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Appellate Division Holds That Division Of Workers’ Compensation Has Jurisdiction To Decide Coverage Issue

Robert Tutela is a member of Earthworks Limited Liability Company and also one of its employees. Earthworks is in the business of landscape construction. In 2008 Earthworks through Tutela filed an application with Sentinel Insurance Company for workers’ compensation coverage. Representations were made that Earthworks hired independent contractors to perform tree work and that all of the Earthworks employees performed their work at ground level. Based on additional representations by Tutela, Sentinel issued a workers’ compensation policy to Earthworks.

In June 2008 Earthworks contracted with Daystar-USM Exterior Services to remove 50 dead oak trees from a building site in Toms River. Tutela himself was seriously injured on June 27, 2008, falling from a bucket truck while he was pruning trees 35 feet off the ground.

Tutela brought a workers’ compensation claim and Sentinel disclaimed coverage “due to material misrepresentations made by the claimant himself as a member of the insured entity.” Sentinel then filed a declaratory judgment claim in civil court seeking rescission of the policy because Sentinel said it would never have issued the policy but for Tutela’s misrepresentations.

Meanwhile in the workers’ compensation action, the judge of compensation ruled for Tutela and ordered Sentinel to pay medical and temporary disability benefits. The judge said that Sentinel could reserve its rights for reimbursement in the civil action. The Uninsured Employers’ Fund, which was also a party to this claim, brought a motion to dismiss the civil action on the ground that the judge of compensation could determine whether Sentinel had to provide coverage.

On September 16, 2008, the judge of compensation ruled that the policy was valid under the Workers’ Compensation Act but also suggested that it did not have jurisdiction to void the policy on the basis of misrepresentations.

The issue on appeal was simply whether a judge of compensation has the power to hear an issue regarding the validity of an insurance policy and the voiding of a policy. Sentinel did not believe the judge of compensation had such power, while Tutela argued that the judge of compensation did have this power. The Appellate Division cited a 1968 New Jersey Supreme Court case which suggested that a judge of compensation had power to pass on issues of coverage. The Appellate Division agreed with the reasoning of Professor Arthur Larson, Larson’s Workers’ Compensation Law § 15004 (2010).

The general rule appears to be that, when it is ancillary to the determination of the employee’s right, the compensation commission has authority to pass upon a question relating to the insurance policy, including fraud in procurement, mistake of the parties, reformation of the policy, cancellation, existence or validity of an insurance contract, coverage of the policy at the time of injury, and construction of extent of coverage.

Based on this analysis, the Appellate Division held that it was proper to transfer the issue of Sentinel’s right to rescission to the judge of compensation. The court did not hold that the Law Division did not have such power but rather that it made more sense to vest both the compensation claim and coverage claim in one forum, namely the Division of Workers’ Compensation. The court, therefore, reversed the judge of compensation’s ruling declining to consider the rescission issue.

One of the key points in this case that the Appellate Division made was that Tutela was both a member of the Earthworks Limited Liability company and the injured employee. On the subject of rescission based on misrepresentation, the court distinguished another case which involved a claimant who had no role whatsoever in obtaining the policy which was the subject of rescission.

This is a reported case and is important because it takes an expansive view of the powers of judges of compensation. The case makes sense because it promotes judicial economy and recognizes the expertise of judges of compensation. The case can be found at Sentinel Insurance Company Ltd., v. Earthworks Landscape Construction, LLC and Robert Tutela, A-0748-10T1 (App. Div. August 16, 2011).

Visit John H. Geaney’s Blog page at NJworkerscompblog.com

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