On appeal from the Superior Court, Appellate Division, whose opinion is reported at 396 N.J. Super. 248 (2007).
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
The issuein thisappeal is whether a workers' compensation insurance carrier satisfied or substantially complied with the statutory requirements set forth in N.J.S.A. 34:15-81 for canceling a policy, by its use of the electronic file transfer protocol (FTP) established by the New Jersey Compensation Rating and Inspection Bureau (CRIB) to transmit notice of cancellation to the New Jersey Commissioner of Banking and Insurance.
UnderN.J.S.A. 34:15-81, to cancel workers' compensation coverage, the insurance carrier must send notice of cancellation to the employer by certified mail. It also must file with the Commissioner "like notice" and a "certified statement" that the carrier provided the required notice to the employer. N.J.S.A. 34:15-89 provides that CRIB is responsible for establishing rules and regulations for workers' compensation insurance. The Commissioner supervises CRIB's actions, including the adoption of the rules contained in CRIB's Workers' Compensation and Employers' Liability Insurance Manual (the Manual). The Manual, which incorporates by reference all of the relevant statutes, authorizes carriers to submit cancellation notices through CRIB's FTP system. That system permits only the transfer of data, not documents.
New Jersey Manufacturers Insurance Company (NJM) issued a workers' compensation and employer's liability policy to John Milek Construction (Milek) covering the period from May 6, 2003 to May 6, 2004. In August 2003, NJM sent Milek a certified mail notice of cancellation for nonpayment of premiums. NJM also sent notice of the cancellation to the Commissioner, using the FTP established by CRIB. In February 2004, Walter Sroczynski, an employee of Milek, was injured on the job. In March 2004, he filed a claim with the Division of Workers' Compensation.
NJM moved to be relieved of responsibility for coverage, arguing that it had properly canceled Milek's policy six months earlier. Sroczynski and the Uninsured Employer's Fund (UEF) opposed NJM's motion. The Judge of Compensation ruled that NJM failed to cancel the policy because NJM did not file a "certified statement" when it transmitted data using the FTP. The judge also held that the Manual does not relieve a carrier from its obligation to certify the information, and that strict compliance with the cancellation statute was necessary to avoid allowing a carrier to evade its responsibilities.
The Appellate Division affirmed. 396 N.J. Super. 248 (2007). NJM had argued that because it complied with the Manual, it complied with the statute. The panel rejected NJM's argument because it would require the court to ignore the "certified statement" portion of the statute and a key provision of the Manual requires compliance with all sections of the workers' compensation statutes. The panel also found that the case does not satisfy the purpose of the substantial compliance doctrine, which is to "avoid the harsh consequences that flow from technically inadequate actions that nonetheless meet a statute's underlying purpose." Finally, the panel awarded counsel fees and costs to Sroczynski and the UEF.
The Supreme Court granted NJM's motion for leave to appeal from the judgment and the award of attorney's fees. 192 N.J. 591 (2007); 193 N.J. 272 (2007).
HELD: A carrier does not satisfy N.J.S.A. 34:15-81 merely by transmitting electronic notice of cancellation of coverage to the Commissioner by way of the FTP. The statute clearly requires that to effectuate the cancellation, a carrier also must file a statement certified by an employee that the required notice was provided to the insured.
1. The language of N.J.S.A. 34:15-81 is clear, requiring carriers to file a certified statement with the Commissioner to effectuate the cancellation of coverage. Although CRIB could create an alternate mechanism by which insurers could comply with the statute, it could not adopt a protocol that allows the cancellation of coverage without submission of some version of the statutorily required certification. Use of the FTP system to transmit data about policy cancellations, without any accompanying certification, cannot be effective in light of the unambiguous demands of N.J.S.A. 34:15-81. (p. 8)
2. This case does not satisfy the purposes of the substantial compliance doctrine. The Legislature commanded that the insurer provide to the Commissioner a certification by an employee attesting to the truthfulness of the fact that proper notice was sent to the insured. The purpose of that provision was to place personal responsibility on an employee of the insurer to assure that proper notice of cancellation was given and to require that employee to certify to that fact, recognizing the legal implications of a false certification. Providing electronic information to the Commissioner, without a certification, completely defeats the notion of personal responsibility that the certification provision was intended to secure. It was not simply a technical misstep. (p. 8-9)
3. Although the industry acted in good faith in its approach to the issue in reliance on CRIB's confusing advice, the fact remains that the clear requirements of N.J.S.A. 34:15-81 were not satisfied, nor was substantial compliance effectuated. This is not a new rule of law to be applied prospectively; rather, the Court has merely confirmed the meaning of the clear statute. Nevertheless, the Court is concerned that the decision that the FTP system has been ineffective to achieve cancellation will cast doubt on thousands of policy cancellations in spite of the fact that they were never challenged. Thus, Sroczynski and any other party who previously raised the notice issue should be granted relief from the improper cancellations, but those cancellations that were never challenged should stand because the policyholders waived their right to do so. (p. 9-11)
4. The award of counsel fees to Sroczynski is affirmed. The award of fees to UEF is reversed. The Court's analysis of Rule 2:11-4(b), Rule 2:11-4(a), and Rule 4:42-9(a)(8) reveals no ground on which to sustain such an award to UEF. (p. 11-12)
The judgment of the Appellate Division is AFFIRMED in part and REVERSED in part.
JUSTICE RIVERA-SOTO filed a separate opinion CONCURRING IN PART and DISSENTING IN PART,in which JUSTICE HOENS joins, expressing the view that in these unique circumstances, driven in large measure by the acts of the statutorily created entity responsible for compliance with the statute, the carrier substantially complied with the admittedly clear and unambiguous statutory requirements for the cancellation of a workers' compensation insurance policy; and, thus, judgment should be entered in favor of the carrier.
CHIEF JUSTICE RABNER and JUSTICES LONG, ALBIN, and WALLACE join in the Court's opinion. JUSTICE RIVERA-SOTO has filed a separate opinion, concurring in part and dissenting in part, in which JUSTICE HOENS joins. JUSTICE LaVECCHIA did not participate.
New Jersey Manufacturers Insurance Company (NJM) issued a standard Workers' Compensation and Employer's Liability Insurance Policy to John Milek Construction (Milek) covering the period from May 6, 2003 to May 6, 2004. Milek ceased making payments on the policy after the initial premium was satisfied. As a result, on August 14, 2003, NJM sent Milek a notice of cancellation by certified mail. On August 15, 2003, NJM notified the New Jersey Commissioner of Banking and Insurance of the cancellation, using an electronic file transfer protocol (FTP) established by the New Jersey Compensation Rating and
Inspection Bureau (CRIB).*fn1
On February 28, 2004, petitioner, Walter Sroczynski, an employee of Milek, sustained a work-related injury. On March 17, 2004, Sroczynski filed a claim with the Division of Workers' Compensation, seeking workers' compensation benefits.
NJM moved to be relieved of responsibility for providing coverage, arguing that it had properly canceled Milek's policy almost six months earlier. Opposing NJM's motion was Sroczynski and the Uninsured Employer's Fund (UEF). Because of the significant medical costs incurred in caring for Sroczynski after his injury, the trial judge also granted Robert Wood Johnson University Hospital (RWJH) intervenor status.
At issue in the case was whether NJM satisfied N.J.S.A. 34:15-81, which sets forth the specific requirements for cancellation of a workers' compensation policy of insurance:
Any contract of insurance issued by a stock company or mutual association against liability arising under this chapter may be canceled by either the employer or the insurance carrier within the time limited by such contract for its expiration.
No such policy shall be deemed to be canceled until:
a. At least ten days' notice in writing of the election to terminate such contract is given by registered mail by the party seeking cancellation thereof to the other party thereto; and
b. Until like notice shall be filed in the office of the commissioner of banking and insurance, together with a certified statement that the notice provided for by paragraph "a" of this section has been given; and
c. Until ten days have elapsed after the filing required by paragraph "b" of this section has been made.
The provisions "b" and "c" of this section shall not apply where the employer has replaced the contract to be canceled by other insurance, and notice of such replacement has been filed with the Commissioner of Banking and Insurance. In such event the notice required by provision "a" may, if given by the insurance carrier, recite as the termination date the effective date of the other insurance, and the contract shall be terminated retroactively as of that date. No notice of cancellation of any such contract need be filed in the office of the Commissioner of Banking and Insurance where the employer is not required by any law of this State to effect such insurance. [N.J.S.A. 34:15-81 (emphasis added).]*fn2
At a plenary hearing, the Judge of Compensation heard testimony from an assistant vice president of NJM. He testified that NJM was aware of the procedures required by N.J.S.A. 34:15-81 to cancel workers' compensation coverage and that the notice of cancellation sent to Milek by certified mail satisfied the statute. He also claimed that NJM complied with the "like notice" and "certified statement" requirements of N.J.S.A. 34:15-81(b) by the electronic transfer to CRIB.
The Judge of Compensation ruled that NJM failed to cancel the policy because, as NJM acknowledged, it did not file a written "certified statement" when it transmitted data by way of the FTP. Further, the judge discounted NJM's reliance on the CRIB Manual because it "outlines the manner in which the notice is to be filed and in no way relieves the carrier from its obligation to certify the information." Finally, based on the public policy favoring the provision of workers' compensation insurance, the judge found that strict compliance with the cancellation statute was necessary to avoid allowing a carrier to evade its responsibilities and "deny the insured worker the recovery promised to him by the law."
NJM appealed, arguing that its cancellation of Milek's policy satisfied the statute and, alternatively, that the doctrine of substantial compliance applies. In rejecting those arguments, the panel focused exclusively on the purpose and meaning of the "certified statement" requirement of N.J.S.A. 34:15-81(b) and declared that NJM's argument would require it "to ignore a portion of the statutory scheme that the Legislature believed was important, and would in effect constitute a rewriting of the statute." Sroczynski v. Milek, 396 N.J. Super. 248, 256 (App. Div. 2007). The panel also rejected NJM's argument that because NJM complied with the CRIB Manual, it complied with the statute, stating "NJM's argument ignores one of the key provisions of the manual[,]" id. at 255, which requires compliance with all sections of the workers' compensation statutes. Further, the panel rejected NJM's substantial compliance argument, concluding that the case does not satisfy the purpose of the substantial compliance doctrine, which is to "avoid the harsh consequences that flow from technically inadequate actions that nonetheless meet a statute's underlying purpose." Galik v. Clara Maass Med. Ctr., 167 N.J. 341, 352 (2001). Finally, it awarded counsel fees and costs to Sroczynski and the UEF.
We granted NJM's motion for leave to appeal from the judgment and the award of attorneys' fees to Sroczynski and to the UEF. 192 N.J. 591 (2007); 193 N.J. 272 (2007). We also granted leave to the Property Casualty Insurers Association of America (PCIA) and the Insurance Council of New Jersey (ICNJ) to participate as amici curiae.
Before us, the parties maintain the positions they advanced below. NJM argues that it complied, or at least complied substantially, with the statute, and that any contrary holding would, at best, be a new rule of law requiring purely prospective application, and that counsel fees are not authorized. Amici PCIA and ICNJ side with that view.
Sroczynski and the UEF counter that the statute was not satisfied because of the absence of a "certified" statement, that the CRIB Manual specifically incorporates the statutory requirements, and that this case does not involve the kind of technical slip-up that substantial compliance was meant to address. In addition, they urge us to conclude that their interpretation ...