Dot Your I’s and Cross Your T’s. Insurance Coverage Cancellation Must Be Done Right in New Jersey Workers’ Compensation

New Jersey’s appellate court reinforced the rules for the proper cancellation of a workers’ compensation insurance policy in M&S Waste Servs. v. Praetorian Ins. Co., 2018 N.J.Super. Unpub.LEXIS 1981 (N.J.Super. App.Div. Aug. 24, 2018). In a prior appeal, the court had reversed a summary judgment granted to Praetorian Insurance Company and remanded the case back to the trial court to determine whether Praetorian’s alleged prior practice of accepting late premiums and reinstating policies after cancellation reasonably led the plaintiff, M&S Waste Services, Inc., to assume “to its detriment, that the policy would be reinstated.”

Specifically, Praetorian cashed M&S’s premium check ten days after the date the policy was to be cancelled for non-payment in October 2011. On remand, the judge issued a comprehensive opinion rejecting M&S’s claims. Specifically, the judge, although not “doubting M&S’s principal’s sincerity or his bona fides at all,” found “all of the prior cancellation notices were paid before the cancellation took effect, and this one wasn’t.” The court went further and recapped the relevant portion of the trial court’s opinion:

I don’t view this as a situation where equitable estoppel applies whatsoever. The course of conduct was that [M&S’s principal] always paid before the last date due, before the cancellation took place. This is the time that he didn’t, and it cost him, dearly, because he didn’t have coverage. Unfortunately, he didn’t know about it, because, for whatever reason, he didn’t pay attention to it until after the claim came in. He didn’t pay attention to it when he got notice of the audit, and I understand that in the context that he had previously had workers’ compensation insurance with different carrier or different carriers, and knew that they do an audit to adjust the premium at the end of the year. But this wasn’t the end of his . . . policy. This was in December/January. His policy goes — is supposed to go until April — the end of April. So, again, it didn’t set bells off in his head that there was something amiss.

He’s a reasonable person. He’s a reasonable businessman, and he made a mistake in the Court’s eyes that can’t be justified under the circumstances. So, for those reasons I find in favor of the defendant. I don’t think there’s a change in the policy. I don’t think it’s a situation where it . . . the grace [period] applies, and even if it did, he passed it.

2018 N.J.Super. Unpub.LEXIS 1981, at *3-4. Thus, on the remand, the trial court held that Praetorian complied with its statutory obligations for cancelling the policy under N.J.S.A. 34:15-81(b).

In the latest appeal, M&S argued that the trial judge erred in granting partial summary judgment to Praetorian based on the court’s finding that Praetorian complied with the statutory requirements for cancelling the workers’ compensation policy. The court noted the requirements for an effective cancellation of a workers’ compensation insurance policy under N.J.S.A. 34:15-81:

No such policy shall be deemed to be canceled until:

a. At least ten days’ notice in writing of the election to terminate such contract is given by registered mail by the party seeking cancellation thereof to the other party thereto; and

b. Until like notice shall be filed in the office of the commissioner of banking and insurance, together with a certified statement that the notice provided for by paragraph “a” of this section has been given; and

c. Until ten days have elapsed after the filing required by paragraph “b” of this section has been made.

M&S did not dispute that Praetorian provided it with the notice required by subsection (a). The question was whether the “like notice” it provided to CRIB (Compensation Rating and Inspection Bureau) and, specifically, its “certified statement that the notice provided for by paragraph ‘a’ of this section has been given,” had been provided, as required by subsection (b).

In analyzing this issue, the court referenced the seminal case of Sroczynski v. Milek, 961 A.2d 704 (N.J. 2008). In Sroczynski, the Judge of Compensation found the carrier did not effectively cancel the policy because it failed to file a written “certified statement” when it transmitted the data by way of the electronic file transfer (FTP) with CRIB, per CRIB’s established procedures at that time. On appeal, the court rejected the carrier’s arguments that the compensation judge engaged in “a hyper-technical approach to statutory construction” and that the carrier’s “failure to provide the ‘certified statement’ represented an inconsequential deviation from the statutory requirements.” The New Jersey Supreme Court affirmed, adding that “[t]he language of N.J.S.A. 34:15-81 is clear and unambiguous, allowing for no interpretation other than that filing a certified statement with the Commissioner is a prerequisite to effectuating the cancellation of coverage.”

In M&S Waste Servs., the parties agreed that the requisite insurance cancellation notice was sent to M&S. However, the parties disputed whether and when the “like notice” was filed with CRIB. Praetorian asserts the form was mailed to CRIB on September 30, 2011. Praetorian, however, presented no proof of mailing on summary judgment. M&S asserted, in accordance with a letter from the director of CRIB produced in discovery, that Praetorian’s “like notice” was not filed with CRIB until March 23, 2012, well after both the purported date of cancellation and the January 2012 accident and resulting workers’ compensation claim precipitating the suit. M&S argued that Praetorian’s attempt “to ‘cure’ the defect” by “backdating” its hard copy filing of “like notice” with CRIB, well after the accident was reported to Praetorian and after Praetorian appeared in the workers’ compensation hearing to deny coverage, supported a bad faith claim.

In granting summary judgment to Praetorian, the trial court felt that the statute was effected in that the state was put on notice of the cancellation and the defendant had, in fact, received the like notice, as certified. Although acknowledging the parties’ dispute over the date Praetorian filed its “like notice,” the court found it immaterial based on its conclusion that the certification on behalf of Praetorian on the transmittal letter satisfied the carrier’s obligations under N.J.S.A. 34:15-81(b).

The Appellate Division reversed, finding that the trial judge erred in rejecting the court’s statement in Sroczynski, that “[t]he purpose of N.J.S.A. 34:15-81(b) was to place personal responsibility on an employee of the insurer to assure that proper notice of cancellation was given and to require that employee to certify to that fact, recognizing the legal implications of a false certification.” It held that the motion judge’s finding that “the purpose of the statute was effected” by notice to CRIB of the cancellation, without regard to the efficacy of the certified “like notice,” had been expressly rejected by the court in Sroczynski. The case was, therefore, again remanded for discovery on the “like notice” documentation.

More than ten years after Sroczynski, the Appellate Division has once again emphasized the clear and unambiguous requirements to obtain an effective cancellation of a workers’ compensation insurance policy. Failing to abide by these rules will result in carriers being held liable for paying workers’ compensation benefits, even where they are not collecting the requisite premiums. At this point, doctrines like “substantial compliance” will simply not help cure an incomplete or incorrect insurance cancellation.

Contact your attorney if you have questions about implementing a legally effective procedure for cancelling an insurance policy before that next unexpected claim occurs.

*Bob is a shareholder in our Mt. Laurel, New Jersey office. He can be reached at 856.414.6009 or rjfitzgerald@mdwcg.com.

_{Defense Digest, Vol. 24, No. 4, December 2018. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2018 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}