- Appellate Division Affirms Determination of Improper Workers' Compensation Insurance Cancellation, Despite Carrier's Utilization of State Insurance Bureau's Electronic Filing Procedures
- December 21, 2009 | Author: Robert J. Fitzgerald
- Law Firm: Marshall, Dennehey, Warner, Coleman & Goggin - Cherry Hill Office
The Appellate Division has again tackled the issue of what constitutes the proper cancellation of a workers' compensation insurance policy in Sroczynski v. Milek, 396 N.J. Super. 248, certif. granted, 192 N.J. 591 (2007). Section 81 of the New Jersey Workers' Compensation Act (Act) requires that an insurance carrier must provide at least ten days written notice of the intended cancellation of insurance coverage. In addition, the notice must be sent to the employer via registered mail, and a "like notice" must go to the Office of the Commissioner of Banking and Insurance. At issue in Sroczynski is the "certified statement" requirement of Section 81(b):
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.
In Sroczynski, the petitioner sustained a work-related injury on February 28, 2004, while employed by Milek. NJM had issued a workers' compensation insurance policy for the period of May 5, 2003, to May 6, 2004. Milek paid an initial partial premium to NJM but failed to continue making periodic payments. NJM issued a notice of cancellation to Milek via certified mail on August 14, 2003. NJM also electronically filed the like notice of the cancellation with the Commissioner of Banking and Insurance (Commissioner) pursuant to the electronic filing procedures established by the Compensation Rating and Inspection Bureau (CRIB). The like notice advised CRIB that the cancellation of Milek's policy was intended to be effective as of September 5, 2003.
After Syroczynski filed a claim petition, NJM filed a motion to be dismissed as the carrier based on the cancellation of the policy. NJM's motion was opposed by Sroczynski and by the Uninsured Employers Fund (UEF). The Judge of Compensation bifurcated the case on the issue of insurance coverage. There was no dispute that NJM properly notified Milek that it was canceling its workers' compensation policy or that such notice was sent by certified mail. There was also no dispute that the Commissioner was notified of the cancellation or that the ten days elapsed from the time notice was served on the Commissioner before the policy was cancelled. The only witness who testified was Robert Murray, an assistant vice-president of NJM, who explained that initially NJM enters into its own computer system data including the employer's name, the policy number, the "reason code" for cancellation, the date of actual cancellation, and the effective date of such cancellation. This information is then electronically transferred through NJM's computer system to CRIB. Murray further testified that this type of notice of cancellation via transfer through the electronic filing protocol was expressly authorized by the New Jersey Workers' and Employer's Liability Insurance Compensation Manual.
The only dispute between the parties was the legal effect of NJM's failure to file the "certified statement." The purpose of the certified statement is to certify that notice of cancellation has been sent to the employer. Murray testified that NJM had used the electronic filing protocol without any problems for "probably ten years." Murray acknowledged that a certified statement of the mailing of such notice is not part of the electronic filing protocol and that NJM has never sent the certified statement separately to CRIB. However, CRIB has never rejected a cancellation because of NJM's failure to file the certified statement.
After the testimony was completed, the Judge concluded the NJM failed to properly cancel the policy:
[The CRIB instruction page] outlines the manner in which the notice is to be filed and in no way relieves the carrier from its obligation to certify the information. . . [T]he [precedents] require strict compliance with the cancellation statute. There is public policy favoring . . . workers' compensation insurance, and failure to require strict compliance with cancellation policy will allow a carrier to avoid these responsibilities and deny the insured worker the recovery promised to him by the law. . . .
[T]he CRIB acknowledgment is not sufficient to lift the mandate for certification as stated in the statute. I find that because of the failure of [NJM] to file a correct certification . . . or any certification when canceling the policy of John Milek Construction Company, that the policy is not properly or effectively canceled absent the correct procedure.
On appeal, NJM made two arguments. First, because its cancellation of the policy provided actual notice of the cancellation to both Milek and to the Commissioner, such cancellation satisfied the regulatory purpose of the statute and should be considered effective. Second, the doctrine of substantial compliance should be applied and provide that NJM's notice to CRIB was sufficient.
The Appellate Division affirmed holding that the CRIB's electronic filing protocol instructions must be interpreted to include the requirement that insurers must also comply with all of the requirements of the Act, including the certified statement requirement of Section 81(b). The court also held that the doctrine of substantial compliance did not apply since the petitioner would be prejudiced. Specifically, the petitioner would not be able to recover permanent disability benefits from the UEF, only medical and disability benefits. In addition, the court concluded that NJM did not offer a reasonable explanation as to why there was not strict compliance with the certified statement requirement. The court also noted the strong public policy favoring uninterrupted insurance coverage and the principle that insurance companies must strictly comply with all statutory requirements relating to cancellation.
Interestingly, the court also rejected NJM's reliance on Ongaro v. Country Flooring Enterprises, 382 N.J. Super. 359, certif. denied, 186 N.J. 604 (2006). In Ongaro, the Appellate Division concluded that a cancellation notice which contained two factual errors (effective dates of the policy and of the cancellation date) was nonetheless effective. The Ongaro Court determined that the errors were "purely clerical in nature" and could not have "thwarted" the Commissioner's ability to recognize that the employer did not have insurance coverage. Here, the court determined that NJM's failure to file the "certified statement" constituted a deliberate refusal to comply with Section 81 and, therefore, Ongaro was not applicable.
In light of the court's recent decisions in Ongaro, the Sroczynski decision seems to muddy the waters in workers' compensation cases involving insurance policy cancellation issues. Shortly following the Appellate Division's decision, NJM filed an appeal to the New Jersey Supreme Court. In October 2007, the Supreme Court granted NJM's motion for certification, and arguments are scheduled to be heard later this year. Until the Supreme Court's ruling, insurance carriers are urged to strictly comply with all of the requirements of Section 81 when deciding to cancel workers' compensation coverage, even if they are also utilizing New Jersey CRIB's electronic filing procedures. If you are unsure as to whether your workers' compensation insurance policy cancellation procedures are in compliance, or if you have other questions regarding the New Jersey Workers' Compensation Act, contact your defense counsel.