Liberty Insurance v. Techdan, LLC, (A-52-21) (086219), decided on February 15, 2023, is a case that practitioners, employers, third party administrators and insurance carriers should be aware of. It is the only New Jersey Supreme Court case which provides a comprehensive analysis of the New Jersey Insurance Fraud Prevention Act (IFPA) and the New Jersey Workers’ Compensation Fraud Act.
The main allegation in the case filed by Liberty Insurance was that Techdan, LLC and Exterior Erecting Services, Inc. misrepresented the relationship between their two companies and provided fraudulent payroll records in order to lower their workers’ compensation premiums. Techdan was indicted for second degree theft by deception, and one of the company’s principals entered a guilty plea on Techdan’s behalf.
The fraud took place many years ago. Liberty Insurance issued a workers’ compensation policy to Techdan from March 12, 2004 to March 12, 2007. During its underwriting and audit process, Liberty alleged that the defendant companies misrepresented their relationship between Techdan and Exterior and provided Liberty’s auditors with fraudulent payroll records in order to reduce the premiums charged by Liberty Insurance.
After the criminal matter resolved with a plea agreement for second degree theft by deception, Liberty Insurance pursued a civil action under the IFPA and under the NJ Workers’ Compensation Fraud Act. Liberty Insurance argued that the Court should pierce Techdan’s corporate veil and Exterior’s limited liability company veil to impose personal liability on the officers and directors of the companies.
The trial court ultimately found that all defendants should be jointly and severally liable for treble damages under the IFPA. The result was that an award of $756,990 was trebled to $2,270.970, as the IFPA (unlike the New Jersey Workers’ Compensation Fraud Act) provides for treble damages. The trial court also entered judgment for trebled attorney fees in the amount of $2,768,018. Costs were also trebled in the amount of $290,048.
In the Supreme Court opinion, several aspects of the decision were appealed, one of which was whether joint and several liability should apply under the New Jersey Comparative Liability Law. Those aspects of the case are not relevant to the focus of this blog and will not be addressed here. Suffice to say that the Supreme Court found that the trial court should have charged the jury to allocate percentages of fault among the various defendants.
The two fraud acts have different primary emphasis but one key area of overlap. The Insurance Fraud Prevention Act found at N.J.S.A. 17:33A, focuses on alleged fraudulent written and oral statements made by businesses to obtain a policy of insurance or in connection with a claim made to the Unsatisfied Claim and Judgment Fund.
The New Jersey Workers’ Compensation Fraud Act, found at N.J.S.A. 34:15-57.4, focuses mostly on an individual’s false or misleading statements concerning any fact that is material to a claim for workers’ compensation benefits for the purpose of wrongfully obtaining those benefits.
The area of overlap involves the kind of fraud alleged in Liberty Insurance. Both laws prohibit misclassification of employees for the purpose of evading the full payment of benefits or premiums under the New Jersey laws.
It is interesting to compare the two laws in terms of remedies. Both allow civil actions, but the New Jersey Workers’ Compensation Fraud Act allows the Judge of Compensation to make findings on fraud, order the dismissal of a case or a particular claim for fraud, and order repayment of benefits plus simple interest. The IFPA provides for treble damages to the prevailing party but treble damages are not available in the NJ Workers’ Compensation Fraud Act. Both the IFPA and the NJ Workers’ Compensation Fraud Act provide for an award of reasonable costs and attorney fees to the prevailing party.
The New Jersey Workers’ Compensation Fraud Act states in Section 34:15-57.4 b. “Any person who wrongfully obtains benefits or evades the full payment of benefits or premiums by means of a violation of the provisions of subsection a. of this section shall be civilly liable to any person injured by the violation for damages and all reasonable costs and attorney fees of the injured person.”
The Workers’ Compensation Fraud Act also adds that if a person receives benefits “to which the person is not entitled, he is liable to repay that sum plus simple interest to the employer or carrier or have the sum plus simple interest deducted from future benefits payable to that person, and the division shall issue an order providing for the repayment or deduction.”
The burden of proof in a fraud case brought by an employer, third party administrator or carrier is on the moving party. When an employer brings a motion for a potential finding of fraud under the New Jersey Workers’ Compensation Fraud Act, there are two key elements of proof: 1) proof of a false or material misrepresentation, statement or submission concerning a material fact; and 2) proof that the misrepresentation, false statement or submission was made for the purpose of wrongfully obtaining workers’ compensation benefits.
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