Considering Purchasing a Company? You May Face a Higher Workers’ Compensation Insurance Rate

by | Dec 5, 2013

The purchase of a company has always been a complicated legal undertaking, and on November 15, 2013, the Nebraska Supreme Court made it even more complex.  In Gridiron Management Group, LLC, v. Travelers Indemnity Company, __ N.W.2d __ (2013), the Nebraska Supreme Court ruled that when the newly-formed Gridiron Management Group purchased the assets of Omaha Beef, LLC, it subjected itself to Omaha Beef, LLC,’s workers’ compensation insurance premium rather than the premium afforded to other newly-formed companies.

Gridiron Management Group (Gridiron), which was formed for the primary purpose of purchasing and operating the Omaha Beef football team, purchased the team’s assets from Omaha Beef, LLC, in 2007.  Gridiron immediately made several improvements to the operation of the football team, including changing the location where practices were held, hiring a new head coach and a team chiropractor, and requiring at least one trainer to be at each practice.  Following the purchase, Omaha Beef, LLC, remained an active corporation, but there was no evidence as to whether it continued to engage in business activity.

In February 2008, Gridiron applied for workers’ compensation insurance under the Nebraska Workers’ Compensation Plan (NWCP).  The NWCP provides a mechanism for purchasing workers’ compensation insurance for employers who cannot obtain such insurance on the open market.  The State of Nebraska has contracted with Travelers Indemnity Company (Travelers) to act as carrier for the NWCP.  Travelers determines its premiums under the NWCP by assigning each applicant an “XMod,” which is based upon an applicant’s workers’ compensation claims experience – the higher the XMod, the higher the premium.  A new business is assigned an XMod of 1.00.

Gridiron argued it was entitled to an XMod of 1.00 because it was a new entity with no claims experience.  The district court determined that a “change in ownership” existed such that the XMod of Omaha Beef, LLC, should be transferred to Gridiron. On appeal, the Nebraska Supreme Court affirmed the district court’s decision, concluding that Gridiron was a new entity that was “in effect… a successor” to Omaha Beef, LLC, because like Omaha Beef, LLC, its business was also operating the Omaha Beef football team, and that therefore there was a “change in ownership” sufficient to permit the transfer of the XMod.

Determining the workers’ compensation rate for a company purchasing another is very fact-specific and requires analysis of a multitude of issues.  For more information regarding the purchase of a company and the accompanying possibility of a higher workers’ compensation insurance rate, contact any of the firm’s workers’ compensation attorneys at (402) 475-1075.