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Defense Digest

Penalties, Sanctions and Other Bad Employer Words

Defense Digest, Vol. 28, No. 3, October 2022

October 1, 2022

by Robert J. Fitzgerald

Key Points:

  • Permanency benefit awards must be paid in a timely manner.
  • The penalties awarded should be consistent the lateness of the payment, the amount of permanency benefits awarded and the possible bad faith of the parties.
  • The penalties awarded should be governed by permanency award factors, such as the amount of time it takes the litigation to resolve.

In Luis Ripp v. County of Hudson, 277 A.3d 1071 (N.J. Super. App. Div. 2022), the New Jersey Appellate Division addressed factors to be considered in awarding financial penalties for the late payment of permanency benefit awards. The petitioner worked for Hudson County as an assistant chief engineer/boiler operator. He sustained a work injury on February 11, 2013, and filed a claim petition. On January 26, 2021, he received an award of permanent/total disability. When the award was not paid within 60 days, the petitioner filed a Motion to Enforce.

The award was paid on April 12, 2021, 16 days after what the parties considered to be the due date. The respondent offered several excuses for the late payment, including that its third-party administrator failed to submit the payment request in time for the county commissioners meeting, that its third-party administrator was delayed due to the transfer of an adjustor and, of course, that there was delay due to the COVID-19 pandemic.

The Judge of Compensation noted in the underlying litigation that the petitioner needed to successfully make enforcement motions to obtain temporary disability benefits. The judge also noted that there were settlement discussions for a permanent/total award in August 2019, but the county did not authorize settlement until January 2021. She stated the petitioner was “without significant funding for quite a long time” and had written to the court on many, many occasions, sharing his dismay over the amount of time it was taking to resolve his claim. She said the petitioner was “anxious about money and the court was very sensitive to all of that.”

In granting the motion, the judge ordered the respondent to pay the petitioner an additional $43,370 within 60 days. The county appealed. In the subsequent written decision, the judge reiterated that the respondent agreed in early 2019 that the petitioner was totally disabled. She noted that the petitioner was receiving Social Security Disability benefits and that, because “Social Security is notoriously slow,” it delayed computation of the petitioner’s average current earnings, necessary so the order could be effectuated.

The judge also recognized that, given the size of the award, the county needed to involve its excess insurance carrier. The excess carrier’s authority to settle was not provided until December 2020.

However, the judge stated this delay “was to the dismay of [Ripp].” She cited “several letters” from the petitioner that she shared with counsel, detailing his emotional and financial distress as a result of not working. The judge cited the petitioner’s “life-altering injury,” lack of “wages for over four years,” and his “disabled child,” which left the judge very sympathetic. The judge also said the court had “bent over backwards to give the [county] the time to ‘get it’s ducks in a row,’” and it was “inconceivable” that payment was overdue. The judge found the county’s delay was “unreasonable” and concluded it was appropriate to impose the maximum additional assessment of 25% to enforce the order.

On appeal, the respondent argued the judge erred in her expansive application of Section 28.2 (Penalties and Sanctions) and, additionally, that she abused her discretion in imposing a manifestly excessive assessment under the circumstances. The court agreed and reversed the order. It first referenced Section 28.1 which provides:

If an . . . employer’s insurance carrier, . . . unreasonably or negligently delays or refuses to pay temporary disability compensation, or unreasonably or negligently delays denial of a claim, it shall be liable to the petitioner for an additional amount of 25% of the amounts then due plus any reasonable legal fees incurred by the petitioner as a result of and in relation . . .

Next, the court referenced the amendments to Section 28.2, which now provide:

If any employer . . . fails to comply with any order of a judge of compensation . . . , a judge of compensation may, in addition to any other remedies provided by law:

a.         Impose costs, simple interest on any moneys due, an additional assessment not to exceed 25% of moneys due for unreasonable payment delay, and reasonable legal fees, to enforce the order, statute or regulation;

b.         Impose additional fines and other penalties on parties or counsel in an amount not exceeding $5,000 for unreasonable delay, with the proceeds of the penalties paid into the Second Injury Fund

Additionally, the Division then adopted Rule 12:235-3.16(h)(1)(i), which allows a judge to impose an additional assessment not to exceed 25% on any moneys due if the judge finds the payment delay to be “unreasonable.” Unlike Section 28.1, which deals with delays in paying temporary disability benefits and defines a 30-day delay as presumptively unreasonable, the Legislature here chose not to specify what is a presumptively unreasonable delay in payment of settlement proceeds under an order entered under the statute.

Based on these provisions, the court reasoned that the plain and unambiguous language of Section 28.2 limits imposition of a penalty to situations justifying the court’s enforcement of its order fixing the moneys due a petitioner pursuant to that order only if there is an “unreasonable payment delay.” In this case, the order was not entered until January 26, 2021. Therefore, it was not an “unreasonable payment delay” prior to March 26, 2021.

Accordingly, it was legal error for the judge to consider, for example, the length of time it took to resolve the petition after the parties agreed the petitioner was totally disabled. No payments were due the petitioner until the order was entered, and no payments were delayed for the first 60 days after that. Further, the judge recognized that there were ample, legitimate reasons why it took until January 2021 to enter the order finally settling the matter, and that those delays were not “unreasonable.”

Having said that, however, the county did not contest that it failed to pay the petitioner the moneys due under the order in a timely fashion. Rather, it offered various excuses for the delay, which the judge considered and, to some degree, accepted as reasonable. Nevertheless, the judge imposed the maximum statutory penalty for a 16-day payment delay.

In reversing the order, the court noted there was no reported case defining the appropriate standard of appellate review of a penalty awarded pursuant to a motion seeking enforcement of an order entered under the statue. In remanding the case, the court instructed that it would be appropriate to consider the length of the delay, the size of the late payment, and the effect a sizeable payment that is delayed beyond its due date would undoubtedly have upon a petitioner and his or her family.

Notably, a judge cannot consider delays in the litigation that predated entry of the order. Further, the court insinuated that an award of the maximum penalty under the statute, even though the delay in payment was only 16 days, and the certain extenuating circumstances that reasonably delayed payment in this case, would be struck down. Additionally, the court also suggested the lack of presence of bad faith, if any, would be factor to consider. Interestingly, the court indicated that the proceedings on remand could be conducted by a different judge.

This is the first case that addresses the factors to be considered in awarding penalties and sanctions for the late payment of a permanency benefit award. It is also very timely, given that many respondents are struggling to hire and retain claims professionals in the aftermath of the COVID-19 pandemic and The Great Resignation over the past couple of years. In its decision, the court confirms the long-standing requirement that workers’ compensation awards are required to be paid on a timely basis. When that fails to happen, Section 28.2 allows for various penalties, sanctions, etc., but maximum monetary punishments should not be awarded reflexively. Accordingly, respondents should continue to strive for full compliance in the timely payment of awards, or unnecessary and possibly substantial additional financial losses could result.

Firm Highlights

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

Congress Passes Financial Exploitation Prevention Act

On June 25, 2026, the House passed the Financial Exploitation Prevention Act of 2025 (“the Act”) by a vote of 414 to 2. The Act allows financial advisors and firms to delay suspicious transactions regarding the accounts of clients who are 65 or older, if they believe financial exploitation has occurred or is about to take place. With the advancement of technology and AI, the House’s overwhelming bipartisan passage of the Financial Exploitation Prevention Act represents an important step in strengthening the financial industry’s ability to combat the growing threat of elder financial exploitation. The Act recognizes what advisors have long known that financial professionals are often the first to detect suspicious behavior but have historically lacked clear legal authority to intervene before irreversible financial harm occurs. From the industry’s perspective, the bill accomplishes several important objectives, including the following: (1) Provides a practical “pause button” by allowing financial professionals to temporarily delay certain transaction requests when there is a reasonable belief that a senior or vulnerable adult is being financially exploited; (2) Empowers financial professionals to act by providing greater certainty that firms can act in good faith to protect clients without unnecessary legal risk; and (3) Strengthens investor protection without sacrificing client rights by allowing temporary delays based on a reasonable suspicion of exploitation, which is intended only to allow additional review and not to deny clients access to their money indefinitely. In sum, the Financial Exploitation Prevention Act will equip financial professionals with practical, carefully tailored tools to stop suspected financial exploitation before client assets are lost. By allowing firms to temporarily delay suspicious transactions under defined circumstances, Congress is recognizing the critical role advisors play as the first line of defense against increasingly sophisticated fraud schemes. The Act strikes an appropriate balance between protecting vulnerable investors and preserving individual financial autonomy, while reinforcing collaboration among advisors, families, and law enforcement to combat financial exploitation. The bill now awaits Senate action.

Thought Leadership

SIU Gets a Boost: NJ Supreme Court Affirms Insurers' Right to Litigate, Not Arbitrate, Fraud Claims

In a significant win for insurers' Special Investigation Units, the New Jersey Supreme Court clarified that statutory insurance fraud and racketeering claims may proceed in court rather than through PIP arbitration. At issue was whether insurance fraud claims brought under New Jersey's Insurance Fraud Prevention Act (IFPA) and the state's Anti-Racketeering Act (NJ RICO) are subject to mandatory arbitration under the Automobile Insurance Cost Reduction Act’s (AICRA) PIP dispute-resolution framework. Allstate had sued a network of medical practices, physicians, and related corporate entities, alleging a scheme to extract more than $1.7 million in PIP benefits through fraudulent and misleading billing. The trial court dismissed Allstate's complaint and compelled arbitration, reading AICRA's arbitration clause — which covers "any dispute regarding the recovery of... benefits" under PIP coverage, N.J.S.A. 39:6A-5.1(a) — as sweeping in fraud and racketeering claims along with routine benefit disputes. The Supreme Court affirmed the Appellate Division's reversal, adopting Judge Gilson's opinion below (480 N.J. Super. 566 (App. Div. 2025)) as its own reasoning. The Court held that IFPA and RICO claims fall outside the scope of AICRA's PIP arbitration mechanism because that "streamlined and specialized" process cannot grant the relief those statutes contemplate — treble damages, injunctive relief, broad discovery, and joinder of third parties — and because arbitrators lack authority to award compensatory or treble damages to an insurer. The Court also rejected the argument that Allstate's own Decision Point Review Plans independently compel arbitration, finding those plan provisions no broader than AICRA's own arbitration clause. Notably, the Court expressly disagreed with the Third Circuit's contrary holding in GEICO v. Mt. Prospect Chiropractic Center, 98 F.4th 463 (3d Cir. 2024), concluding it is not bound by that federal interpretation of New Jersey law. Insurers retain the right to pursue IFPA and RICO claims in the Law Division, with a jury trial. For SIU units and NJ insurance carriers, this decision is a significant win: it forecloses defense clinics' primary procedural tool for shunting fraud investigations into limited-scope PIP arbitration, where treble damages, RICO relief, and meaningful discovery were never realistically available. Carriers building cases against fraudulently structured clinics, straw-owned practices, or coordinated billing networks can now proceed with confidence that a well-pleaded IFPA/RICO complaint stays in the Law Division rather than being diverted to arbitration on a motion to compel. Practically, this strengthens SIU's leverage in settlement negotiations, preserves civil discovery tools (subpoenas, depositions, joinder of related corporate entities) critical to unwinding complex ownership and referral schemes, and resolves the split with the Third Circuit in favor of NJ insurers — at least as a matter of state law. Expect increased reliance on IFPA civil actions, rather than PIP arbitration demands, as SIU's primary enforcement vehicle going forward.

Thought Leadership

New Jersey Expands Family Leave Protections Effective July 17, 2026

On January 17, 2026, Governor Murphy signed into law legislation expanding the New Jersey Family Leave Act (NJFLA). Beginning July 17, 2026, significant amendments to the NJFLA will expand job-protected family leave to smaller businesses and more employees across the state. The new law broadens coverage by lowering the threshold for private employers from 30 employees to 15 employees, meaning many smaller businesses will now be subject to the NJFLA. Employees of state and local government agencies will continue to be covered regardless of the size of the employer. The amendments also make it easier for employees to qualify for leave. Under the revised law, an employee will be eligible after three months of employment and at least 250 hours worked during the preceding 12 months, replacing the previous requirement of 12 months of employment and 1,000 hours worked. Currently, New Jersey's Temporary Disability Insurance (TDI) and Family Leave Insurance (FLI) programs provide eligible employees with wage replacement while they are on leave but do not independently guarantee job protection. The recent amendments to the New Jersey Family Leave Act (NJFLA) expand these protections by extending job-protected leave to additional employees. Under the amended law, employees receiving TDI or FLI benefits may be entitled to return to the same position they held before taking leave, or to an equivalent position with the same seniority, status, pay, and benefits. Although the legislation also states that it does not expand or modify an employee's reinstatement rights under the NJFLA, the amendments appear to provide job protection to eligible employees receiving TDI or FLI benefits without requiring them to separately satisfy the eligibility requirements of the NJFLA or the federal Family and Medical Leave Act (FMLA). As a result, some employees may be entitled to longer periods of job-protected leave than were previously available under existing law. With these amendments, New Jersey continues to strengthen workplace protections by expanding access to job-protected family leave for eligible employees. These changes significantly expand access to job-protected family leave and may require employers to update their leave policies, employee handbooks, and HR practices. Notably, employers who were previously not required to administer NJFLA may need to amend their policies and/or create new protocols to come into compliance with the NJFLA. Failure to do so would prove costly, as the penalties for non-compliance are significant.