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Accident Fund Insurance Co. v. PML Holdings Group


December 11, 2009


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-10269-06.

Per curiam.


Argued September 30, 2009

Before Judges Fuentes and Simonelli.

Plaintiff Accident Fund Insurance Company appeals from the December 8, 2008 Law Division order granting summary judgment declaring that coverage existed under a workers' compensation policy for a work-related accident occurring in New Jersey on December 13, 2004. Plaintiff also appeals from the February 6, 2009 order awarding defendants counsel fees and costs pursuant to Rule 4:42-9(6), and other damages. We reverse.

The facts are derived from evidence submitted by the parties in support of, and in opposition to, the summary judgment motion, viewed in a light most favorable to plaintiff. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). Plaintiff is an insurance company, which provides workers' compensation insurance in numerous states throughout the country. Defendant PML Holdings, Inc. (PML) is a Michigan limited liability corporation and a majority owner of several professional employer organizations (PEOs).*fn1 A PEO acts as an "outside human resources department[,]" it leases employees to its client companies, and is responsible for all of its client companies' payroll, taxes, and employee benefits.

Defendant is also responsible for obtaining workers' compensation insurance for its client companies, including defendant West Valley Restoration Co., Inc. (West), whose business is located in New Jersey. Defendant secured workers' compensation and employer's liability insurance policy WCV 5015744 from plaintiff, which covered thirteen states for the period November 17, 2003 to November 17, 2004, excluding New Jersey (the first policy). The policy provision, "Item 3. Coverage," states, in relevant part, as follows:

A. Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here: AZ, AR, IL, ME, MI, MO, MT, NC, OK, RI, TN, TX, VA[.]

C. Other States Insurance: Part Three of the policy applies to the states, if any, listed here: All states other monopolistic states and states designated in Item 3.A. of the Information Page.

The policy provision, "Part Three-Other States Insurance[,]" states, in relevant part, as follows:


A. How This Insurance Applies

1. This other states insurance applies only if one or more states are shown in Item 3.C. of the Information Page.

2. If you begin work in any one of those states after the effective date of this policy and are not insured or are not self-insured for such work, all provisions of the policy will apply as though that state were listed in Item 3.A. of the Information Page.

3. We will reimburse you for the benefits required by the workers compensation law of that state if we are not permitted to pay the benefits directly to persons entitled to them.

4. If you have work on the effective date of this policy in any state not listed in Item 3.A. of the Information Page, coverage will not be afforded for that state unless we are notified within thirty days.

The policy also contains a merger clause, which states that "[t]he only agreements relating to this insurance are stated in this policy. The terms of this policy may not be changed or waived except by endorsement issued by us to be part of this policy."

New Jersey was not initially covered in the first policy. It was later added, as indicated in an amended declarations page showing the following change to Item 3:

A. Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here: AL, AZ, AR, GA, IL, IN, KS, KY, ME, MI, MN, MS, MO, NV, NJ, NC, OK, RI, SC, SD, TN, TX, VA, WI.

Additionally, Policy Information Page Endorsement WC 89 06 00 B indicates that Item 3.C. was changed to specifically include New Jersey and two other states.

In the summer of 2004, as the expiration of the first policy drew near, plaintiff, defendant and defendant's broker began negotiating coverage for the 2004-2005 policy period. Plaintiff notified defendant and its broker that it no longer desired to be a national carrier and would only provide coverage in ten "core" states, which did not include New Jersey. After further negotiations, plaintiff added six more states, not including New Jersey. Correspondence between the parties between August 2004 and October 2004 confirmed these negotiations.

By October 13, 2004, defendant was fully aware that future coverage would be limited to sixteen states, not including New Jersey. Although no evidence exists that plaintiff notified any of defendant's client companies, including West, or the New Jersey Compensation Rating and Inspection Bureau, of its intention to cease coverage in New Jersey effective November 17, 2004, in a November 5, 2004 letter to its client companies, defendant advised them, in relevant part, as follows:

With the renewal of [plaintiff's] policy for November 17, 2004 comes some good news, and some negative news.

. . . . [Plaintiff's] management has made the decision that they do not want to be a national carrier; thus, they wish to write ONLY in the ten (10) core states of Michigan, Illinois, Missouri, Indiana, Wisconsin, North and South Carolina, Tennessee, Kansas and Iowa.

What does this mean for renewal? Their decision is to remove from the policy, effective 11/17/04, any and all coverage outside those ten (10) core states.

However, we were able to get another concession; they will continue to cover those current clients in the states of Maine, Virginia, Georgia, Oklahoma, Arizona and Mississippi, however, [they will not write any new business after 11/17/2004 in those states.]

Additionally, they will not accept any coverage, ancillary or otherwise, in any state outside the ten core states.

Although some of this is negative, [defendant] expects to have a solution in place; it may be a temporary solution from 11/17/2004 to 12/31/04 for those clients coming off the [plaintiff's] policy, however as of January 1, 2005, we expect to have coverage with another carrier in all states where [plaintiff] is not willing to write.

This should, if things go as expected, accommodate those coverages currently on the [plaintiff's] policy but being removed effective 11/17/2004. This should allow our members to expand submissions in non-core states as well. We are very excited that this will be a very positive enhancement to [defendant's] members.

Plaintiff issued policy WCV 8001034 to defendant, effective November 17, 2004 to December 1, 2005 (the second policy). The policy provision, "Item 3. Coverage," is different from the "Item 3. Coverage" provision in the first policy.*fn2 The second policy's language is as follows:

A Workers' Compensation Insurance: Part One of the policy applies to the Workers' Compensation Law of the states listed here: GA, IL, IN, KS, ME, MI, MS, MO, NC, OK, SC, TN, VA, WI[.]

C. Other States Insurance: Part Three of the policy applies to the states, if any, listed here: All states and U.S. territories except monopolistic states, the U.S. Virgin Islands and states designated in Item 3.A. of the Information Page.

New Jersey is not listed in Item 3.A.; the second policy's Schedule of Extended Named Insureds did not include any of defendant's New Jersey client companies; and there is no endorsement including New Jersey in Item 3.C.

Following issuance of the second policy, plaintiff requested that defendant provide proof of workers' compensation insurance coverage for states other than those listed in Item

3.A "to ensure that any potential exposures in those states would be covered by another policy." Defendant then contracted with ACG North American Enterprises of NC, Inc. (ACG) to obtain workers' compensation insurance in New Jersey and the other states not covered by the second policy. Based on ACG's representations, defendant believed that ACG had obtained a workers' compensation insurance policy from Hartford Underwriters Insurance Co. (the Hartford policy), that coverage under that policy commenced on November 17, 2004, and that the policy covered numerous workers' compensation claims, including the claim of defendant Rudolf Iglarcik (Iglarcik), a West employee.

On December 13, 2004, Iglarcik sustained injuries while working at a job in New Jersey. Defendant assured West that the Hartford policy covered this incident. However, defendant later discovered that no such coverage existed.

Defendant filed a complaint against ACG and its principal in the United States District Court for the Eastern District of Michigan, alleging, in part, fraud and breach of contract relating to ACG's procurement of the Hartford policy.

On February 14, 2008, the court entered judgment in defendant's favor in the amount of $3,883,025.48 (the Michigan judgment), consisting of $31,264.87 for amounts defendant paid to ACG; $238,929.10 for lost wage claims and payments to third-party administrators; $806,364.48 for medical bill claims defendant paid (including Iglarcik's claim); and $2,806,467.03 for lost premiums.

Sometime in 2005, plaintiff decided to completely cease doing business with defendant. It notified defendant that it would not issue any policy after expiration of the second policy on December 1, 2005. Defendant then filed a four-count complaint against plaintiff in a Michigan state court, seeking a declaration that plaintiff could not cancel coverage in several states because it failed to comply with state-mandated non-renewal requirements (count 1). Defendant also alleged a breach of the second policy's mandatory notice provision (count 2), a violation of the parties' oral agreements (count 3), and promissory estoppel (count 4).

In settlement of counts 1 and 2, the parties agreed that plaintiff would extend coverage for sixty days. Thereafter, on January 23, 2006, the Michigan court granted summary judgment dismissing counts 3 and 4 with prejudice, finding that the second policy's merger clause made it unreasonable for defendant to rely upon any representations that were "not included within the written agreement."

On November 16, 2008, Iglarcik filed an employee claim petition with the Division of Workers' Compensation. After receiving Iglarcik's claim petition, plaintiff issued a Reservation of Rights letter agreeing to provide a defense but reserving the right to file a declaratory judgment action regarding coverage. Plaintiff then filed a declaratory judgment action, seeking, in part, a declaration that the second policy did not cover the claim. Defendant filed a counterclaim, seeking, in part, a declaration that plaintiff is required to provide coverage and a defense of and indemnification for the claim.

Plaintiff and defendant filed summary judgment motions. Plaintiff argued that the entire controversy doctrine and collateral estoppel bar defendant's counterclaim, and that the Michigan judgment precludes a double recovery here.

In granting summary judgment to defendant, the trial judge found as follows:

Here's your problem, . . . if [an] insurance contract is clear on its face you never get to . . . . interpretation. If we got to that I agree with your position. I think the intent of the parties was to restrict coverage. I'll make it plain for you for appeal, okay? I think, particularly, the letter from [defendant] to [its client companies] makes it plain that the intent of the parties here was that there should be no coverage outside the core states. [(Emphasis added.)]

Despite such finding, the judge concluded that:

As I understand the law, however if the . . . insurance contract is plain on its face you don't get to look to what the intent of the parties is. You get to interpret the insurance contract based on its language. And its language is clear that there was coverage here. There was coverage as early as 2004, which would have carried over into 2005 unless something were done to change the policy. The mistake that [plaintiff] made is maybe in their mind it was going to change, but they never changed the policy. So without changing the policy whatever the legal ramifications of that policy are as long as they're not [ambiguous], there's no ambiguity, is what gets carried out.

Courts don't get to rewrite insurance policies absent an ambiguity. I don't see one. Not seeing one there was coverage in '04, there's coverage in '05.

The court also rejected plaintiff's collateral estoppel and double recovery arguments, finding as follows:

As far as the lawsuits in Michigan. The two issues in Michigan, Federal action, is totally different, that's an action, basically for fraud. For representations of policies between a broker and his representations that there would be nationwide coverage by the Hartford . . . . As far as the state action goes, I agree that the recovery would bar them from recovering here, had they actually recovered the money. But it doesn't bar it just because you get a judgment. It would bar it if they had been paid. But the way to protect you for the, assuming Michigan has the same 20 year, is for [defendant] . . . to assign its judgment to [plaintiff]. I don't pretend that that's going to make [plaintiff] happy. Okay? But it will protect against there being an unjust enrichment here or double collection of the same monies.

The judge did not address the entire controversy doctrine. He ordered plaintiff to provide a defense and indemnity for Iglarcik's claim and ordered defendant to assign to plaintiff that portion of the Michigan judgment reflecting damages awarded for that claim. The judge subsequently entered judgment against plaintiff for $75,197.32 for attorney's fees and costs, and $198,571 for payments defendant made to Iglarcik. This appeal followed.

Our review of a ruling on summary judgment is de novo, applying the same legal standard as the trial court. Chance v. McCann, 405 N.J. Super. 547, 563 (App. Div. 2009). Thus, we consider, as the Law Division did, "'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007) (quoting Brill, supra, 142 N.J. 536). Summary judgment must be granted "if 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 challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). If there is no genuine issue of material fact, we must then decide whether the lower court's ruling on the law was correct. Walker v. Atl. Chrysler Plymouth, 216 N.J. Super. 255, 258 (App. Div. 1987). Applying these standards, we continue our analysis.


We first address plaintiff's contentions that the entire controversy doctrine and collateral estoppel bar defendant's counterclaim, and that the judgment constitutes an impermissible double recovery.

The entire controversy doctrine promotes the policies of mandatory joinder and claim preclusion associated with the more widely known doctrine of res judicata. See Pressler, Current N.J. Court Rules, comment 1 on R. 4:30A (2010); see, e.g., McNeil v. Legislative Apportionment Comm'n, 177 N.J. 364, 395 (2003) ("The concept that a party is required to bring all possible claims in one proceeding is embodied in the closely linked concepts of res judicata and the entire controversy doctrine."), cert. denied, 540 U.S. 1107, 124 S.Ct. 1068, 157 L.Ed. 2d 893 (2004); In re Estate of Gabrellian, 372 N.J. Super. 432 (App. Div. 2004) (holding the doctrine of res judicata barred a second probate action when all claims could and should have been brought in the first action because the facts supporting both actions were the same), certif. denied, 182 N.J. 430 (2005); see also Long v. Lewis, 318 N.J. Super. 449, 459 (App. Div. 1999) ("The claim preclusion aspect of the entire controversy doctrine is essentially res judicata by another name.").

Res judicata, or claim preclusion, is a long-established doctrine that restricts a litigant's ability to bring claims in a subsequent civil action that were or could have been adjudicated in an earlier lawsuit involving the same parties. Lubliner v. Bd. Of Alcoholic Bev. Control, 33 N.J. 428, 435 (1960). The doctrine "rests upon policy considerations which seek to guard the individual against vexatious repetitious litigation and the public against the serious burdens which such litigation imposes upon the community." Ibid. For these reasons, the original judgment carries with it preclusive effects. See also Restatement (Second) of Judgments Ch. 1 Scope at 1 (1982).

The entire controversy doctrine requires litigants in a civil action to raise all affirmative claims arising from a single controversy that each party might have against another party, including counterclaims and cross-claims. R. 4:30A.*fn3 It is a preclusionary device, intended to prevent fractionalized litigation by requiring the assertion of all claims arising from a single controversy in a single action. Prevratil v. Mohr, 145 N.J. 180, 190 (1996). The reasons behind the doctrine are threefold: "(1) the need for complete and final disposition through the avoidance of piecemeal decisions; (2) fairness to parties to the action and those with a material interest in the action; and (3) efficiency and the avoidance of waste and the reduction of delay." DiTrolio v. Antiles, 142 N.J. 253, 267 (1995) (citing Cogdell v. Hospital Center, 116 N.J. 7, 15 (1989)).

The doctrine applies to successive suits with related claims. Id. at 268. "In determining whether successive claims constitute one controversy for purposes of the doctrine, the central consideration is whether the claims against the different parties arise from related facts or the same transaction or series of transactions." Id. at 267. It is the factual context "giving rise to the controversy itself, rather than a commonality of claims, issues or parties, that triggers the requirement of joinder to create a cohesive and complete litigation." Mystic Isle Dev. Corp. v. Perskie & Nehmad, 142 N.J. 310, 323 (1995); see also DiTrolio, supra, 142 N.J. at 267-68 ("It is the core set of facts that provides the link between distinct claims against the same or different parties and triggers the requirement that they be determined in one proceeding.").

Further, the doctrine of collateral estoppel forecloses re-litigation of any issue when the party asserting the bar has demonstrated that:

(1) the issue to be precluded is identical to the issue decided in the prior proceeding . . . (2) the issue was actually litigated in the prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding. [Hennessey v. Winslow Twp., 183 N.J. 593, 599 (2005) (internal citations omitted) (quoting In Re Estate of Dawson, 136 N.J. 1, 20-21 (1994)).]

"The doctrine will not be applied, however, where it is unfair to do so." Fama v. Yi, 359 N.J. Super., 353, 359 (App. Div. 2003).

Here, defendant's counterclaim is not derived from a "related series of transactions." There is no factual interconnectedness between the claims in the Michigan federal and state court actions and the claims raised here. Unlike the claims here, the Michigan claims related solely to continuing workers' compensation coverage for defendant and coverage in the states excluded from the second policy. There was no claim relating to the propriety of the non-renewal of New Jersey coverage, and resolution of the Michigan claims did not require a determination of coverage for Iglarick's claim.

Additionally, it is unfair to permit plaintiff to assert collateral estoppel under the facts of this case. Plaintiff initiated this action. It contravenes the judicial goals of efficiency, Hennessey, supra, 183 N.J. at 593, and justice to allow plaintiff to proceed with its action while barring defendant from fully responding to plaintiff's claims.

We also reject plaintiff's contention that the Michigan judgment gives defendant a double recovery. Courts have the "inherent power to prevent a potential double recovery or windfall to a judgment creditor." Citibank, N.A. v. Errico, 251 N.J. Super. 236, 247 (App. Div. 1991). But it is the plaintiff's burden to establish unjust enrichment. VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554 (1994). "To establish unjust enrichment, a plaintiff must show both that defendant received a benefit and that retention of that benefit without payment would be unjust." Ibid. Plaintiff has not satisfied this burden.

Although defendant obtained the Michigan judgment, which included damages for medical bills paid on Iglarcik's behalf, defendant has not recovered any of this portion of the judgment. Defendant has been ordered to assign to plaintiff that portion of the Michigan judgment involving Iglarick's claim, thus solving any potential for double recovery.


Plaintiff next contends that the trial judge erroneously focused on the boilerplate language in Item 3.C. of the second policy to find coverage in New Jersey instead of construing coverage in accordance with Item 3.A. and the parties' intent that coverage did not extend to New Jersey. We agree.

The second policy is not a contract of adhesion requiring us to liberally construe ambiguous language liberally and resolve any ambiguity against plaintiff and in favor of coverage. "'[T]he essential nature of a contract of adhesion is that it is presented on a take-it-or-leave basis, commonly in a standardized printed form, without opportunity for the 'adhering' party to negotiate except perhaps a few particulars.'" Muhammad v. County Bank of Rehoboth Beach, 189 N.J. 1, 15 (2006)

Here, defendant, a sophisticated entity, extensively negotiated the second policy specifically limiting coverage to ten core states and six additional states, not including New Jersey. Defendant notified its client companies, presumably including West, that plaintiff would no longer be a national carrier; that effective November 17, 2004, plaintiff would only provide coverage in the ten core states; that plaintiff would not write any new business after November 17, 2004 in the six added states; and that plaintiff would "not accept any coverage, ancillary or otherwise, in any state outside the ten core states."

Defendant also notified its client companies that it would seek coverage with another carrier for those states "where [plaintiff] is not willing to write" and for those states "currently on [the first] policy but being removed effective 11/17/2004." (Emphasis added.) In accordance with this notice, and knowing that the second policy did not cover New Jersey, defendant obtained coverage with the Hartford Underwriters Insurance Co. for New Jersey.

Further, unlike the first policy: (1) the second policy does not list New Jersey in Item 3.A.; (2) the second policy's Schedule of Extended Named Insureds did not include any of defendant's client companies; and (3) the second policy contains no endorsement including New Jersey in Item 3.C. It is clear from the facts of this case that the second policy did not cover New Jersey and that the parties never intended such coverage.


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