February 28, 2008
IN THE MATTER OF THE CLAIM OF NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA FOR BENEFITS FROM THE NEW JERSEY WORKER'S COMPENSATION SECURITY FUND.
On appeal from the New Jersey Department of Banking and Insurance, Order No. A07-107.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted January 16, 2008
Before Judges Lisa and Lihotz.
National Union Fire Insurance Company of Pittsburgh, PA (National Union) appeals from a final order of the Commissioner of Banking and Insurance (Commissioner) denying its claim for benefits under the New Jersey Workers' Compensation Security Fund (Fund), N.J.S.A. 34:15-104 to -120. National Union's claim against the Fund arose because of the insolvency of Reliance National Indemnity Corporation (Reliance). National Union and Reliance had each issued policies to the New Jersey Turnpike Authority (Turnpike Authority), which was self-insured for workers' compensation, to indemnify the Turnpike Authority for the amount of workers' compensation claims exceeding certain limits. National Union argues that the Commissioner erred in concluding (1) that the Reliance policy was not a workers' compensation insurance policy for purposes of the Fund, and (2) that the claim covered by the Fund was that of the injured employee of the Turnpike Authority, not that asserted by National Union against Reliance. We reject these arguments and affirm.
An employee of the Turnpike Authority, Lori Layton, successfully prosecuted a claim against the Turnpike Authority for sexual harassment and violations of the Law Against Discrimination N.J.S.A. 10:5-1 to -49. The total recovery, including the jury award for damages, together with interest and attorney's fees, exceeded $1 million.
The Turnpike Authority was self-insured for workers' compensation. To protect itself against large workers' compensation claims, it obtained from National Union a "Public Officials and Employees Liability Insurance" policy, which provided for payment of the amount of claims in excess of the $500,000 self-insurance retention (SIR).
When the underlying claim was first made by Layton, the Turnpike Authority provided National Union with notice. National Union assigned counsel to defend the claim. National Union and the Turnpike Authority paid the claim in full after the award was rendered.
The Turnpike Authority had also obtained from Reliance National Indemnity Corporation (Reliance) a "Specific Excess Workers' Compensation and Employment Liability Policy," which contained a $250,000 SIR. However, neither the Turnpike Authority nor National Union provided Reliance with notice of Layton's claim until after the jury award was rendered. Reliance refused to contribute towards payment of the award, contending it was prejudiced by the late notice and had the right under its policy provisions to deny coverage because of late notice. Reliance then became insolvent and was the subject of liquidation proceedings in Pennsylvania.
As a result, National Union, individually and as subrogee of the Turnpike Authority, submitted a demand to the Commissioner seeking payment from the Fund of the portion of the award that might have been payable by Reliance under its policy.*fn1
On March 21, 2007, the Commissioner issued a final decision denying National Union's claim. This appeal followed.
As a threshold matter, the Commissioner stated that he lacked jurisdiction to determine the legal issue of whether Reliance could disclaim coverage because of late notice. Thus, for purposes of his analysis, he assumed that the Turnpike Authority's claim against Reliance was not barred because of late notice. He further assumed, for purposes of analysis, that National Union was properly assigned the Turnpike Authority's rights with respect to that claim. Thus, based upon those assumptions, the sole issue before the Commissioner was whether National Union's claim against Reliance was payable by the Fund.
In their appellate briefs, the parties have presented arguments regarding the late notice issue. For purposes of our analysis, we take the same approach as that taken by the Commissioner and assume that the claim against Reliance would not be barred because of late notice. Indeed, we do not conceive of how we could adjudicate the issue when Reliance is not a party before us.
The Commissioner explained why the Reliance policy was not a workers' compensation policy for purposes of the Fund and why the claim potentially payable by the Fund was that of the injured employee, not that of National Union:
My analysis of the merits of the National Union claim must begin with a discussion of the policy Reliance issued to the Turnpike. National Union argues that the Reliance policy itself states that Reliance agrees to pay, inter alia, "compensation and other benefits required of the Insured by workers' compensation law, [and] sums which the Insured shall become legally obligated to pay because of bodily injury by accident or disease . . . by any employee arising out of and in the course of employment of the Insured." It is undisputed that the Turnpike is a statutory self-insurer for purposes of workers' compensation insurance. As stated in the Fund's brief, in order to limit its own self-insured exposure on large workers' compensation claims, the Turnpike voluntarily purchased a "Specific Excess Workers' Compensation and Employers' Liability Policy" from Reliance. That policy has a $250,000 SIR and indemnifies the Turnpike for losses that it sustains in excess of that SIR. The Reliance policy does not pay workers' compensation benefits to injured Turnpike employees. The policy merely reimburses the Turnpike for a portion of certain large claims it pays as a statutory self-insurer. The Reliance excess policy was a private contract entered into by the Turnpike with Reliance to limit its own indemnity exposure. See Bill Gray Enterprises, Inc. v. Gourly, 248 F.3d 206, 213-14 (3d. Cir. 2001). Thus, I reject National Union's argument that the Reliance policy is a policy of workers' compensation under the law. The Reliance policy is an excess workers' compensation and employers' liability policy and not a workers' compensation policy within the meaning of N.J.S.A. 34:15-1 et seq. N.J.S.A. 34:15-105 provides, in pertinent part: "There is hereby created a fund to be know as 'the workers' compensation security fund' for the purpose of assuring to persons entitled to the compensation provided by this chapter . . ." The persons entitled to the compensation provided by chapter 15 of Title 34 are employees covered by the workers' compensation insurance policies described therein, not self-insured employers of such employees who purchase excess workers' compensation and employer liability policies. N.J.S.A. 34:15-111, states that the Fund was created to pay "valid claims . . . remaining unpaid, in whole or in part, by reason of the default . . . of an insolvent carrier[,]." National Union avers that the "Layton claim was a valid claim against Reliance [, and that] it remained unpaid as a result of the default of an insolvent carrier." This is not an accurate description of the key facts in this matter. For the purposes of N.J.S.A. 34:15-111, the "Layton claim" was the workers' compensation claim by Layton as an employee of the Turnpike against her (for workers' compensation purposes) self-insured employer. That claim was paid in full and therefore cannot be said to remain "unpaid by reason of the default of an insolvent carrier" as that phrase is used in N.J.S.A. 34:15-111.
I reject the contention by National Union that the Fund law looks at unpaid claims and mandates that, in the case of a claim that is not paid because the carrier is insolvent, the Fund will step in and satisfy the claim in the same manner that the insolvent carrier would have. I also reject National Union's argument that N.J.S.A. 34:15-111 does not distinguish between primary, excess, stop-loss policies and policies containing a self-insured retention. National Union argues that the focus for recovery is the nature of the claim rather than the characterization of the insolvent carrier's policy. I disagree in that it is the type of policy under which it is made that defines the nature of a claim. A self-insured employer's claim on an excess workers' compensation and employer's liability policy that remains unpaid due to the insolvency of the insurer that issued that policy is not an employee's claim for workers' compensation benefits that remain[s] unpaid due to the insolvency of the insurer that issued the workers' compensation policy to that employee's employer. The Legislature created the Fund to ensure that injured workers continue to receive workers' compensation benefits if their employer's workers' compensation insurer becomes insolvent. In its own brief National Union argued that "[t]he Fund exists to protect workers from being left without a recovery because of the insolvency of a workers' compensation carrier." N.J.S.A. 34:15-111 provides that the Fund shall pay only "valid claims for compensation or death benefits." Under the Act, a "covered claim" under the Fund means "compensation . . . and death benefits . . . with respect to the injury or death of workers under [state law] or the federal Longshore and Harbor Workers' Compensation Act . . . [.]" N.J.S.A. 34:15-104. As was noted above, the Reliance policy is not a workers' compensation policy, but an excess policy purchased by the Turnpike so as to limit its own indemnity exposure, not to pay valid workers' compensation claims to its employees for injury by accident or disease or death benefits.
The Commissioner also noted that the funding source for the Fund consists of assessments periodically made against insurance companies "[f]or the privilege of carrying on the business of workmen's compensation insurance in this State," see N.J.S.A. 34:15-107 and -108, and that neither National Union nor Reliance paid such assessments. This provided a further basis for rejecting National Union's claim. The Commissioner also set forth public policy reasons as yet a third basis for denying the claim.
We will not disturb an agency's ultimate determination absent a showing that it was arbitrary, capricious or unreasonable; or that it violated legislative policies expressed or fairly implied in the act governing the agency; or that it was unsupported by the evidence. Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963); Thurber v. City of Burlington, 387 N.J. Super. 279, 301-02 (App. Div. 2006), aff'd, 191 N.J. 487 (2007). However, we are in no way bound by an agency's interpretation of a statute or its determination of a strictly legal issue. Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973); Div. of Consumer Affairs v. Gen. Elec. Co., 244 N.J. Super. 349, 353 (App. Div. 1990). Nevertheless, considerable weight will be given to an interpretation of a statute by the agency responsible for its implementation. Kletzkin v. Bd. of Educ., 136 N.J. 275, 278 (1994); Atl. City Educ. Ass'n v. Bd. of Educ., 299 N.J. Super. 649, 656 (App. Div.), certif. denied sub nom., 152 N.J. 192 (1997).
We agree with the Commissioner's analysis and conclusions, and we find nothing in his determination that was arbitrary, capricious or unreasonable. Accordingly, we affirm substantially for the reasons set forth by the Commissioner in his final order of March 21, 2007. We add these comments.
The Employers' Liability Insurance Law, N.J.S.A. 34:15-70 to -95.5, requires all employers to "make sufficient provision for the complete payment of any obligation which [they] may incur to an injured employee . . . by one of the methods hereinafter set forth in sections 34:15-77 and 34:15-78 of this title." N.J.S.A. 34:15-71. An employer may meet this obligation by obtaining a policy of workers' compensation and employers' liability insurance, N.J.S.A. 34:15-78, or by obtaining the Commissioner's approval to be self-insured. N.J.S.A. 34:15-77. Under the latter alternative, the employer is responsible for the complete payment of claims to injured employees, although it may "for its own protection" obtain insurance for losses in excess of $100,000 per claim, "provided, that any such contract of insurance shall operate only between the employer . . . and its insurance carrier and shall not be subject to any of the provisions of this chapter." Ibid. The Reliance policy here is precisely the type of excess policy contemplated by N.J.S.A. 34:15-77, as determined by the Commissioner. It is not a primary workers' compensation insurance policy, designed for payment to injured employees, and it is not covered by the Fund.
We find unpersuasive National Union's reliance on Variety Farms, Inc. v. N.J. Mfrs. Ins. Co., 172 N.J. Super. 10 (App. Div. 1980). National Union argues that our holding in that case established that under New Jersey law "there is no such policy as an 'excess' workers' compensation policy," and that, in effect, the Reliance policy was a primary workers' compensation policy with an effective $250,000 deductible provision. In Variety Farms, we considered an excess policy issued to an employer for blanket catastrophe liability covering "the ultimate net loss in excess of the retained limit which the insured shall become legally obligated to pay." Id. at 14. We concluded that because the workers' compensation law requires complete insurance coverage for all workers' compensation claims and because the workers' compensation policy afforded unlimited coverage, there could be no excess loss triggering invocation of the excess policy. Id. at 22-23. We reasoned that because the workers' compensation policy, "as primary insurance, affords unlimited coverage, there is no need for further coverage under an excess policy." Id. at 22. Therefore, the excess policy in Variety Farms, like the Reliance excess policy here, does not constitute a primary policy of workers' compensation insurance.
We also find unpersuasive National Union's reliance on decisions from other jurisdictions which it claims have held that insurance funds in those states are liable for workers' compensation obligations of self-insureds whose carriers with large deductibles ultimately became insolvent. See Zinke-Smith, Inc. v. Fla. Ins. Guar. Ass'n, 304 So.2d 507 (Fla. Dist. Ct. App. 1974); In re Mission Ins. Co., 816 P.2d 502 (N.M. 1991). Those cases dealt with insurance funds similar to the New Jersey Property-Liability Insurance Guaranty Association Act (NJPLIGA), N.J.S.A. 17:30A-1 to -20. In our view, those authorities do not lend support to National Union's position because the claim here is not against NJPLIGA but against the Fund. Further, NJPLIGA expressly excludes workers' compensation insurance. N.J.S.A. 17:30A-2b.