.

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

Thought Leadership

Pennsylvania Superior Court Reaffirms Liberal Pleading Standard in Medical Malpractice Actions

Legal Roundup: Pennsylvania The Pennsylvania Superior Court has reinforced a broader fact-pleading approach that may make it more difficult for health care defendants to obtain dismissal at the preliminary objection stage. In DaSilva v. Abington Memorial Hospital, the court held that the plaintiffs’ second amended complaint satisfied Pennsylvania’s fact‑pleading requirements despite the absence of individually named negligent actors. In DaSilva, the plaintiffs filed a second amended complaint alleging that Abington Memorial Hospital was directly and vicariously negligent after the patient, who was experiencing a mental health crisis, was left unattended by hospital staff, exited the emergency department, and was struck by a vehicle, suffering serious injuries. The trial court sustained the hospital’s preliminary objections and dismissed the complaint with prejudice, stating plaintiffs “failed to plead any material factual allegations in support of their claims of negligence [and] set forth vague allegations of negligence and unidentified agency.” Id. at *5. The plaintiffs appealed. On appeal, the Superior Court reversed, holding that the complaint sufficiently pled negligence and vicarious liability claims under Pa.R.C.P. 1019(a). The court concluded that allegations describing the patient’s condition, the hospital’s awareness of that condition, and the alleged failure to monitor or prevent elopement were adequate to satisfy Pennsylvania’s pleading requirements. Significantly, the court rejected the hospital’s argument that the complaint failed because it did not identify the specific employees responsible for the alleged negligence. Instead, the court found that generalized references to “emergency room staff” were sufficient to place the hospital on notice of the claims because “the names of those who performed services for the plaintiff are known to the defendant or can be ascertained during discovery.” Id. at *12 (citing Est. of Denmark ex rel. Hurst v. Williams, 117 A.3d 300, 307 (Pa. Super. 2015)). The effect of DaSilva is that plaintiffs may proceed past the pleading stage with relatively generalized allegations, particularly in cases involving institutional defendants where relevant details are uniquely within the defendant’s control. As a result, health care defendants should anticipate that challenges to claim sufficiency may be resolved in the later stages of litigation, including discovery and summary judgment.

News

106 Marshall Dennehey Attorneys Recognized in the 2027 Editions of The Best Lawyers in America® and the Best Lawyers: Ones to Watch® in America

Marshall Dennehey is proud to highlight the firm’s 106 attorneys who have been recognized in the 2027 editions of The Best Lawyers in America® and the Best Lawyers: Ones to Watch® in America. Less than 6% of all practicing lawyers in the U.S. were selected by their peers for this recognition. Additionally, four of the firm’s attorneys received the Best Lawyers® 2027 “Lawyer of the Year” awards in their respective practice areas and demographic regions. Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. For more information, please visit https://www.bestlawyers.com/. OUR 2027 LAWYERS OF THE YEAR Harrisburg, PA Christopher Reeser, Personal Injury Litigation - Defendants Kacey Wiedt, Workers Compensation Law - Employers Roseland, NJ Justin F. Johnson, Medical Malpractice Law - Defendants Leonard Leicht, Personal Injury Litigation - Defendants   OUR 2026 BEST LAWYERS IN AMERICA Philadelphia, PA Nicholas D. Bowers, Personal Injury Litigation - Defendants Josh J. T. Byrne, Professional Malpractice Law - Defendants Jefferey J. Chomko, Insurance Law James H. Cole, Insurance Law John J. Delany III, Personal Injury Litigation - Defendants Laurianne Falcone, Personal Injury Litigation - Defendants John P. Gonzales, Employment Law - Management John Hare, Appellate Practice Daniel D. Krebbs, Personal Injury Litigation - Defendants Michele Punturi, Workers' Compensation Law - Employers Bradley D. Remick, Product Liability Litigation - Defendants Andrea Cicero Rock, Workers' Compensation Law - Employers Robin M. Romano, Workers' Compensation Law - Employers Daniel J. Ryan, Jr., Personal Injury Litigation - Defendants Gary M. Samms, Professional Malpractice Law - Defendants Christopher N. Santoro, Personal Injury Litigation – Defendants; Product Liability Litigation -Defendants Josh D. Scheets, Personal Injury Litigation - Defendants Robert P. Schenk, Workers' Compensation Law - Employers Robert E. Smith, Insurance Law Robin Snyder, Litigation - Health Care Michael L. Turner, Commercial Litigation; Criminal Defense: White-Collar; Mass Tort Litigation / Class Actions - Defendants Claire Breaux Ventola, Product Liability Litigation - Defendants Pittsburgh, PA Melissa Devich Cochran, Commercial Litigation; Mass Tort Litigation / Class Actions – Defendants; Product Liability Litigation - Defendants  John F. Deasy, Personal Injury Litigation – Defendants; Product Liability Litigation - Defendants Daniel W. Deitrick, Workers' Compensation Law - Employers Douglas C. LaSota, Litigation - Construction; Mass Tort Litigation / Class Actions - Defendants Joseph V. Lesinski, Product Liability Litigation – Defendants   Christian D. Marquis, Personal Injury Litigation - Defendants Patricia A. Monahan, Insurance Law; Litigation - Insurance Patrick T. Reilly, Commercial Litigation; Mass Tort Litigation / Class Actions – Defendants; Product Liability Litigation - Defendants Brett C. Shear, Medical Malpractice Law - Defendants Teresa O. Sirianni, Education Law; Employment Law – Management; Litigation - Labor and Employment Stuart Sostmann, Product Liability Litigation – Defendants Danielle M. Vugrinovich, Mass Tort Litigation / Class Actions - Defendants Scranton, PA Sarah E. Argo, Litigation - Insurance Michael J. Connolly, Personal Injury Litigation – Defendants; Professional Malpractice Law - Defendants Matthew Keris, Litigation - Health Care; Medical Malpractice Law - Defendants John T. McGrath, Jr., Insurance Law; Medical Malpractice Law – Defendants; Product Liability Litigation - Defendants William J. McPartland, Insurance Law John R. Nealon, Product Liability Litigation - Defendants Victoria Scanlon, Health Care Law; Litigation - Health Care; Medical Malpractice Law - Defendants Michael A. Sebastian, Workers' Compensation Law - Employers Thomas A. Specht, Insurance Law; Litigation - Insurance Suzanne Tighe, Litigation Insurance Harrisburg , PA Casey Alan Coyle, Administrative/Regulatory Law; Appellate Practice; Commercial Litigation Brittany E. Bakshi, Personal Injury Litigation - Defendants Shannon P. Fellin, Workers' Compensation Law - Employers Allison Krupp, Insurance Law John R. Ninosky, Litigation – Insurance; Personal Injury Litigation - Defendants Christopher Reeser, Personal Injury Litigation - Defendants Kacey Wiedt, Workers' Compensation Law – Employers King of Prussia, PA  Michael L. Detweiler, Construction Law Joseph L. Hoynoski III, Medical Malpractice Law - Defendants Gregory J. Kelley, Construction Law, Litigation - Construction Anthony Natale III, Workers' Compensation Law - Employers Francis X. Wickersham, Workers' Compensation Law - Employers A. Judd Woytek, Workers' Compensation Law – Employers Erie, PA Patrick M. Carey, Personal Injury Litigation - Defendants Joel M. Snavely, Health Care Law; Insurance Law New Haven, CT Michael Wrona, Commercial Litigation, Litigation - Bankruptcy  Mount Laurel, NJ David D. Blake, Litigation - Insurance Barbara Davis, Personal Injury Litigation - Defendants Lynne Nahmani, Litigation - Health Care John H. Osorio, Personal Injury Litigation - Defendants John L. Slimm, Legal Malpractice Law – Defendants; Professional Malpractice Law – Defendants Roseland, NJ Robert T. Evers, Medical Malpractice Law - Defendants Justin F. Johnson, Medical Malpractice Law - Defendants Julia Klubenspies, Medical Malpractice Law - Defendants Leonard C. Leicht, Personal Injury Litigation - Defendants Patricia M. McDonagh, Appellate Practice Sunny Sparano, Litigation - Construction Randall S. Watts, Health Care Law New York, NY Tonya M. Lindsey, Medical Malpractice Law - Defendants Tampa, FL Michael Archibald, Personal Injury Litigation - Defendants Lindsay G. McCormick, Litigation – Construction Orlando, FL Thomas F. Brown, Personal Injury Litigation - Defendants Dante C. Rohr, Commercial Litigation Fort Lauderdale, FL Kimberly Kanoff Berman, Appellate Practice Patrick M. Delong, Personal Injury Litigation – Defendants Jacksonville, FL  Heather Byrer Carbone, Workers' Compensation Law - Employers Linda Wagner Farrell, Workers' Compensation Law - Employers Elizabeth B. Ferguson, Litigation - Construction James P. Hanratty, Personal Injury Litigation – Defendants Wilmington, DE Sarah B. Cole, Litigation - Insurance Benjamin K. Durstein, Workers' Compensation Law - Employers Maria R. Granaudo, Medical Malpractice Law - Defendants  Keri L. Morris-Johnston, Workers' Compensation Law - Employers Cincinnati, OH Timothy B. Schenkel, Personal Injury Litigation - Defendants David E. Williamson, Personal Injury Litigation - Defendants Cleveland, OH Vincent E. Cononico, Litigation – Insurance, Personal Injury Litigation - Defendants Jillian L. Dinehart, Personal Injury Litigation - Defendants David J. Fagnilli, Insurance Law Jason P. Ferrante, Health Care Law, Litigation - Health Care Andrew H. Isakoff, Transportation Law Leslie M. Jenny, Litigation - Health Care; Medical Malpractice Law – Defendant OUR 2026 BEST LAWYERS: ONES TO WATCH Jacksonville, FL Sean J. Reeves, Personal Injury Litigation – Defendants; Product Liability Litigation - Defendants Orlando, FL Carolin A. Pacheco, Insurance Law Mount Laurel Stacey Gorin, Insurance Law Melville, NY Kimberly Gitlin, Personal Injury Litigation – Defendants Matthew A. Gray, Insurance Law; Personal Injury Litigation - Defendants Philadelphia, PA Holli K. Archer, Health Care Law; Medical Malpractice Law – Defendants; Professional Malpractice Law Emily Pritchyk, Commercial Litigation; Product Liability Litigation – Defendants Pittsburgh, PA Taylor E. Kosko, Mass Tort Litigation / Class Actions – Defendants; Personal Injury Litigation - Defendants Alana Staniszewski, Workers' Compensation Law - Employers Michael D. Winsko, Product Liability Litigation – Defendants; Transportation Law King of Prussia, PA Richard Lechette, Commercial Litigation; Insurance Law, Personal Injury Litigation – Defendants

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

The Ohio Supreme Court Extends Sham-Affidavit Rule to Contradictory Expert Reports

Legal Roundup: Ohio In its June 23, 2026, decision in Moore v. Mercy Medical Center, the Ohio Supreme Court upheld a trial court’s decision to strike an expert witness’s affidavit that contradicted the opinions expressed in the expert’s prior report. This case pertains to allegations of medical malpractice after plaintiff Cheri Moore gave birth to an infant in respiratory distress who required intubation. Moore alleged that a delay in ordering an emergency cesarean section resulted in the need for intubation, causing her child’s injuries. Specifically, Moore sued Dr. Meniru, who completed his first shift at 7:00 a.m. on May 28, 2015, and did not resume treating Moore until 7:00 a.m. on May 29, 2015. One of Moore’s expert witnesses authored a report stating that the doctors, including Dr. Meniru, deviated from the standard of care by not advocating for a cesarean section in the evening of May 28, 2015. Based on this report, Dr. Meniru moved for summary judgment, arguing that the alleged breach occurred during a period when he was not on duty. In response to the summary judgment motion, the plaintiff filed an affidavit from the same expert. Although the expert expressly incorporated his previous report into his affidavit, he also offered an additional opinion: that Dr. Meniru breached the standard of care by failing to begin a cesarean section within 30 minutes of receiving reports of fetal distress. Dr. Meniru filed a motion to strike the expert’s affidavit, arguing that it contradicted the opinions set forth in his prior report in violation of the sham-affidavit rule. The sham-affidavit rule applies to “a contradictory affidavit that indicates only that the affiant cannot maintain a consistent story, or is willing to offer a statement solely for the purpose of defeating summary judgment”. Moore, supra, at ¶ 19, citing Pettiford v. Aggarwal, 126 Ohio St.3d 413, 2010-Ohio-3237. The trial court granted both the motion to strike and the motion for summary judgment, and the Fifth District affirmed. The Ohio Supreme Court accepted two questions of law: (1) whether the sham-affidavit rule applies when the sworn testimony contradicts prior unsworn statements; and (2) whether an inconsistency within the affidavit goes to credibility or admissibility, justifying an order striking the affidavit. Previous rulings by the Ohio Supreme Court regarding the sham-affidavit rule have pertained to contradictions between an affidavit and sworn deposition testimony. See, e.g., Byrd v. Smith, 2006- Ohio-3455, 110 Ohio St.3d 24, 850 N.E.2d 47. However, here, the Court was asked to apply the same rule to contradictions between a sworn affidavit and an unsworn expert report. The Court held that, because Moore’s expert incorporated his prior report into his affidavit, he effectively adopted the report as part of his sworn testimony.