Appeals Court Sets Aside $841K Fine on Motel for Lapsed Coverage

Friday, March 3, 2017 | 0

The Colorado Court of Appeals asked the Division of Workers' Compensation to reconsider an $841,200 fine against a small business that went without workers' compensation insurance for about five years, Complete Colorado reported.

Soon Pak said she will have to declare bankruptcy and put her Denver operation, Star Motel, out of business if the fine stands.

Judge John Webb said Pak presented convincing evidence that she did not know she was going without workers' compensation coverage. Pak said her insurance agent did not explain the difference between workers' compensation insurance and property insurance, and she trusted him to ensure she was in compliance with all insurance requirements.

The judge also called out the DWC director for failing to notify Pak of the lapse in coverage sooner. By the time she was fined, her coverage issues dated back many years. She said she was told that the notification came late because the Department of Labor was understaffed.

Webb was tasked with considering whether the fine was "constitutionally excessive" under the Eighth Amendment to Colorado's Constitution. The U.S. Supreme Court has called a civil fine excessive "if it is grossly disproportional to the gravity of a defendant's offense," and a Colorado court has called a fine excessive if "the amount is so disproportionate to a defendant's circumstances that there can be no realistic expectation that the defendant will be able to pay it."

Webb determined that Pak's company, which employed fewer than 10 people, never had a workers' compensation claim filed against it and had an annual payroll of less than $50,000, fit both criteria. He set the existing fine aside and remanded it to the DWC for recalculation. 

View Webb's opinion here.