lessees' corporate and assumed
 names, contact information, federal employer identification numbers or Social Security
 numbers, and the company providing the workers' compensation coverage for their.
 lessees' workers. The employee leasing company must also provide ·its own name and
 corporate address, business locations within the state, its taxpayer or employer
 identification number, the effective date of the workers' compensation coverage, the
 policy number, and the name of the issuer of the policy; and the termination of
 coverage date.

                                            11
 failure to comply with Kentucky's registration requirements renders an

 othern!ise valid policy unenforceable. We defer our ruling on that issue for a

 more appropriate occasion. We note, however, that Beacon's and Better's

 failure to properly register is. a factor that undermines their claim and lends

 credence to the belief expressed by the Board and echoed by the Court of

 Appeals that their purported lease agreement was "not}?.ing more than, a sham

 concocted to obtain workers' compensation coverage for Hoskins's injury."


                                   III.   CONCLUSION

        For the'reason stated above, we affirm the 'Opinion of the Court of

 Appeals, affirming the decision of the Board in this matter. I

   I_   All sitting. All concur.




                                      \


. COUNSEL FOR APPELLANT:

 Dennis Stutsman
 1112 Taborlake Drive
 Lexington, KY 40502-6572

· Andy Beshear
  Attorney General of Kentucky


 COUNSEL FOR APPELLEE JULIAN HOSKINS:

 Alan Steven Rubin                                                            r

 231 S. 5th Street, Suite 200
 Louisville, KY 40202-3231

 COUNSEL FOR APPELLEE KENTUCKY EMPLOYERS' MUTUAL INSURANCE
 COMPANY:

                                          12


                            )
    Barry Lewis
    Lewis and Lewis Law Offices
    151 East Main Street, Suite 100
    P.O. Box 800
    Hazard, KY 41 702-0800


    COUNSEL FOR APPELLEES BEACON ENTERPRISES, INC. AND
    BETTER INTEGRATED SYSTEMS, INC.:

· Terrance J. Janes
  "Deceased"

    COUNSEL_FOR APPELLEE, KENTUCKY WORKERS' COMPENSATION BOARD:

    Dwight Taylor Lovan
    Executive Director Office of Workers' Claims


    COUNSEL FOR APPELLEE HONORABLE R. SCOTT BORDERS:

    Russell Scott Borders
    Fogle, Keller, Purdy, PLLC
    1655 Burlington Pike, Suite 50
    Florence, KY 41042


    COUNSEL FOR APPELLEE FOUR STAR TRANSPORTATION:

    N/A




\    '




                                          13
