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In re Pathmark Stores

February 20, 2004

IN THE MATTER OF: PATHMARK STORES, INC. AND PLAINBRIDGE, LLC


On appeal from the New Jersey Department of Banking and Insurance.

Before Judges Skillman, Coburn and Fisher.

The opinion of the court was delivered by: Skillman, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 2, 2003

This appeal involves interpretation of the provision in the Employers' Liability Insurance Law, N.J.S.A. 34:15-70 to -93, which allows an employer that can demonstrate the financial capacity to pay workers' compensation benefits to obtain an exemption from the obligation to insure this liability.

Appellant Pathmark Stores, Inc. and Plainbridge, LLC (Pathmark) own and operate more than one hundred supermarkets in Delaware, New Jersey, New York and Pennsylvania. In 1979, respondent Department of Banking and Insurance granted Pathmark's application for an exemption under N.J.S.A. 34:15-77 from the obligation to insure its liabilities for workers' compensation benefits. The Department granted renewals of this exemption every year until 2002.

In early 2002, the Department received an application from PTMK Corp., a subsidiary of Pathmark, for an initial exemption from the obligation to insure workers' compensation benefits. This application triggered an examination by the Department of Pathmark's financial condition. As part of this examination, the Department obtained a risk assessment report from Dun & Bradstreet concerning Pathmark and its subsidiaries. This report concluded that Pathmark no longer has the financial capacity to self-insure its liabilities for workers' compensation benefits. Based on the Dun & Bradstreet report, the Department denied PTMK's application for an exemption from the obligation to insure its liabilities for workers' compensation benefits and also denied Pathmark's application for a renewal of its exemption.

After receiving notice of this agency action, Pathmark sought and was granted an opportunity to review the Dun & Bradstreet report and an extension of the effective date of the non-renewal of its exemption until September 30, 2002.

On July 15, 2002, Pathmark requested the Department to reconsider its decision to deny renewal of Pathmark's exemption. This request was supported by a report prepared by the investment banking firm of Houlihan, Lokey, Howard & Zukin, which concluded that Pathmark had the financial capacity to self-insure its liabilities for workers' compensation benefits. The Houlihan, Lokey report also strongly criticized Dun & Bradstreet's analysis of Pathmark's financial condition. The Department subsequently obtained a supplemental report from Dun & Bradstreet, which disagreed with the analysis and conclusions in the Houlihan, Lokey report and reaffirmed Dun & Bradstreet's conclusion that Pathmark does not have the financial capacity to self-insure.

On November 15, 2002, an Assistant Commissioner in the Department sent Pathmark a letter which stated that the Department was reaffirming its decision to deny Pathmark's application for renewal of its exemption. Pathmark filed a notice of appeal from this letter. The Commissioner granted Pathmark's application for a stay pending the outcome of the appeal.

Pathmark argues that (1) the Department violated its own regulations in denying Pathmark's application for renewal of its exemption from the obligation to insure workers' compensation benefits; (2) the Department's finding that Pathmark no longer has the financial capacity to self-insure workers' compensation benefits was not supported by substantial evidence; and (3) the Department's failure to consider whether Pathmark could provide adequate assurance of its payment of workers' compensation benefits by increasing the amount of its surety bond for such benefits violated N.J.S.A. 34:15-77. We conclude that the Department acted in accordance with the governing administrative regulations in finding that Pathmark no longer has the financial capacity to self-insure and that the Department's finding was supported by substantial evidence. However, the Department's failure to consider whether Pathmark could provide adequate assurance of its payment of workers' compensation benefits by increasing the amount of its surety bond violated N.J.S.A. 34:15-77.

I.

N.J.S.A. 34:15-77 authorizes the Department to grant an exemption from the obligation to obtain insurance for workers' compensation benefits to an employer that can demonstrate adequate financial capacity to self-insure:

Any employer desiring to carry his own liability insurance may make application to the Commissioner of Insurance showing his financial ability to pay compensation. The commissioner, if satisfied of the applicant's financial ability and the permanence of his business, shall by written order exempt the ...


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