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
Our responses to the specific questions in your letter are:
I trust that this opinion answers your concerns.
RICHARD BLUMENTHAL
ATTORNEY GENERAL
William J. McCullough
Assistant Attorney General
RB/wjm
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.)