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IN THE MATTER OF AIG AND GRANITE
STATE INSURANCE COMPANIES
APPLICATION FOR STAY OF PROCEEDINGS
INVOLVING WORKERS’ COMPENSATION
CLAIMS AGAINST UJEX AS INSURED BY
AIG OR GRANITE STATE INSURANCE COMPANIES

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            B E F O R E: 

THE HONORABLE RICHARD HICKEY, III
Administrative Supervisory Judge of Compensation

 

 CONSOLIDATED CASES

On May 15, 2003 the Division of Workers’ Compensation received and filed a motion to stay proceedings filed by Robert N. Golden, Esq. Representing AIG and AIG member companies on certain matters where AIG or AIG member companies had issued policies of insurance to UJEX, Inc.  The return dates were prearranged through the Office of the Director/Chief Judge after the firm of Golden, Rothschild, Spagnola, Lundell, Levitt & Boylan substituted into the pending cases in the Division which are the subject of a Civil action pending in the U.S. District Court for the District of New Jersey under Civil Action No. 03CU1220, filed March 14, 2003.

The first return date of the above mentioned motion was in the New Brunswick Workers’ Compensation Court on June 10, 2003.  A subsequent but similar hearing was held in Camden on June 23, 2003. All cases pending in the Division and subjects of the Federal Civil suit were assigned to me for the limited purpose of AIG’s application for stay.

AIG argues that this court does not have jurisdiction to grant the relief sought in the federal civil action.  Paragraph one of the AIG’s prayer for relief in the federal action seeks a declaration that the policies issued to UJEX et al are void ab initio.  Paragraphs three and four seek money damages and costs and are clearly relief within the jurisdiction of the federal court.  Paragraph two seeks relief from the obligation to provide benefits to the employees of UJEX et al. 

The determination of coverage is within the jurisdiction of this court as found in N.J.S.A. 34:15-1 et seq.  AIG argues that the relief sought in paragraph one of the federal civil action is outside the jurisdiction of this court.  For that matter the relief sought in paragraphs three and four are clearly out side the jurisdiction of this court.  Money damages to an insurance carrier from the insured is a matter for a common law court.  The existence of a valid policy of insurance covering an employer as of the date of a specific accident injuring an employee is ancillary to the determination of the of the accident being compensable and the benefits to which the injured worker is entitled. 

In Sherwood v. E. H. Johnson et al 246 N.J. Super. 530 (App. Div. 1991)

The subject of the Division's jurisdiction over ancillary insurance disputes was discussed in Williams in dictum by Chief Justice Weintraub:

We should add a word about the carrier's sweeping contention that the Division of Workmen's Compensation cannot settle a coverage dispute even if the carrier is a named party to the compensation proceeding. The carrier cites Goldmann v. Johanna Farms, Inc., 26 N.J.Super. 550, 555 [98 A.2d 142] (Cty.Ct.1953). See also, United National Indemnity Co. v. Sangiuliano, 38 N.J.Super. 400, 411 [119 A.2d 35] (Law Div.1955), and Jordan v. Ferro, 67 N.J.Super. 188, 197 [170 A.2d 69] (Cty.Ct.1961). Its position may be traced to a statement in [American Mut. Liability Ins. Co. of Boston v.] Chodosh, supra, 123 N.J.L. [81], at p. 84 [8 A.2d 64 (1939)], that "the jurisdiction of the bureau [now the Division of Workmen's Compensation] extends only to whether the injury or death by accident arose out of and in the course of the employment. It has no authority to determine an issue like the one here presented." We see no reason why the Division cannot pass upon coverage. Surely where coverage depends, as here, upon a simple finding of fact, there is no visible barrier. But even if a complex issue of policy or statutory construction is involved, we see no reason to say the Division lacks "jurisdiction." Since the statute permits a direct proceeding in the Division against the carrier, it reasonably imports authority in the agency to decide whether the carrier covers the claim. See, 2 Larson Workmen's Compensation Law § 92.40, p. 448 (1961). Chodosh should therefore be read to mean only that there was no jurisdiction over the coverage issue in that case because the carrier was not a named party to the compensation proceeding. [ Williams v. Bituminous Casualty Corp, 51 N.J. at 152-153, 238 A.2d 177].  

In Williams the Supreme Court addressed the workers' compensation coverage dispute between the employer, and inferentially the affected employee, and the workers' compensation carrier. The statutes discussed in Williams concerned only the workers' compensation insurance policy covering the employer.   See N.J.S.A. 34:15-83; :15-84; :15-85; :15-86. We find nothing in Williams  which suggests that the Division has jurisdiction over a common-law dispute between the employer and its insurance broker or the broker's professional liability carrier. The entire discussion in Williams concerned the workers' compensation policy. We are loathe to extend its ambit to malpractice claims by the employer against his broker, a relationship beyond the scope of the regulatory statute and a relationship in which the worker is not involved.

In Williams, Chief Justice Weintraub relied in part on 2 Larson Workers' Compensation Law § 92.40 at 448 (1961), in concluding that the statute "reasonably imports authority in the agency to decide whether the [workers' compensation] carrier covers the claim." Williams 51 N.J. at 153,  238 A.2d 177. Indeed, as Chief Justice pointed out, "the statute [ N.J.S.A. 34:15-84] n1 permits a direct proceeding in the Division against the [workers' compensation] carrier. . . ." Williams at 153, 238 A.2d 177. Larson today describes the general rule this way: ". . . [w]hen it is ancillary to the determination of the employee's right, the compensation commission has authority to pass upon a question relating to the insurance policy, including fraud in procurement, mistake by the parties, reformation of  the policy, cancellation, existence or validity of an insurance contract, coverage of the policy at the time of the injury, and construction of extent of coverage." 4 Larson Workmen's Compensation Law, § 92.41 at 17-44 (1990) (citing Williams v. Bituminous at n. 47, a case involving existence of a contract on date of accident). Larson describes the general rule as "of course, in harmony with the conception of compensation insurance as being something more than an independent contractual matter between insurer and insured." Ibid. In the next section Larson discusses "court jurisdiction of insurance questions when rights of employee not involved," 4 Larson, § 92.42 at 17-54 (1990). Larson states: "On the other hand, when the rights of the employee are not at stake, many commissions disavow jurisdiction and send the parties to the courts for relief." Ibid. Larson gives examples of deference to common law  court jurisdiction "when the question is purely one between two insurers" or "when the insured and the insurer have some dispute entirely between themselves about the validity or coverage of the policy or the sharing of the admitted liability." Ibid.

 

In the most recent edition of Larson Workers’ Compensation Law, Professor Larson added an exception to his treatise concerning declaring a policy of insurance void ab initio.

The only situation in which the insurance would be defeated for all purposes by act of the employer is that in which the insurance is absolutely void ab initio, rather than voidable; this would occur if the employer attempted to insure against an accident that had already occurred, by pre-dating the insurance and fraudulently concealing the known existence of an accident within the period so covered. Similarly, in a Colorado case, the insurance carrier was not liable on a policy effective at 12:01 A.M. on the day the employer ordered compensation insurance coverage from an insurance agent at 10:00 A.M., when the employer had knowledge that the employee's injury had occurred at 9:45 A.M.  But if the happening of the accident during the period covered by the antedated policy was unknown to both parties, the insurance carrier would be liable, since such liability does not offend the basic principle that there cannot be insurance against a known loss.  Larson’s Workers’ Compensation Law Part 16 section 150.02{4}

The cases at bar do not allege a misrepresentation of the date of accident.  However, AIG alleges that the misrepresentations concerned the nature of the work and the payroll.  Professor Larson differentiates between void and void ab initio where the “crucial factor is the employer’s good faith rather than a mechanical or technical analysis of the sequence of events”. Larson supra.  It is the equitable remedy sought not the cancellation of the insurance contract that takes the issue outside the jurisdiction of this court.

The major issue before this court is the request for stay of the proceedings pending the outcome of the Federal litigation.  The standard for stay is discretionary and dependant upon the equities utilized in the granting of a temporary injunction.  The standards are: “(1) whether irreparable harm will result from the enforcement of the judgment pending appeal; (2) whether a meritorious issue is presented; and (3) the likelihood of success on appeal.  Crowe v. DeGioia 90 N.J. 126 (1982), Avila v. Retailers & Manufactures Distribution 355 N.J. Super 350 (App. Div., 2002).  AIG is not appealing from a judgment of the Division of Workers’ Compensation.  It is requesting that all proceeding be stayed while it litigates the validity of the contract of insurance with UJEX et al.  I am satisfied that the same principals should be considered.

The Supreme Court of New Jersey decided the matter of First American Title Insurance Company v. Lawson (A-13/14 ) July 17, 2003.  The Court held that a contract of insurance might be void ab initio as to a limited liability partner of a law firm who provided a material misrepresentation in the application for the issuance of the policy.  However the Court, noting the special rule under the Uniform Partnership law, did not deny coverage as to the innocent partners.  I find the decision in First American analogist to the motion before this court.

 N.J.S.A. 34:15-83 provides as follows:
”Every contract of insurance covering the liability of an employer for compensation to injured employees or their dependents, written by a stock company or a mutual association, shall provide, or be construed to provide, that it is made for the benefit of the several employees of the insured employer and their dependents, and that such contract may be enforced by any of such employees or their dependents, suing thereon in his or their names as though distinctly made party thereto.”

The above section creates a semi-public nature of workers’ compensation insurance as it creates a vested interest in the beneficiary (employee).  N.J. S. A. 34:15-84 allows for the enforcement of said policy of insurance by the injured worker or his or her dependants.  N.J.S.A. 34:15-80 requires the employer to post conspicuously the name of the workers’ compensation carrier.  All of the above support the theory that the primary goal of workers’ compensation insurance is to protect the interests of the employees as social remedial legislation.  Medical Diagnostic Associates v. Hawryluk, 317 N.J. Super. 338 (App. Div. 1998)

I find the petitioners in the several pending cases to be substantially similar to the innocent partners in First American supra.  A review of the complaint filed in the Federal District Court fails to allege any wrong doing on the part of the plaintiffs named.  The only irreparable harm will be to the alleged injured workers whose only connection is they were injured in the course of their employment at a time that they were on notice that AIG provided coverage to their employer for their benefit.

AIG argues that those benefits due to the petitioners may be provided by the Uninsured Employers’ Fund.  This argument lacks merit. The purpose to the Uninsured Employers’ Fund is to provide benefits (medical and temporary only) to workers injured while in the employ of an uninsured employer and only after there has been a refusal to pay by the employer.  N.J.S.A. 34:15-120.4.  UJEX is legally insured for the losses claimed in these consolidated cases by AIG or its subsidiary companies until application is made to cancel or there is a successful out come of the Federal action.  Further, the Fund does not pay permanent disability benefits.

I am unable to determine the likelihood of success in the Federal court, as the facts to support the complaint are not before me.  Since the tests outlined in Crowe v. DeGioia Supra have not been met, AIG’s motion for stay is hereby denied.  AIG will pay a steno fee to John Trainor, Inc. in the sum of $150.00 and to State Shorthand in the sum of $150.00.

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                                                HONORABLE RICHARD E. HICKEY, III, ASJWC

 July 25, 2003