Personal Liability for Unpaid Industrial Insurance Premiums

In March 2021, the Washington State Court of Appeals, Division One, issued an opinion holding corporate officers personally liable for unpaid industrial insurance premiums. Coaker v. Washington State Dep’t of Lab. & Indus., 16 Wn. App. 2d 923, 484 P.3d 1265 (2021).

Mike and Marilee Coaker (collectively “the Coakers”) founded Mike’s Roofing in 1988. In 2012, the Department of Labor and Industries (L&I) imposed an assessment for unpaid industrial insurance premiums on the Coakers’ construction business. The assessment ultimately forced Mike’s Roofing out of business in 2015.

After the Coakers dissolved their corporation, L&I issued an order making the Coakers personally liable for the assessment under RCW 51.48.055, which allows the Department to impose personal liability on the officers, members, or managers of a corporation or LLC if they “willfully” fail to pay premiums. The Coakers argued that they did not willfully fail to pay any premiums because they always paid the premiums they believed were owed. The Board of Industrial Insurance Appeals (BIIA), the superior court, and the Court of Appeals all affirmed L&I’s imposition of personal liability on the Coakers. Because the Coakers made no attempt to appeal the BIIA’s April 2015 order affirming the assessment or, in the alternative, pay the assessment, the Court of Appeals held that they had “willfully” failed to paid premiums owed for the audit period.

The Court also held that the Coakers could not avail themselves of the exception to personal liability under RCW 51.48.055(4). The statute provides, in pertinent part, that an individual cannot be personally liable for an assessment “if all of the assets of the [business] have been applied to its debts through bankruptcy.” RCW 51.48.055(4). Although the Coakers’ corporation completed bankruptcy before the order against them became final, the Court of Appeals held this was too late because an individual can only rely on RCW 51.48.055(4) if the business has filed for and completed bankruptcy before “termination, dissolution, or abandonment” of the business. Coaker, 16 Wn. App. 2d at 925.

The Coakers filed a petition for review with the Washington Supreme Court in July 2021. In their petition, the Coakers argue that the BIIA and Court of Appeals misinterpreted RCW 51.48.055(4). We will provide an update on this matter as soon as the Supreme Court’s issues its decision.

Commentary:  Under the Court of Appeals’ decision, L&I can disregard the corporate or limited liability company form and impose personal liability on officers and/or members – notwithstanding the exception provided under RCW 51.48.055(4) – unless the business pursues an expensive bankruptcy to completion.

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