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Liberty workers comp policyholder must pay up on premiums

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An employer that refused to pay additional workers compensation premiums after an audit showed it had more high-risk employees than initially estimated must pay $3.64 million in additional premiums, a federal appeals court ruled Tuesday.

Aviation ground services company Servisair L.L.C., which is now a subsidiary of Cheshire, England-based Swissport S.A. L.L.C., contracted with Liberty Mutual Insurance Co. for a guaranteed cost insurance policy in which the final premium would be determined based on an audit of Servisair’s payroll classifications at the end of the policy period. An estimated premium was created at the inception of the policy based on payroll numbers and classifications provided by Servisair’s payroll department, according to court documents in Liberty Mutual Insurance Co. v. Servisair L.L.C., now known as Swissport S.A. L.L.C., et al.

Liberty Mutual said Servisair significantly overallocated payroll to clerical employees, which is a considerably less expensive classification in calculating premium. At the conclusion of the policy period, actual numbers from Servisair showed a much greater exposure to more expensive job classifications and less exposure to the less expensive clerical classification, court records show.

Based on the more expensive classifications, Liberty billed Servisair for an additional $3.64 million in premium, which Servisair refused to pay, according to court documents.

The U.S. District Court in Houston granted summary judgment to Liberty in a breach of contract lawsuit brought by the company. Servisair appealed, arguing that the policy was a product of a mutual mistake about the premium calculations and that the policy’s premium calculation provisions were ambiguous.

A three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans affirmed the District Court’s findings. The panel ruled that the mutual mistake argument was “easily dispatched” because if there was a mistake, it was Servisair’s alone.

“The magistrate judge concluded that the mistake was not material to the agreement because the policy clearly contemplated that the payroll classification numbers might be inaccurate and shifted that risk to Servisair,” the ruling said. “By its plain terms, the policy provides that Servisair is responsible for paying more than the estimated premium if the final premium exceeds the estimated premium. This is an open-ended obligation with no limit on the amount of additional premium Servisair might ultimately owe.”

In its second argument, Servisair claimed that Liberty had a certain profit goal in mind and should have readjusted its schedule ratings when calculating the final premium to achieve the profit goal it pursued in its estimated premium, according to court documents. The panel dismissed Servisair’s arguments that Liberty’s schedule ratings were ambiguous because despite being based on extrinsic evidence, they were clearly stated and agreed upon at the policy’s inception and were not changed at the time of final calculation.

“Servisair made a deal that, in retrospect, it did not like,” the court said. “That does not allow it to rewrite or avoid its obligations.”

Representatives for Swissport were not immediately available to comment.