Appellate Division dismisses carrier's appeal to deny workers' compensation coverage based on a finding of invalid cancellation of policy.

The petitioner was employed by the respondent, a subcontractor on a project for the General Contractor (GC). On November 29, 2007, the petitioner fell and injured himself at work. He filed a claim petition against the respondent as insured by Insurance Carrier A ("Carrier A"). Carrier A answered on behalf of itself only, asserting that the respondent's policy was cancelled prior to the petitioner's accident due to the respondent's refusal to permit Carrier A to conduct an audit. Carrier A filed a simultaneous motion to dismiss for lack of coverage. The petitioner subsequently filed a separate claim petition against the GC based on N.J.S.A. 34:15-79 which provides that:

Any contractor placing work with a subcontractor shall, in the event of the subcontractor's failing to carry workers' compensation insurance as required by this article, become liable for any compensation which may be due an employee[.]

The petitioner also filed a motion to join the Uninsured Employers Fund ("UEF") as a necessary party to his claim against the respondent.

The UEF filed opposition to Carrier A's motion to dismiss contending that Carrier A did not effectively cancel its policy. On June 7, 2011, the Judge of Compensation entered an order denying Carrier A's motion to dismiss for lack of coverage because Carrier A's cancellation notice did not specifically advise the respondent that it could reinstate its insurance policy by permitting Carrier A to conduct an audit, and because Carrier A used the wrong form to notify the insurance regulatory agency of the cancellation. Accordingly, the Judge of Compensation also denied the petitioner's motion to join the UEF and dismissed the petitioner's claim petition against the GC.

On January 24, 2012, Carrier A entered into a settlement of the petitioner's claim against the respondent. At the time of the settlement, the attorney handling the matter on behalf of Carrier A identified himself as counsel for the respondent and stated on the record that "[b]y virtue of Your Honor's previous order, [respondent] [was] insured by Carrier A at the time of the accident." There was no indication in either the record or settlement order that Carrier A was entering into the settlement on its own behalf rather than on behalf of the respondent, or that Carrier A was purporting to reserve any appeal rights.

On March 5, 2012, Carrier A filed an appeal of the January 24, 2012, order, asserting a denial of coverage. In dismissing Carrier A's appeal, the Appellate Division adopted the language used by the Judge of Compensation in his supplemental opinion issued following the filing of Carrier A's appeal.

Carrier A is estopped from denying coverage because it undertook the settlement of the case on behalf of [the Respondent] without a reservation of rights. To allow Carrier A to assert the absence of insurance coverage after it settled the case, would put both [GC] and [Respondent] at risk of having to pay the settlement amount, and possibly sums for future medical treatment, when they had no opportunity to object to the settlement.

Having settled the claim without a reservation of rights, the Appellate Division concluded that Carrier A was barred from pursuing an appeal aimed at canceling coverage of its insured.

Case Law Alerts, 3rd Quarter 2013