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Scaglione v. St. Paul Mercury Indemnity Co.

Decided: October 20, 1958.


On certified appeal from the Appellate Division of the Superior Court.

For reversal -- Chief Justice Weintraub, and Justices Heher, Wachenfeld, Burling, Jacobs, Francis and Proctor. For affirmance -- None. The opinion of the court was delivered by Heher, J.


[28 NJ Page 90] In this action at law to enforce an award of compensation under R.S. 34:15-7 et seq. against the employer's insurer, as provided by R.S. 34:15-86, the Appellate Division of the Superior Court reversed a judgment for the plaintiff, 46 N.J. Super. 363 (App. Div. 1957), as coram non judice for want of due service of the petition for compensation by the Division of Workmen's Compensation

according to R.S. 34:15-52. It was found that while one Sidney Kosloy, upon whom as "manager" of the employer service of the petition was made on January 22, 1954, and of an amended petition on October 14 ensuing, "was an agent of the partnership [employer] until its dissolution in June 1953," he "was not in the employ of the partnership after June 1953"; he was not "a managing or general agent of the partnership after June 1953, because the partnership was dissolved and the partnership business was terminated in June 1953," and "[h]e had nothing to do with the partnership after that date." We certified the cause for appeal.

There is every reason to believe, as we shall see, that Kosloy informed the defendant insurer of the service of process so made upon him, as the representative of the employer. At all events, by letter forwarded May 17, 1954, the insurer made known to the Deputy Director of the New Jersey Department of Labor assigned to the Workmen's Compensation Division that "[W]e went off the compensation on this risk on April 1, 1953, which was nine days before the alleged occurrence," and "We, therefore, will have no interest in the hearing of this case which is set down for May 26, 1954." The case was identified thus in the letter: "Insured -- George Coat Company; Claimant -- Rose Scaglione; Accident -- 4/10/53." And on that very day, plaintiff's attorney advised the partnership employer, by letter, that the insurer had denied policy coverage and that there would be a hearing of the petition in the Compensation Division at a given address in Paterson on May 26, 1954, when the plaintiff would proceed "notwithstanding the lack of appearance on behalf of the respondent."

Kosloy attended the hearing on the given day and "pursuant to information given by him" (this, according to testimony adduced from the sitting deputy director) the petition was amended to designate the respondents as "Joseph Pablo or Fablo, Benjamin Borowski and Joseph Deanin trading as George Coat Company," in lieu of "George Coat Company." And notations were made in the director's file

of "the name of the case, the amendment of the three persons trading as," and that "on May 26, 1954, Sidney Kosloy appeared on behalf of the respondent." The director then had before him the defendant insurer's letter of the prior May 17; and the proceeding was thereafter treated as a "no insurance case" which called for notice accordingly to the Attorney General should a later award of compensation remain unsatisfied.

The service made October 14, 1954 on Kosloy was of the petition as so amended. There was a final hearing and an award of compensation on April 22, 1955. The defendant insurer persisted in its denial of coverage. On November 17, 1955 it wrote to plaintiff's attorney that the employers' policy "expired on April 1, 1953, and was not renewed." This, notwithstanding advices transmitted by its local agency, Alfred C. Sinn, Inc., directly to the partnership, by letter of May 7, 1953, that the defendant insurer's policy coverage "expires (sic) on April 1, 1953," but "We have been covering you on binder since that date," and "effective May 17, 1953 your compensation coverage will no longer be effective," and "arrangements for other coverage" will be necessary.

The result was notice of the employers' default to the Attorney General and the indictment of the partners for failure to carry compensation insurance. Thereupon, May 18, 1956, the defendant insurer advised the Attorney General, in reply to his inquiry, that "[u]nknown to the Company there was a binder that had not been reported to [it] in the file of Alfred C. Sinn, Inc., on the date of April 10, 1953"; "[t]his binder was cancelled flat for the reason there was no payment of premium and because of the fact that the defendant did not operate after April 1, 1953"; "[u]nknown to [it] and without any notice, Rose Scaglione brought an action against the George Coat Company after the date of a bankruptcy or insolvency of that company"; "[t]he first knowledge [it, the defendant] had of such litigation was long after the award had been made in the compensation court," an award "made without [its] knowledge"; the "Company feels that under the decision in

* * * Belanowitz v. Travelers Ins. Co., 123 N.J.L. 574 and other cases, this award * * * does not affect [it] and we are exerting every means known to us to have such award set aside and the case retried"; "[s]ince the company was not operating on that date and was in fact in insolvency there could be no employment of any employee on the date in question." This admission eventuated May 31, 1956, in the dismissal of the indictment.

Acknowledging the subsistence of the binder coverage until its cancellation May 16, 1953 for default in the payment of the premium, the answer herein interposes these defenses: (a) plaintiff "failed to give to the defendant due notice of the proceedings involved in this case and proceeded to the trial of the issues well knowing that the defendant was entitled to such notice so as to proceed to a defense of the issues involved in the case"; (b) "the defendant was not properly brought into court" in the compensation action and "notice of such proceedings were withheld from the defendant until such time had elapsed that a timely appeal could not be taken to such proceedings"; and (c) the Compensation Division "did not acquire jurisdiction of the defendant in this case and the proceedings were had so as to deprive the defendant of a right to appear and defend its rights before the court": all this, notwithstanding its letter of May 17, 1954 to the Compensation Division, before the hearing of the petition.


It was contended on the oral argument here that the insurer's refusal to defend the compensation proceeding was due to an honest belief that the policy had expired on April 1, 1953; that the insurance coverage was not discovered until after the entry of the compensation judgment, and thereafter unsuccessful attempts were made to persuade the plaintiff to reopen its judgment in the Division to permit a contest on the merits and so it became necessary to proceed with the attack on the jurisdiction of the Division;

and it would abandon its attack on the validity of the service of process were it afforded an opportunity to defend as to substantive right: and we concluded, 26 N.J. 225 (1958), to hold the appeal "without decision" in order to enable the defendant insurer to apply to the Division for the reopening of the judgment entered there and a "plenary trial of that case," the sole issue on the application to be "the good faith of the defendant in denying the existence of insurance coverage"; and if the deputy director "decides that issue in favor of the insurer, the judgment shall be reopened and the claim for compensation shall be fully tried, unless he concludes also that by reason of passage of time the plaintiff has been prejudiced so substantially because of loss of witnesses, records and the like, as to be unable to present her claim for compensation on the merits," the insurer, by its own concession, to pay reasonable counsel fees and expenses for all work done in this action, should the judgment be reopened.

The findings of fact and conclusions reported by Deputy Director Umberger, May 29, 1958, follow: on the motion to reopen the award and rule for judgment heard April 21, 1958 and May 16 following, the "attorney for the employer, who is also attorney for defendant" insurer, "called no witnesses and offered no evidence," but "relied solely on the affidavits annexed to his Notice of Motion"; the plaintiff "subpoenaed the carrier and its agent, A. C. Sinn Agency, together with certain books and records of each"; plaintiff demanded the appearance of certain witnesses, Franz, Sinn and Dowd, at the adjourned hearing held May 16, but these witnesses "were not present when called"; the insurer did not disclose until April 3, 1958 that "it had in force on the accident date, April 10, 1953, a general liability policy which had expired on April 1st, 1953, and which had been extended on binder coverage to May 16, 1953, nor did it ...

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