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Morella v. Grand Union

March 21, 2007


On appeal from the New Jersey Department of Labor and Workforce Development, Division of Workers' Compensation, Docket No. C.P. 92-39045.

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



Argued November 8, 2006

Before Judges Axelrad, R. B. Coleman and Gilroy.

Respondent, New Jersey Self-Insurers Guaranty Association (Association),*fn1 appeals from the July 20, 2005, decision and order of the Division of Workers' Compensation (Division), directing the Association to pay petitioner Patricia Morella's prescription expenses pursuant to the December 11, 1998 order approving settlement. The primary question presented on appeal is whether a petitioner, whose injury occurs before the employer's insolvency, is required to file a proof of claim in the employer's bankruptcy proceeding before qualifying for compensation payments under N.J.S.A. 34:15-120.18a. Because we conclude that the statute creates two classes of claimants, those injured before and those injured after the employer's insolvency, and that the requirement of filing a proof of claim only applies to the latter, we affirm.

On January 26, 1991, petitioner injured herself while in the course and scope of her employment with Grand Union, a self-insured employer for workers' compensation claims, N.J.S.A. 34:15-77*fn2 . On August 4, 1992, petitioner filed her claim petition alleging orthopedic, neurological, psychiatric and internal injuries. On June 30, 1997, petitioner filed an amended petition to join the Second Injury Fund, pursuant to N.J.S.A. 34:15-95. After commencement of trial, petitioner and Grand Union entered into a consent order approving settlement. Petitioner and the Second Injury Fund also entered into a consent order entitling petitioner to Second Injury Fund benefits. On December 11, 1998, the Division entered an order approving a settlement declaring petitioner totally and permanently disabled and assessing 65% of petitioner's total disability against Grand Union. The order also determined Grand Union liable for $1,355.01 in prescription costs and for future monthly prescription costs of approximately $220 per month. On June 8, 1999, the Division entered a decision determining petitioner eligible for Second Injury Fund benefits.

In the interim, on June 24, 1998, Grand Union filed a Chapter 11 bankruptcy petition. Petitioner never received notice of the need to file a proof of claim in the bankruptcy action. However, petitioner did learn of the proceeding from Grand Union's attorney who had informed her counsel that it was not necessary to file a proof of claim in the bankruptcy action "because respondent was self-insured and had a bond." As such, the order approving settlement of December 11, 1998, was entered without petitioner seeking relief from the automatic stay of the bankruptcy court, and Grand Union continued making total disability payments until August 7, 1999. On October 2, 2000, Grand Union filed a second Chapter 11 bankruptcy petition, and its first petition was dismissed. Petitioner did not receive notice of the second bankruptcy petition. On October 8, 2002, an order was entered in the bankruptcy action confirming Grand Union's Chapter 11 Plan of Liquidation. Article 4, section 4.4, of the Plan provided that unsecured creditors, which include workers' compensation claimants, "will not receive any distributions on account of such Claims."

Following the entry of the order approving settlement on December 11, 1998, petitioner received her total disability payments from Grand Union and the Second Injury Fund. However, she did not receive any reimbursements for prescriptions, as required by the order. On February 7, 2003, petitioner filed a motion to compel Grand Union to pay her prescription costs under the order of settlement. Grand Union, through its surety, paid the monthly prescription costs from March 2003 through November 2003. In or about November 2003, Grand Union's bond was exhausted, and the surety ceased paying petitioner's monthly prescription expenses. In January 2004, as a result of Grand Union's insolvency and the exhaustion of its workers' compensation bond, counsel for the employer was relieved, and the case was placed on the Division's list to be handled by the Association.

On June 3, 2004, petitioner filed a claim with the Association. On June 21, 2004, the Association denied the claim. On April 20, 2005, petitioner moved to compel payment of her prescription costs against the Association, asserting that at no time prior to January 2, 2004, did Grand Union indicate that its bankruptcy would affect petitioner's ability to secure workers' compensation benefits, or that petitioner was required to file a proof of claim in the bankruptcy action. Petitioner contended that she had accumulated $15,835.41 in prescription costs in addition to the unpaid $1,355.01, which Grand Union had been directed to pay under the order of settlement. The Association opposed the motion, asserting that the Division lacked jurisdiction to adjudicate the claim, and in the alternative, that an employee injured prior to the employer's bankruptcy was required by N.J.S.A. 34:15-120.18a to file a proof of claim with the bankruptcy court as a condition precedent to receipt of compensation payments from the Association.

On July 20, 2005, Compensation Judge Karch entered a decision and order determining that petitioner was entitled to payments for past and future prescription expenses relating to her accident. The Compensation Judge determined that the Association was required to reimburse petitioner the $1,355.01, as directed in the order of settlement of December 11, 1998, and entered judgment accordingly. Because the judge was unable to determine from the proofs presented which post-judgment prescription expenses were related to petitioner's compensable condition, she directed that the Association's liability for such expenses would be determined at a future hearing.*fn3 On August 24, 2005, Compensation Judge Karch entered an order staying the July 20, 2005 decision and order pending appeal.

On appeal, the Association argues that: 1) the Division lacked subject matter jurisdiction to determine whether the Association had improperly denied payment under N.J.S.A. 34:15-120.18a; and 2) the Division erroneously interpreted the statute by not requiring petitioner to have filed a proof of claim in the bankruptcy proceeding before receiving payments under the statute.

The Association argues that the Division lacked subject matter jurisdiction to determine whether it had properly denied petitioner's claim. The Association contends that only the Superior Court possesses subject matter jurisdiction over the Association's determination. We disagree.

N.J.S.A. 34:15-49a provides in pertinent part that "[t]he Division of Workers' Compensation shall have the exclusive original jurisdiction of all claims for workers' compensation benefits under this chapter." Generally, the Division concerns itself with issues of compensability, or benefits to which an employee may be entitled "for personal injuries to, or for the death of, such employee by accident arising out of and in the course of [his or her] employment." N.J.S.A. 34:15-7 and -49. However, the Division also has "such jurisdiction 'as is by fair implication incident to the ...

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