• Liar! Liar! - The Appellate Division Upholds the Imposition of Penalties under the Fraud Provisions of the New Jersey Workers' Compensation Law
  • December 21, 2009 | Authors: Robert J. Fitzgerald; Douglas M. Alba
  • Law Firm: Marshall, Dennehey, Warner, Coleman & Goggin - Cherry Hill Office
  • In an unreported decision, Sarbjit Singh v. Cream-O-Land Dairy, (Docket No. A-2468-06T5), the Appellate Division has upheld the imposition of civil penalties against a petitioner for committing fraud in a New Jersey workers' compensation case. Section 57.4 of the New Jersey Workers' Compensation Law defines various ways fraud is committed in workers' compensation proceedings, including the misrepresentation of employee payrolls in obtaining workers' compensation insurance. Section 57.4 also provides various remedies for employers when fraud is committed by petitioners, such as the immediate termination of workers' compensation benefits, forfeiture of possible future benefits, restitution, and interest.

    The facts in Singh are particularly egregious. Singh suffered a compensable neck injury on May 2, 2002, which resulted in surgery on October 18, 2002. Following the surgery, he continually professed to his treating physicians and the workers' compensation examining physicians that he was unable to work as a truck driver because he could not sit for long periods of time without incurring severe pain. As a result, the employer paid the petitioner more than $29,000 in temporary disability benefits and $12,600 in a voluntary tender of permanency benefits prior to a trial. The petitioner initially testified in September 2004.

    During the course of the trial, the employer discovered that in January 2003, the petitioner underwent a physical examination and received a certificate which medically cleared him for a truck driving position with Banibal Trucking, a company owned by the petitioner's cousin. The petitioner was employed by Banibal from April 2003 through June 2004. Tax records submitted by the petitioner claimed expenses for 195 nights of over-the-road lodging while working for Banibal. The petitioner underwent another physical examination for another truck driving position in July 2004 in which he specifically denied suffering any disabilities or injuries in the previous five years. In August 2004, the petitioner then purchased his own truck and went to work for Wills Trucking, Inc. The petitioner's tax records from 2004 claimed expenses for 276 nights of over-the-road lodging and a gross income of more than $86,000.

    The petitioner subsequently testified in June and September of 2005. While he acknowledged working for this cousin as a long-distance over-the-road trucker, he testified that he left Banibal in June 2004 because he was not able to drive a truck long distances. However, he also then admitted that he purchased his own truck and began working for Wills Trucking.

    At the conclusion of the trial, the Judge issued a 50-page oral decision in which he found "beyond a reasonable doubt" that the petitioner had lied to his doctors about the severity of the injury and his inability to work. The Judge also found that the petitioner had lied to the court and denied the petitioner's claim for permanent, partial disability. The Judge ordered the petitioner to reimburse the employer $1,350 for seven days of court reporting services, to return the $12,600 voluntary tender, and to return $7,278.42 in temporary disability benefits received from January 3, 2003, through March 24, 2003, together with interest. The Judge based his decision on his conclusion that the petitioner violated the civil penalty provision of Section 57.4.

    On appeal, the petitioner argued that the Judge erred in finding a violation of the civil penalty provision of Section 57.4, or, in the alternative, challenged the amount of the penalty imposed. The Appellate Division affirmed the Judge's decision, stating that the petitioner's arguments did not even warrant discussion in light of the record. In dicta, the Appellate Division determined that the Judge used a higher burden of proof than was necessary. Specifically, the Appellate Division added that in finding a violation of the civil penalty provision of Section 57.4, the Judge needed to only find proof by a preponderance of the evidence, not the "beyond a reasonable doubt" standard. However, the Appellate Division opined that since the Judge found fraud by using the higher burden of proof, this was harmless error.

    This case, even though it is unreported, is very significant in that it unequivocally upholds the employer's right to seek additional limited remedies when workers' compensation claims are fraudulently pursued. Although not addressed in the opinion, it is unclear as to whether the employer, or more specifically its carrier, also pursued additional remedies for fraud under the Insurance Fraud Prevention Act ("IFPA").

    The state of New Jersey has as one if its highest public policies the elimination of the kind of fraud committed by the petitioner in this case. The New Jersey Legislature enacted the IFPA in an effort to aggressively combat the incidences of insurance fraud. The Act seeks to prevent fraud by:

    1. facilitating the detection of insurance fraud;
    2. eliminating the occurrence of such fraud through the development of fraud prevention programs;
    3. requiring the restitution of fraudulently obtained insurance benefits; and
    4. reducing the amount of premium dollars used to pay fraudulent claims.

    A person violates the IFPA who presents a written statement in support of a claim for payment pursuant to an insurance policy, "knowing that the statement contains any false or misleading information concerning any fact or thing material to the claim." The Act also allows an insurance company "to recover compensatory damages, which may include reasonable investigation expenses, costs of suit and attorneys fees." The Act further allows an insurance company that is successful under subsection (a) to recover treble damages if the court determines that the defendant has engaged in a pattern of violating the Act.

    The New Jersey Supreme Court has stated that "insurance fraud is a problem of massive proportions that currently results in substantial and unnecessary costs to the general public in the form of increased rates." Merin v. Maglaki, 126 N.J. 430, 436 (1992). As the Court observed, as much as 15 percent of all insurance claims involve fraud.

    Even a cursory review of the fact pattern as outlined in Singh suggests that the petitioner's conduct not only violated the Insurance Fraud Prevention Act and relevant statutes and regulations, but also possibly constitutes a serious breach of the strong public policy against insurance fraud. That policy is reflected by not only the IFPA, but also by the resources devoted by the Attorney General and the insurance industry in combating insurance fraud. As the court in Varano, Damian & Finkel, L.L.C. v. Allstate, 366 N.J. Super. 1, 8 (App. Div. 2004), succinctly stated, "[t]here is a strong public policy in this State to root out insurance fraud."

    In Singh, as the Judge found that the petitioner lied to these doctors about the severity of his injury and his inability to work, the aggrieved carrier would have the ability to bring a cause of action under the IFPA. The petitioner cannot seriously argue that his misrepresentations were a mere oversight or honest mistake as he time and time again indicated to his employer and to the court about the severity of his injuries and his inability to work. Had the carrier known about these misrepresentations, it would have considered these misrepresented facts relevant to its concerns and important in determining its course of action against the petitioner. As such, in addition to the remedies sought in worker's compensation court, the carrier would also be allowed to bring an affirmative suit seeking treble damages and attorney fees and costs against the petitioner for violations of the Insurance Fraud Prevention Act.

    Considering the statistics cited by the court, it is likely that a significant number of claims that you are currently handling involve some element of fraud as defined by Section 57.4 of the New Jersey Workers Compensation Law or the New Jersey Insurance Fraud Prevention Act. If you have a workers' compensation claim in which there is evidence of fraud, you may wish to consider pursuing remedies under both of these statues in order to maximize your client's recovery and deter future fraudulent behavior in keeping with New Jersey's public policy. Practically speaking, true evidence of fraud is sometimes hard to discover and even harder to prove, particularly when dealing with social legislation such as workers' compensation. If you have questions about pursuing a fraud action in a workers' compensation case, or in any insurance claim, contact your defense counsel immediately.