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Ajax Enterprises v. Fay

August 31, 2007

AJAX ENTERPRISES, AJAX ENTERPRISES, INC. AJEX ENTERPRISES, INC. UJEX ENTERPRISES, INC. Q-TOWN, INC. TJAX INVESTMENT CORP. PLAINTIFFS,
v.
DECLAN FAY, INDUSTRIAL INSURANCE AGENCY, AND JOHN DOES 1-100, DEFENDANTS,
DECLAN FAY, DEFENDANT/THIRD PARTY PLAINTIFF
v.
INSURANCE AGENCY CROSS CLAIM DEFENDANT
DALE FULLER, SAFETY ALLIANCE GROUP, AND INDUSTRIAL THIRD PARTY DEFENDANTS
INDUSTRIAL INSURANCE AGENCY DEFENDANT/THIRD PARTY PLAINTIFF
v.
DECLAN FAY CROSS CLAIM DEFENDANT
DALE FULLER, SAFETY ALLIANCE GROUP, ROBERT MITCHELL, PEO SOLUTIONS, AND RKM AGENCY THIRD PARTYDEFENDANTS



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

OPINION

I. INTRODUCTION

In response to this Court's Order and Opinion denying plaintiff Ajax Enterprises's motion for summary judgment, plaintiffs sought and were granted leave to file an amended complaint. Defendant and third-party plaintiff, Declan Fay, filed a motion for summary judgment to dismiss the amended complaint, or in the alternative, for partial summary judgment, which was joined and supplemented by defendant Industrial Insurance Agency ("Industrial"). Plaintiffs Ajax Enterprises, Ajax Enterprises, Inc. ("Ajax"),*fn1 Ajex Enterprises, Inc. ("Ajex"), Ujex Enterprises, Inc. ("Ujex"), Q-Town, Inc. ("Q-Town") and Tjax Investment Corp. ("Tjax")(collectively, "plaintiffs") filed an opposition and cross motion for summary judgment.

II. BACKGROUND

Plaintiffs are professional employer organizations ("PEO's") that operate in the State of New Jersey.*fn2 A PEO contracts with small businesses to "hire" the employees of the small business with the intent that they become employees of the PEO, and then leases the employees back to the small business. This arrangement permits small businesses to pay less for workers' compensation insurance than if they tried to obtain it on their own. In addition to contracting with the PEO to provide workers' compensation insurance, the small business is relieved from having to perform the tasks of payroll, benefits, and unemployment insurance.

Plaintiffs are businesses owned and operated independently by Justin Sciarra. Mr. Sciarra is an attorney and held a New Jersey insurance producer license from 1979 until 1993. He testified that he had difficulty in late 2001 and in 2002 securing workers' compensation insurance for his PEO businesses and eventually contacted Todd Hammond, a professional acquaintance who owned a PEO, about coverage. Defendant Industrial, an Illinois corporation, was the insurer for Mr. Hammond's PEO. It appears that Mr. Hammond spoke with someone at Industrial who in turn contacted defendant Declan Fay, a resident of Illinois. Fay spoke with Mr. Sciarra about Ajax's workers' compensation needs. Fay had conversations with third party defendant, Dale Fuller about Ajax. Fuller had a relationship with third party defendant Safety Alliance Group ("Safety Alliance").*fn3

On or about June 27, 2002, Fay contacted Mr. Sciarra and advised him that Safety Alliance would supply Ajax's workers' compensation coverage. On or about that same time, Ajex paid a $30,000 referral fee to Industrial, and $40,000 was wired to a bank account in the name of Safety Alliance.

In July 2002, Mr. Sciarra flew to Chicago, Illinois for a lunch meeting with Fay, John Rodney and Mel Rodney (principals of Industrial), and Mr. Hammond. Plaintiffs allege that Fay and/or Industrial advised Ajax that Safety Alliance was part of a captive insurance program with St. Paul, Hartford and/or AIG "as the fronting insurance companies, and that the program was reinsured by 'A Paper' as defined by A.M. Best and Company."*fn4

Mr. Sciarra testified that Fay also told him that General Adjustment Bureau paid the claims. At this time, no certificate of insurance or policy was obtained by plaintiffs as proof of insurance with Safety Alliance.

On or about February 2003, Ajax submitted its first workers' compensation claim to Safety Alliance which was denied as untimely. Mr. Sciarra states he became suspicious because he did not receive the customary reservation of rights letter from Safety Alliance as part of its denial of claim. He requested a certificate of insurance which was received on or after April 10, 2003 from Fuller. The certificate was faxed to Mr. Sciarra from Industrial. The Certificate provided that Safety Alliance Insurance Company was the insurer, Ajax was the insured, and RKM Agency and Associates was the insurance producer. The policy number listed on the certificate was 66-866-723AS/NJ.

Mr. Sciarra testified in deposition that he also made several phone calls to various entities, including the General Adjustment Bureau, an unnamed attorney in New Mexico, the North Carolina Insurance Department, St. Paul Insurance Company, and Hartford insurance company. Based on the information he received, Mr. Sciarra believed that Safety Alliance did not exist. Accordingly, he initiated this action against defendants Fay and Industrial arguing that they breached their duty owed to plaintiffs and made material misrepresentations. Plaintiffs allege that they have paid defendants more than $157,151.00 in premiums for workers compensation insurance coverage. Fay brought a third party action against Dale Fuller and Safety Alliance.

III. DISCUSSION

A. Summary Judgment Standard

Summary judgment is appropriate where the Court is satisfied that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of ...


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