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GRANITE STATE INSURANCE COMPANY v. UJEX

July 11, 2005.

GRANITE STATE INSURANCE COMPANY, A MEMBER COMPANY OF AMERICAN INTERNATIONAL GROUP, INC., and AIG CLAIMS SERVICES, INC., a wholly owned subsidiary of American International Group, Inc., Plaintiffs,
v.
UJEX, INC., UJEX ENTERPRISES, INC., JUSTIN M. SCIARRA, AJAX, INC., AJAX ENTERPRISES, INC., AJEX, INC., STAFF AMERICA, INC., PAUL BROWN AGENCY, PAUL BROWN, HOMESTEAD ASSURANCE BROKERAGE, PAUL HOPKINS, AMERICA'S PEO, THE CURA GROUP, et al., Defendants.



The opinion of the court was delivered by: JEROME SIMANDLE, District Judge

OPINION

This matter comes before the Court upon the unopposed motion of Defendant Worldwide Labor Support of Illinois, Inc. ("Worldwide") to alter or amend this Court's February 7, 2005 Order, pursuant to Federal Rule of Civil Procedure 59(e) and Local Civil Rule 7.1(i). The issue presented at this time is whether the Court should decide Worldwide's previous motion for summary judgment. For the reasons discussed below, Defendant's motion to alter or amend this Court's prior Order will be granted and the reinstated unopposed motion for summary judgment of Defendant Worldwide will be granted as well.

  I. BACKGROUND

  A. Procedural History

  Plaintiffs initiated this case by Complaint dated March 12, 2003, which alleged that the Defendants conspired to defraud Granite State Insurance Company in connection with the procurement of workers' compensation insurance policies at significantly discounted premiums. Plaintiffs allege that this fraud was carried out by utilizing employment leasing companies as a vehicle to apply for workers' compensation coverage and then misrepresenting on insurance applications the class and number of employees hired as well as the estimated payroll.

  On May 25, 2004, Plaintiffs filed an Amended Complaint, which, in Count I, seeks a declaration that two workers' compensation policies of insurance that it issued to Defendants are void ab initio, as a result of Defendants' fraud.*fn1 The remaining counts of the Amended Complaint allege federal and state RICO violations, federal and state fraud claims, conspiracy claims, negligent misrepresentation, conversion, breach of fiduciary duty, and breach of contract against the various Defendants.

  Worldwide filed an Answer and Defenses to the Amended Complaint and a Counterclaim. Count I of Worldwide's Counterclaim alleges that Worldwide was an insured employer under insurance Policy No. 6742564 ("Policy"), and that Granite breached the insurance contract by refusing to pay any compensation or medical benefits, to or on behalf of, employees for whose benefit the Policy was issued ("Claimants") and by refusing to defend Worldwide against their claims. Count II of Worldwide's Counterclaim alleges that Worldwide and Claimants are third party beneficiaries of the Policy and, in that capacity as well, have been damaged by Granite's failure to defend or pay the claims made under the Policy.

  On November 23, 2004, Worldwide moved for summary judgment, seeking an order granting judgment in favor of Worldwide and against Plaintiffs as to Count I of the Amended Complaint; granting judgment as to liability in favor of Worldwide as to its Counterclaim and compelling Plaintiffs to provide insurance coverage to Worldwide and Claimants consistent with the terms of the Policy; and granting judgment in favor of Worldwide and against Plaintiffs as to Counts II through XII of the Amended Complaint. Although Plaintiffs' counsel requested a ten day extension of the time in which to respond to Worldwide's motion, which this Court granted counsel in early December 2004, that motion was ultimately unopposed.

  On February 7, 2005, this Court dismissed Plaintiffs' federal claims and declined to exercise jurisdiction over the remaining state law claims. The Court thereby dismissed Worldwide's summary judgment motion without discussing the merits, declining to exercise supplemental jurisdiction over the state law claims which were at issue therein.

  Subsequently, on February 16, 2005, Worldwide filed the instant motion to amend or alter the Court's Opinion and Order of February 7, 2005, urging the Court to recognize diversity jurisdiction over this claim and to decide the merits of the claim.

  B. Underlying Facts

  The Policy which is the subject of Worldwide's summary judgment motion (Policy No. 6742564) only afforded coverage for Worldwide's employees; it does not cover any of the employer Defendants in this action. Worldwide is a corporation of the State of Illinois and is in the business of providing skilled labor to its customers. (Declaration of Wayne Cook at ¶ 2.) Granite State is a corporation with a principal place of business in New Jersey, and is doing business in New Jersey. (Amended Compl. at ¶ 2.) AIG is a corporation with a principal place of business in New York, and is also doing business in New Jersey. (Amended Compl. at ¶ 3.)

  On August 6, 2001, Worldwide entered into a Service Agreement ("Service Agreement") with America's PEO, a professional employer organization, also known as an employee leasing company. (Id. at ¶ 34.) Pursuant to the terms of the Service Agreement, America's PEO agreed to supply persons to Worldwide to conduct its business. America's PEO was designated the employer of such personnel for all administrative purposes, and assumed responsibility on behalf of Worldwide for all obligations typically imposed on employers under the law. (Cook Decl., Ex. A.) Worldwide made all necessary payments to America's PEO under the Service Agreement. (Cook Decl. at ¶ 4.) The Service Agreement expressly obligation America's PEO to provide and maintain workers' compensation insurance coverage for the employees supplied to Worldwide, and to provide Worldwide with Certificates of Insurance evidencing the issuance of such policies of insurance. (Cook Dec., Ex. A at ¶ 2b.)

  Based on the nature of the work being performed by the employees supplied to Worldwide, it also was necessary for America's PEO to provide and maintain insurance coverage for claims under the United States Longshore and Harbor Workers' Compensation Act ("Act"). Specifically, certain employees covered under the Service Agreement were assigned by Worldwide to work at the Kvaerner Philadelphia Shipyard in Pennsylvania. (Cook Decl. at ¶ 5; Declaration of M. Karen Thompson, Ex D at #2, 7; America's PEO's Answer to Worldwide's Crossclaim at ¶ 11.) America's PEO contracted for the procurement of the required insurance coverage with Justin Sciarra. (Thompson Decl., Ex. D at #2.) On August 16, 2001, Justin Sciarra applied for insurance coverage under the name UJEX Enterprises, Inc. ("UJEX") on behalf of Worldwide. The policy application expressly stated that it was to cover employees leased for shipbuilding operations at Kvaerner Philadelphia Shipyard, and otherwise disclosed the nature of the risk. (Deposition of Susan Pinto at 63-64.)

  Susan Pinto, an underwriter employed by AIG, was the AIG representative who reviewed the application and decided to issue the policy. (Pinto Depo. at 9.) Granite could not identify any information on the application for insurance for the policy that was incorrect or false. (Id. at 110.) The worksite, job duties and job classification relating to the policy were accurately represented to Granite. (Id. at 66.) Pinto approved the issuance of the Policy, which provided coverage for claims under Pennsylvania's workers' compensation statute and under the Act. The Policy period was from August 22, 2001 to August 22, 2002. (Id. at 18-23; 27-28.) Granite admits that the policy application contained all of the necessary information to enable it to evaluate the risk, to set the initial premium and to determine whether to issue the Policy. (Id. at 41, 53, 63-66, 77-78.)

  In February 2002, and on various other dates, America's PEO provided certificates of insurance to Worldwide stating that the Policy had been issued by Granite to UJEX and America's PEO. The certificates listed Worldwide as an additional insured under the Policy. (Cook Decl. at ¶ 6 and Ex. B.) At some point prior to October 26, 2001, at Pinto's request, Granite assigned Safety Resources, LLC to conduct a physical investigation of the Kvaerner work site and compile a loss control survey report ("Report") to enable Granite to complete its risk assessment of the operation and collect underwriting information. (Pinto Depo. at 20, 56.)

  The Report, dated October 26, 2001, expressly noted Worldwide's role as hiring the skilled laborers who were contracted to work as shipbuilders at the shipyard. (Pinto Depo. at 70.) Through the Policy application or the Report prepared by Safety Resources, LLC, Granite was aware, or should have been aware of the following: (1) there was an employee leasing operation involved in the insured's business (Pinto Depo. at 41); (2) one of the covered locations was to be the Kvaerner ship building site at Broad Street, Philadelphia, Pennsylvania (Pinto Depo. at 53); (3) the workers to be covered under the Policy were going to work at the Kvaerner shipyard, performing shipbuilding operations (Pinto Depo. at 53, 63); and (4) Worldwide was supplying the labor for the worksite, including hiring and training the workers (Pinto Depo. at 77-78.)

  The fact that UJEX was listed as an insured on the Policy application did not have anything to do with how Granite estimated the degree or the character of the risk nor did it have anything to do with how Granite fixed the premiums. (Pinto Depo. at 63-64.) Moreover, the fact that UJEX was listed as an insured on the Policy application did not influence Pinto's judgment as an underwriter about whether or not to issue the Policy. (Id. at 64.) Granite admitted that the failure to include Worldwide as an ...


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