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


Employer Properly Fired Employee For FMLA Abuse

Erik Tillman worked as a Communications Specialist for Ohio Bell Telephone. His work required him to fill customer orders for phone and internet services and do maintenance work, including lifting up to 100 pounds and climbing ladders. He was frequently required to work nights and weekends due to his low seniority within the union. He took FMLA leave several times for his back condition and for depression.

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No FMLA Violation Where Walgreens Fired Employee With Honest Belief That He Violated Company Policy

Michael Clark worked for Walgreens as the manager of its retail store in Dyersburg, Tennessee. He took a medical leave of absence from December 8, 2006 to January 2, 2007 for a heart condition. After his leave, Clark returned to the same position he held before his leave of absence. Some time later Clark contacted his District Secretary and requested an additional leave of absence.

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Judge Of Compensation After Full Trial Finds Medical Provider Was Properly Compensated In Burn Claim

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The Impact of Illegal Activities and Working While Incarcerated On Suitable Alternate Employment and Section 8(j) Forfeiture

In the matter of Young v. Newport New Shipbuilding and Dry Dock Company, the Benefits Review Board (BRB) addressed the impact of the claimant’s illegal activity and incarceration upon suitable alternate employment and Section 8(j) forfeiture. The BRB also addressed issues of credibility, causation and appropriateness of the Administrative Law Judge’s finding for scheduled disability where permanent total disability was at issue.

This matter stems from a claim under the Longshore Harbor Workers Compensation Act.

The underlying facts are that the claimant initially injured the right knee on August 17, 1983 while working as a chipper. He also injured the left knee on November 87, 1983 while working. At the original hearing it was determined that the employer failed to establish the availability of suitable alternate employment and the claimant was awarded permanent total disability benefits. The employer sought Section 8(f) relief. A hearing was scheduled for July 24, 2000 but the claimant was incarcerated and could not participate in the hearing. The claimant’s benefits were stayed pending his release. The claimant was released on January 6, 2004.

The stay was lifted by the Administrative Law Judge (ALJ) at the October 14, 2009 hearing. The employer argued that the claimant was not credible based upon his conviction and inconsistent statements during his deposition and the criminal plea hearing. The ALJ found that while the claimant was not credible as to truthfulness of the criminal activities, this id not detract from his credibility regarding his complaints to the knees over the past 25 years. The ALJ also gave greater weight to the opinion of the treating doctor, Dr. Stiles, over that of the employer’s expert in finding the symptoms related to the work accidents and in finding the claimant permanently disabled.

The employer also argued that the claimant’s illegal activities, maintenance work while incarcerated and singing at funerals established suitable alternate employment. The ALJ rejected these activities as constituting suitable alternate employment as not available on the open job market. The ALJ did find that the employer established suitable alternate employment based upon 10 jobs produced by the employer’s labor market survey as of July 2, 2007. The ALJ found that the claimant failed to established diligence in searching for employment. He awarded permanent total disability benefits for the period of August 17, 2000 to July 1, 2007. The ALJ further determined as there was suitable alternate employment, the claimant had a 10% impairment of the right leg and 15% impairment of the left leg based upon the opinion of the shipyard physician in 1985.

The ALJ also addressed the Section 8(j) forfeiture argument by the employer. Section 8(j) states:

The employer may inform a disabled employee of his obligation to report to the employer not less than semiannually any earnings from employment or self-employment, on such forms as the Secretary shall specify in regulations.

(2) An employee who –

(A) fails to report the employee’s earnings under paragraph (1) when requested, or

B) knowingly and willfully omits or understates any part of such earnings, and who is determined by the deputy commissioner to have violated clause (A) or (B) of this paragraph, forfeits his right to compensation with respect to any period during which the employee was required to file such report.

(3) Compensation forfeited under this subsection, if already paid, shall be recovered by a deduction from the compensation payable to the employee in any amount and on such schedule as determined by the deputy commissioner.

The ALJ found the any “income” due to the claimant’s criminal activity was not required to be reported on the LS-200 “Report of Earnings” as such income is not “earnings from employment or self-employment.” He further found that there was no proof that the claimant was working as a maintenance worker during his incarceration for the period requested on the LS-200. He found no benefits subject to forfeiture.

The employer appealed the decision of the ALJ based upon the following: (1) the claimant was not credible; (2) causation issues of the continuing knee complaints and the ALJ’s improper reliance on the opinion of the treating doctor; (3) the availability of suitable alternate employment prior to 2007 and diligence by the claimant on the initial award; (4) award of scheduled disability; and (5) the ALJ’s finding that illegal activity need not be reported was in error.

The BRB affirmed the ALJ as to 1) finding the claimant credible; 2) causally relating the continuing complaints of the knees to the original accidents and giving greater reliance to the opinion of the treating doctor; and 3) the award of the scheduled disabilities. As to the credibility issues, the BRB noted:

Contrary to employer’s assertions, the fact of a criminal conviction does not negate a claimant’s right to benefits or require an administrative law judge to discredit the claimant’s testimony in its entirety. Rather, evidence of a conviction may be submitted, as it was here, to attack the credibility of a witness. 29 C.F.R. §18.609; see also Fed. R. Evid. Rule 609. The regulation does not mandate that the administrative law judge make any particular credibility finding. Therefore, as in all cases under the Act, the administrative law judge has the authority to make credibility determinations, and it is solely within his discretion to accept or reject all or any part of any testimony according to his judgment.

The BRB also affirmed in finding that the illegal activities and maintenance work during the claimant’s incarceration did not constitute suitable alternate employment. However the BRB reversed the ALJ’s decision that earnings from illegal activities need not be reported on the LS-200.

In affirming that the illegal activities did not constitute suitable alternate employment, the BRB referenced Licor v. Washington Metropolitan Area Transit Authority, 879 F.2d 901, 22 BRBS 90(CRT) (D.C. Cir. 1989). The ALJ also relied on this decision.

In Licor v. Washington Metropolitan Area Transit Authority, the claimant injured his back and was awarded temporary total disability benefits until December 1980, at which time a wage-earning capacity evidenced. The ALJ concluded that the claimant had no loss of wage-earning capacity and denied further benefits. Licor had been incarcerated from 1979 to 1980 and had lied that he was making $21,000 on a loan application. The United States Court of Appeals for the D.C. Circuit vacated the denial of benefits and remanded the case. The court held:

The court stated that the administrative law judge erred by not addressing the claimant’s wage-earning capacity based on jobs he could have obtained on the open market, holding that any illegal income the claimant may have earned is not an appropriate basis for determining wage-earning capacity.

The BRB in Young determined that the ALJ properly found that the employer failed to establish suitable alternative employment prior to 2007. The BRB held:

In light of Licor, it was proper for the administrative law judge to determine that any illegal income claimant earned is not indicative of suitable alternate employment available on the open labor market. Further, employer has not established that the maintenance work claimant performed in prison was available on the open market prior to July 2007, or that the singing jobs are sufficiently regular and continuous to establish a wage-earning capacity.

As to the reporting of earnings from illegal activity on the LS-200 the BRB diverged from the ALJ’s reasoning. The BRB looked to 20 C.F.R. §702.285(b) for the definition of earnings. 20 C.F.R. §702.285(b) states in pertinent part, “’earnings’ is defined as all monies received from any employment and includes but is not limited to wages, salaries, tips, sales commissions, fees for services provided, piecework and all revenue received from self-employment.” The BRB noted that the definition was not all inclusive and did not exclude illegal earnings. Based upon the plain language of the regulation, the BRB determined illegal earnings are required to be reported for Section 8(j) purposes. If not reported, benefits are then subject to forfeiture.

Based upon Young, engaging in criminal activity does not satisfy suitable alternate employment as this is clearly outside the open labor market. However, it does allow for the forfeiture of benefits should the claimant not report same upon a Section 8(j) request. Requesting a LS-200 form routinely from disabled claimants is an important tool.

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