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Defense Digest

I’ve Got Your Papers Right Here! New Jersey Appellate Division Reverses Extending Workers’ Compensation Coverage to Owner Based on Alleged Producer and Carrier Errors

Defense Digest, Vol. 28, No. 1, April 2022

April 1, 2022

by Robert J. Fitzgerald

Key Points:

  • In New Jersey, business owners can elect to be covered as employees for purposes of workers’ compensation coverage.
  • A workers’ compensation carrier is not required to ensure that business owners be included on a policy. 
  • Even if an insurance producer errs in failing to select insurance coverage for a business owner, the carrier is not required to cover the loss.

The New Jersey Superior Court addressed the latest attempt to expand workers’ compensation insurance coverage for business owners in Kearton v. E. W. Millwork, LLC, 2022 WL 244043 (N.J. App. Div. Jan. 27, 2022). The underlying facts of the case were undisputed. On August 27, 2003, the petitioner, Kearton, sustained injuries while working at E.W. Millwork, a manufacturer of wooden railings and moldings. Kearton had formed E.W. Millwork, a limited liability company, with his equal owner, Brigante. 

In March 2005, Kearton filed both a claim petition and a motion for medical and temporary disability benefits. Almost eight months later, E.W. Millwork’s carrier, Zurich American Insurance, filed a motion to deny the claim petition for lack of insurance coverage. Specifically, Zurich argued that coverage was not provided to the two owners, Kearton and Brigante, because the application for coverage did not request coverage for the owners. In January 2008, the Workers’ Compensation Judge issued a bench decision denying the motion. The judge determined that the insurance producer, Pawlak, made a mistake on E.W. Millwork’s workers’ compensation insurance application and should have elected coverage for the owners. The court also somehow found that Zurich was negligent and should have ensured that coverage was provided to the owners.    

Zurich filed a timely motion for reconsideration, arguing that the policy “clearly and unambiguously” did not provide coverage for the owners and that there was no such endorsement listed on the declaration page. Since there was no affirmative choice for members’ coverage––such coverage having been declined twice on the application—Zurich argued that Kearton was not covered as an employee. A different Workers’ Compensation Judge denied reconsideration, stating in his bench decision that he was “taking the coward’s way out” by not deciding the merits and that, for him to do so, would require retrying the matter.

Kearton suffered a second workplace injury in April 2009, resulting in an additional claim petition that was consolidated for trial on the nature and extent of permanency. In May 2017, a third Workers’ Compensation Judge presided over the trial. In December 2020, the matter was concluded by a fourth Workers’ Compensation Judge, who issued a final order of judgment regarding the 2003 work-related accident, awarding 46.5% of partial total.

On appeal, Zurich made several arguments, including that the compensation court erred in not granting its motion to dismiss Kearton’s claim for lack of workers’ compensation coverage. In a very detailed opinion, the court found that the Workers’ Compensation Judge’s findings were not supported by credible evidence in the record and that, therefore, the legal finding of insurance coverage was void. Under Section 36 of the Workers’ Compensation Act: 

…members of a limited liability company, ‘who actively perform services on behalf of the’ company, ‘shall be deemed an ‘employee’ of the’ company ‘for purposes of receipt of benefits and payment of workers’ compensation insurance premiums pursuant to the [Workers’ Compensation Act], if the ’company ‘elects, when [its] workers’ compensation policy … is purchased or renewed, to obtain coverage for the’ company’s members. ‘[T]he election may only be made at purchase or at renewal and may not be withdrawn during the policy term.’ Ibid. For any member of a limited liability company to opt in for workers’ compensation coverage, all members must do so. 

The court went into further detail on the lack of credible evidence given the insurance application process and testimony of the insurance producer, Pawlak:

Based on the record before us, we conclude E.W. Millwork did not obtain workers’ compensation coverage for Kearton. Both Brigante and Kearton testified that they were supposed to be covered under their company’s workers’ compensation coverage. Nevertheless, it is undisputed that E.W. Millwork’s application did not request such coverage. Pawlak testified he informed Brigante, who was responsible for securing insurance coverage for the company, of the consequences of not electing coverage for the company’s members. He told Brigante that without coverage for members, if there was an ‘on[]the[]job or occupational injury, illness, sickness[,] or disease, there would be no coverage for neither he nor []Kearton.’ Notwithstanding that advice, he stated Brigante chose not to select coverage for the members.

The court also thoroughly analyzed the insurance application process and the applicable waivers:

A separate document to the insurance application titled ‘NOTICE OF ELECTION - PROPRIETORS AND PARTNERS,’ included an ‘x’ within a box stating that ‘COVERAGE IS REJECTED.’ In addition, a section titled ‘COMPLETE THIS SECTION ONLY WHEN COVERAGE IS ELECTED’ had Kearton’s and Brigante’s names filled in underneath, but the sections for ‘ESTIMATED ANNUAL WAGE[S]’ and ‘DUTIES,’ which was required to provide coverage for them, was not completed. Although the application listed E.W. Millwork having six employees for a total wage of $155,000, it did not specify the amount of the members’ wages. According to Pawlack, the member’s names were only included in the section in case Brigante chose to elect coverage prior to signing, and if he did so, the form could be completed––which it was not.

The Appellate Division also addressed the lack of validity of the Workers’ Compensation Judge’s rational for extending coverage based on the alleged mistakes of Pawlek and Zurich Insurance.

Despite the clear fact that E.W. Millwork’s application did not request workers’ compensation coverage for its members, the judge justified finding there was coverage based on Pawlack’s mistake in not selecting coverage for members. The judge also found that Zurich was negligent and should have looked at the policy to make sure coverage was provided for the members. Without further explanation, the judge determined that Kearton was a covered employee. This was error. 

Even accepting Pawlack erred, there was no legal basis cited by the judge for imputing liability on Zurich—by finding coverage that was not requested—based on that error. Any mistake by the producer should be borne by him. There is no evidence to support the finding that Zurich was responsible for Brigante’s failure to secure workers’ compensation coverage for Kearton and himself. Contrary to the judge’s finding, there is nothing ambiguous about the application that warrants imposing coverage for Kearton. It clearly provided how the company’s members had to obtain workers’ compensation, and the completed application plainly showed coverage for the members was not requested.

Finally, the court even went on to address any public policy arguments which are sometimes used to inappropriately extend insurance coverage:

We recognize the Workers’ Compensation Act is social legislation that is liberally construed ‘to implement the legislative policy of affording coverage to as many workers as possible.’ Nevertheless, we cannot authorize coverage where there is a clear disregard of a statutory requirement as was the case here.

Following its opinion, the Appellate Division reversed the Workers’ Compensation Judge’s award of benefits and remanded the case for entry of an order finding a lack of insurance coverage for Kearton’s claim petitions. 

While this decision does not change the current state of the law, it is helpful in reminding us that, when it comes to issuing insurance policies, there are specific procedures that business owners and insurance carriers must go through in confirming coverage for the business owners/employees. As indicated here, it is not the responsibility of the carrier and/or broker to require business owners elect workers’ compensation coverage for themselves. However, carriers/brokers must make it clear when coverage is being rejected in response to the pubic policy position of finding coverage exists as much as possible. 

If you are a business owner, or an insurance broker/carrier, and you have questions about whether there is proper workers’ compensation coverage, it is recommended that you contact your counsel as soon as possible. Business owners who fail to provide proper workers’ compensation coverage can be subject to both civil and even criminal penalties in New Jersey. Complete your due diligence before it is too late.

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

 

Defense Digest, Vol. 28, No. 1, April 2022 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. © 2022 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.

Firm Highlights

News

Marshall Dennehey’s John J. Hare Brings Home Attorney of the Year Honors; Firm Named Litigation Department of the Year in Two Categories

Marshall Dennehey took home top honors in three categories at the The Legal Intelligencer’s 2026 Pennsylvania Legal Awards, held June 11 in Philadelphia. The first place awards include: Attorney of the Year: John J. Hare, Chair of the firm’s Appellate Advocacy & Post-Trial Practice Group and Executive Committee member, together with Charles “Chip” Becker of Kline & Specter Litigation Department of the Year, Appellate – Third Win in a Row! Litigation Department of the Year, Product Liability/Mass Torts “There is no one more deserving of Attorney of the Year honors than John. This award is a testament to his exceptional skill, dedication, and leadership—qualities that truly exemplify the very best of our firm,” said G. Mark Thompson, Marshall Dennehey’s President & CEO. “These honors also reflect the strength and depth of our product liability, mass torts, and appellate practices across Pennsylvania and beyond, underscoring our ongoing commitment to delivering outstanding results for our clients.” Attorney of the Year – John J. Hare, Marshall Dennehey, together with Charles “Chip” Becker, Kline & Specter Over the past year, John and Charles were opposing counsel in many of the highest-profile civil appeals in Pennsylvania. John is renowned as a preeminent appellate lawyer on the defense side, and Chip on the plaintiff's side. They have opposed each other repeatedly, exhibiting peerless professionalism and exceptional civility, while zealously litigating under the unremitting pressure of high-profile litigation and record-setting verdicts totaling more than $3.5 billion. They have also collaborated, outside of litigation, on many commissions, committees, and projects of importance to the Pennsylvania judiciary and legal community. Litigation Department of the Year – Appellate Law, Winner (previous winner, 2025 and 2024) 2025 was another standout year for the firm’s Appellate Advocacy & Post‑Trial Practice Group, led by John J. Hare, which was retained to challenge many of Pennsylvania’s “nuclear” verdicts—awards exceeding $10 million. Notably, the department persuaded the Pennsylvania Superior Court to reverse a Philadelphia judgment of $1.09 billion, the largest judgment ever overturned by a Pennsylvania appellate court. The group’s 11 full‑time Pennsylvania‑based appellate lawyers are at the center of Pennsylvania’s most high-profile matters, bringing more than 150 years of combined appellate experience. They routinely handle post‑trial and appellate matters and are frequently engaged to participate in and monitor trials in high‑exposure cases to ensure that critical legal issues are properly raised and preserved for appeal. Litigation Department of the Year – Product Liability/Mass Torts, Winner This marks the first win for the firm’s Pennsylvania Product Liability and Mass Torts practices, which operate within our Casualty Department, managed by Matthew Schorr and Jeff Rapattoni. For almost five decades, Fortune 500 product manufacturers/distributors and their insurers have turned to these groups to defend their litigation. Led by Bradley D. Remick and Vlada Tasich, our Product Liability group’s success can be attributed to its commitment to keeping abreast of ever-changing legal theories, judicial viewpoints, and evolving technology impacting the product liability landscape. Our attorneys have successfully handled thousands of product liability matters in all jurisdictions across the state. Likewise, our mass tort litigation practice – divided into Asbestos & Mass Tort, and Environmental & Toxic Tort Litigation –  has defended manufacturers, distributors, contractors, and premises owners in thousands of personal injury and other claims. Led by Kevin E. Hexstall and Patrick T. Reilly, most attorneys in these groups have more than 20 years of experience, and our seasoned trial team has tried hundreds of cases to verdict, consistently achieving strong results through both trials and settlements. In addition to these awards, Marshall Dennehey was a Litigation Department of the Year finalist for Professional Liability.

Result

No-Cause Jury Verdict Secured in Wrongful Death Trial

We successfully obtained a no-cause jury verdict in a 13-day wrongful death trial. The decedent, a 59-year-old man, was admitted to the emergency room on February 15, 2019, with complaints of abdominal pain, decreased appetite, and constipation, despite the use of laxatives. The patient did not complain of any nausea, vomiting, or diarrhea. He had a significant medical history including diabetes, hypertension, prior coronary artery stenting, morbid obesity (with past gastric bypass surgery), longstanding ventral hernia, and back pain. A CT scan revealed multiple hernias and a potential closed-loop bowel obstruction, leading to a surgery consultation. Our client, an emergency general surgeon, interpreted that the patient did not have a closed loop or any significant obstruction and recommended non-surgical management. The patient was approved to have clear liquids, and had a vomiting incident shortly after, but our client was not notified. The patient was returned to NPO status, and after improving overnight, he was returned to “clears” and additional medical and renal consults were ordered. Our client did not receive any communications from the residents/nurses of any changes in the patient’s condition. On February 18, 2019, two rapid responses were called due to increased heart rate and vomiting. It is believed that the vomiting resulted in aspiration, causing sepsis, ultimately leading to the patient’s death. During the trial, the plaintiff’s sole medical expert highlighted imaging on the wrong hernia, which called into question all of his opinions in the case. We made key objections related to the expert testimony, limiting what the allegations were, and preventing new allegations from being made. After approximately two and a half hours of deliberating, the jury returned a no-cause verdict. 

Thought Leadership

Pennsylvania Supreme Court Holds Self-Referral Prohibition Does Not Cover Prescriptions Written by Physicians with Ownership Interests in Dispensing Pharmacies

700 Pharmacy v. Bureau of Workers’ Compensation Fee Review Hearing Office (State Workers’ Insurance Fund); Nos. 97, 98, 99, 100, 101 MAP 2024; decided June 16, 2026; by Justice Mundy.   In this case, Drs. Miteswar Purewal and Shailen Jalali, treating physicians for workers’ compensation claimants, wrote prescriptions for various medications that were filled by 700 Pharmacy. The worker’s compensation insurer refused to pay for the prescriptions on the basis that they were illegal self-referrals under the Act. 700 Pharmacy subsequently filed fee review applications with The Bureau of Workers’ Compensation Medical Fee Review Office. At a fee review hearing, both physicians stipulated they had a financial interest in the pharmacy.  The physicians argued that the Anti-Referral Provision of the Act does not bar self-referrals on prescription drugs and pharmaceutical services, since the provision does not specifically identify prescription drugs. The Fee Review Hearing Officer rejected this argument and found that prescriptions for medications are prohibited under the “goods or services” language included in the provision. 700 Pharmacy appealed to the Commonwealth Court, and the court affirmed, agreeing with the Hearing Officer’s interpretation of “goods and services” as encompassing prescriptions. 700 Pharmacy appealed to the Supreme Court.  The Supreme Court reversed the decisions of the Hearing Officer and the Commonwealth Court, holding that the term “goods and services” in the Anti-Referral Provision of the Act did not include prescriptions. According to the Court, “goods and services” was not a catch-all, but simply explanatory as to the eight enumerated categories in the provision. The provision (Section 306(f.1)(3)(iii)) reads, in pertinent part: Notwithstanding any other provision of law, it is unlawful for a provider to refer a person for laboratory, physical therapy, rehabilitation, chiropractic, radiation oncology, psychometric, home infusion therapy  or diagnostic imaging, goods or services pursuant to this section if the provider has a financial interest with the person or in the entity that receives the referral. The Court said that if the General Assembly wanted to specifically include prescription drugs and pharmaceutical services in the Anti-Referral Provision, they would have done so. They pointed out that prescription drugs and pharmaceutical services were included by the legislature in Section 306 (f.1)(3)(vi) of the Act as to reimbursement, and claimed that their omission from the Anti-Referral Provision supports the conclusion that those services are not included in the Anti-Referral Provision’s self-referral prohibition.

Thought Leadership

Coverage Determined, Judgment Paid, Bad Faith Survives: Fourth DCA’s Opinion Highlights the Distinction Between Contractual and Extra-Contractual Damages

In Healthy Food Experts, LLC v. Amguard Ins. Co., No. 4D2025-0181 (4th DCA June 10, 2026), the Fourth District Court of Appeal explained that an insurer’s payment of a judgment in a breach of contract case does not automatically eliminate a later bad faith claim seeking extra-contractual damages. The decision provides guidance on when a first-party bad faith claim may still proceed after a coverage dispute has already been resolved by a judgment. Healthy Food Experts, LLC involved a dispute related to a property damage claim submitted under a commercial insurance policy issued by the insurer following a ceiling collapse at the insured’s restaurant. The insurer denied coverage for the insured’s losses for business personal property and business income, but extended coverage for the food spoilage losses. As a result, the insured filed a breach of contract action and ultimately obtained a jury verdict. The insurer appealed the verdict and, while the appeal was pending, the insured filed a Civil Remedy Notice (CRN) seeking payment for the judgment plus interest. The insurer failed to cure the CRN within the statutory sixty-day cure period, but paid the judgement in full with accrued interest following the appeals court’s per curiam affirmance. Nevertheless, the insured filed a first party bad faith lawsuit claiming to have suffered extra-contractual damages. In response to the bad faith suit, the insurer filed a Motion to Dismiss for failure to state a cause of action, relying on Fridman v. Safeco Insurance Co. of Illinois, 185 So. 3d 1214 (Fla. 2016) stating that damages were fixed by judgment of the breach of contract suit and the insured could not recover additional damages beyond those already awarded. The insurer also argued that the judgment did not exceed the insured’s policy limits, which was a required element of a first party bad faith claim. The trial court dismissed the bad faith action based on Fridman, concluding the insured could not seek any additional damages.  The insured appealed the court’s ruling to the Fourth DCA arguing the trial court’s order conflicts with Florida law and misapplies Fridman, as a contractual damage determination in the underlying suit establishes the “condition precedent to prosecute a first party bad faith action.” Cingari v. First Protective Ins. Co., 377 So. 3d 1169, 1174 (Fla. 4th DCA 2024). Further, the insured argued that the only purpose to the binding language in Fridman is to prevent the re-litigating of the same damages, which in this case are the contractual damages. The insured asserted the damages were not the “same” as they were seeking consequential damages from the insurer’s alleged bad faith. The Fourth District emphasized in its ruling that a first party bad faith claim is not ripe for litigation until there has been the following: a determination of the insurer’s liability for coverage; a determination of the extent of the insured’s contractual damages, and the required civil remedy notice is filed pursuant to §624.155(3)(a).  Demase v. State Farm Fla. Ins. Co., 239 So. 3d 218, 221 (Fla. 5th DCA 2018) The court concluded that the necessary conditions were satisfied as the jury verdict determined both coverage and the extent of the insured’s contractual damages, and the insured properly filed a civil remedy notice, so the bad faith claim was ripe for litigation. The Fourth DCA further explained the insured could not seek contractual damages in its bad faith action, which was previously litigated in its breach of contract suit. However, the court determined the insured could seek “extra-contractual damages,” which were not recoverable in the insured’s breach of contract suit, which may include interest, court cost, and reasonable attorney’s fees incurred by the insured. Further, the court held excess judgment is not essential in a first party bad faith claim and the insurer’s late payment of the judgment did not preclude the insured’s bad faith action. As a result, the Fourth District Court of Appeals reversed the trial court’s final dismissal order of the bad faith action. This opinion highlights the distinction between contractual and extra-contractual damages. Moreover, this case demonstrates that a judgment does not necessarily end the dispute in a first party property claim as it is could also serve as a prerequisite of a bad faith action. The decision serves as a reminder that insurers may face bad faith exposure notwithstanding the payment of a judgment in an underlying breach of contract action.

Thought Leadership

Unanimous New Jersey Supreme Court Holds That Personal Emails of Public Employees and Officials are Subject to OPRA

In Rosetti v. Ramapo-Indian Hills Regional High School Board of Education, the New Jersey Supreme Court unanimously held that government-related emails, which are contained within personal email accounts, are government records under the Open Public Records Act (OPRA), and a log of those emails must be produced when requested. In reaching this decision, the court conducted an analysis of the OPRA and cited previous cases that held that emails do in fact fall within OPRA’s definition of a record and must be produced when requested pursuant to the Act. The court in Rosetti then had to answer the question as to whether public officials’ personal email accounts that are used for government purposes are subject to OPRA, and found that they are. Rosetti made an OPRA request to the Board of Education seeking email logs from Board members’ personal email accounts. The Board refused to produce the logs and indicated that it was not under any obligation to produce personal email account logs, only from government-related email accounts. The issue was whether a log had to be produced for Board members’ personal email accounts, which they used to conduct Board business. The Board argued that while it was possible to create a log for government-related email accounts through its IT Department, it was not possible to do so for personal email accounts. The court rejected this argument and ruled that Board members are required to search their personal email accounts and create a log of government-related emails housed in those accounts. Once completed, each Board member then must submit a certification detailing the searches that were conducted. The court went one step further with a suggestion to government employees and officials, stating, “[g]overnment agencies should strongly advise their employees, elected officials, and others engaged in government-related business to refrain from using their personal email accounts when conducting government-related business.”  Please do not hesitate to contact me with any questions regarding this case and others pertaining to the OPRA.