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Ray Waters and the Horace Mann Insurance Company v. Board of Education of the

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


December 22, 2011

RAY WATERS AND THE HORACE MANN INSURANCE COMPANY, PETITIONERS-RESPONDENTS,
v.
BOARD OF EDUCATION OF THE TOWNSHIP OF TOMS RIVER, OCEAN COUNTY, RESPONDENT-APPELLANT.

On appeal from the Commissioner of Education, Docket No. 56-3/10.

Per curiam.

Argued November 9, 2011

Before Judges Carchman and Nugent.

Following an encounter with a student and allegations that he had made inappropriate sexual comments to the student, plaintiff Ray Waters was named as a defendant in a lawsuit brought by the student (the lawsuit). In addition to plaintiff, other named defendants in the lawsuit included the Toms River Board of Education (the Board), as well as school administrators and personnel. The claims included negligent supervision as well as violation of the Anti-Bullying Bill of Rights Act, N.J.S.A. 18A:37-13 to -17.

Plaintiff, through the New Jersey Education Association (NJEA), made a demand upon the Board for a defense to the lawsuit. The Board refused, whereupon plaintiff sought coverage through the NJEA, which maintained coverage for that purpose with plaintiff The Horace Mann Insurance Company (Horace Mann).

Horace Mann provided a defense and coverage and ultimately, the lawsuit was settled for $27,500. The lawsuit was dismissed as to Waters without any finding of liability. Plaintiffs thereafter brought an action pursuant to N.J.S.A. 18A:16-6 before the Commissioner of Education (Commissioner), seeking reimbursement in the amount of $59,023.82, representing the settlement as well as attorney's fees and costs incurred in defending Waters.

After the issue was joined, the matter was referred to the Office of Administrative Law. The Administrative Law Judge (ALJ) determined that plaintiffs were entitled to reimbursement. The Commissioner adopted the ALJ's recommendation and affirmed. The Board appeals, and we affirm.

In her decision, the ALJ determined that the matter was ripe for summary decision, as no material facts were in dispute. In response to appellant's arguments that Waters could not be indemnified because he suffered no out-of-pocket financial loss, and that Horace Mann had no rights against the Board because it was not a Board employee, the ALJ noted Waters was faced with four choices following the Board's refusal to provide him with a defense: "raise the money himself; persuade a defense counsel to take the case and cover the upfront costs in hopes of indemnification; forgo hiring counsel to provide a defense; or draw upon the insurance policy." The ALJ also emphasized the plain language of the subrogation clause within NJEA's insurance policy, which clearly indicates, "[T]he Company shall be subrogated to all the Insured's rights of recovery therefore against any person or organization and the Insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights."

Finding that the intent of N.J.S.A. 18A:16-6 is "to defray the employee's expenses" for "potentially ruinous" defense costs, the ALJ concluded that the narrow interpretation of the applicable statutory provision asserted by the Board was "overly mechanistic and not within the statute and existing case law." As such, the Board was ordered to reimburse respondents "for all costs and fees expended on behalf of Ray Waters in connection with the defense and settlement of the lawsuit."

On appeal, the Board asserts that plaintiffs are not entitled to relief under N.J.S.A. 18A:16-6 because Horace Mann is not an "employee" of the Board and plaintiff Waters did not suffer a financial loss. In addition, the Board argues that plaintiffs' claim for relief is barred by the anti-subrogation provision, N.J.S.A. 59:9-2(e), of the Tort Claims Act (TCA), N.J.S.A. 59:1-1 to 12-3. We now address these issues.

The TCA provides that a public entity and its employees may be liable for tortious acts within the limitations of the act, and by its provisions, provides a defense for tortious injuries that may be made against public entities and their employees. A "public entity" is defined as "the State, and any county, municipality, district, public authority, public agency and any other political subdivision or public body in the state."

N.J.S.A. 59:1-3. A board of education is a public entity under N.J.S.A. 59:1-3. Hayes v. Pittsgrove Twp. Bd. of Educ., 269 N.J. Super. 449, 453 (App. Div. 1994).

The TCA provides that:

No insurer or other person shall be entitled to bring an action under a subrogation provision in an insurance contract against a public entity or public employee. [N.J.S.A. 59:9-2(e).]

An insurer cannot "through subrogation, effect a recovery" from a State entity that could not be obtained as a result of N.J.S.A. 59:9-2(e)'s anti-subrogation clause. Hayes, supra, 269 N.J. Super. at 455.

The TCA delineates the parameters of liability for public entities for claims that arise in tort. The immunity provided to governmental entities under the TCA is limited to tort-based liability. The TCA clearly prohibits subrogation claims against governmental entities arising out of any injuries for which the governmental entity may be held liable in tort. Pinkowski v. Twp. of Montclair, 299 N.J. Super. 557, 569 (App. Div. 1997).

Where a claim against a public entity does not arise from tort liability, the TCA has no bearing on the claim. See Owens v. Feigin, 194 N.J. 607, 613 (2008) ("[T]he [Civil Rights Act]'s purpose includes rectifying violations of constitutional rights, the protection of which has never depended on the satisfaction of the TCA's procedural and substantive requirements . . . .");

Greenway Dev. Co. v. Borough of Paramus, 163 N.J. 546, 557 (2000) (finding TCA inapplicable to inverse condemnation claim); Fuchilla v. Layman, 109 N.J. 319, 337-38 (1988) (finding TCA's notice requirements inapplicable to Law Against Discrimination claims), cert. denied, 488 U.S. 826, 109 S. Ct. 75, 102 L. Ed. 2d 51 (1988); Brook v. April, 294 N.J. Super. 90, 100 (App. Div. 1996) (holding that the TCA's requirements are inapplicable to claims brought under Workers' Compensation Law).

Owens, supra, 194 N.J. at 612-13, informs us that the TCA's protections insulate a public entity only when the public entity or an employee is the tortfeasor. Neither Waters nor Horace Mann has pursued any tort claims against the Board. Instead, they have advanced a subrogation claim, not as a function of a tort action, but based upon successful defense of a suit against a public employee. Indeed, this action arises "out of contract -- here, a statutory contract founded in [N.J.S.A. 18A:16-6] -to establish an insurance fund that included . . . the obligation to furnish" expenses for the successful defense of a law suit. Christy v. City of Newark, 102 N.J. 598, 610 (1986), superseded by statute, N.J.S.A. 17:28-1.1(c).

Assuming, arguendo, that a tort suit is at issue in this case, the subrogation clause in Horace Mann's contract with NJEA is nonetheless valid because N.J.S.A. 18A:16-6's indemnity provision is not superseded by the TCA.

N.J.S.A. 18A:16-6 requires boards of education to defend and indemnify employees "for any act or omission arising out of and in the course of the performance of the duties of" their employment. This statute predates the TCA and remains a valid legislative expression mandating indemnification.

While in no reported appellate opinion has this court interpreted N.J.S.A. 18A:16-6 and the TCA, the Law Division addressed this issue in Lameiro v. W. N.Y. Bd. of Educ., 136 N.J. Super. 585, 590-91 (Law Div. 1975). The Law Division concluded:

[T]he provisions of N.J.S.A. 18A:16-6 mandating indemnity for employees of local boards of education are fully consonant with the provisions of the Tort Claims Act and are not repealed by it. . . . Repealer by implication is not favored in the law and should not be so construed. In the absence of an express repealer, there must be a clear showing of legislative intent to effect a repeal. [Lameiro, supra, 136 N.J. Super. at 590-91 (citation omitted).]

The principles of statutory interpretation accord with the reasoning and conclusion in Lameiro. "[T]he Legislature has not seen fit to enact an amendment to the . . . indemnification statute for board [] of [] education employees that is similar to the . . . Tort Claims Act indemnification provisions." Bower v. Bd. of Educ. of E. Orange, 149 N.J. 416, 430-31 (1997). Courts acknowledge that the Legislature is presumed thoroughly conversant with its own enactments. Brewer v. Porch, 53 N.J. 167, 174 (1969). We agree that the Legislature enacts laws with understanding as to the impact that a law will have upon other laws previously enacted by the same branch of government. A court may also presume that the Legislature is familiar with existing judicial construction of legislative enactments. Chase Manhattan Bank v. Josephson, 135 N.J. 209, 227 (1994); Brewer, supra, 53 N.J. at 174. If the Legislature had intended to contravene a judicial mandate permitting insurers from recouping payments to their insureds from a public school board, the Legislature would have expressed that limitation in affirmative language. Furey v. County of Ocean, 273 N.J. Super. 300, 319 (App. Div. 1994).

Applying these principles here, we find nothing in the legislative scheme to suggest that the TCA was intended to invalidate the indemnification provision in N.J.S.A. 18A:16-6. To apply the TCA as a limitation on N.J.S.A. 18A:16-6 would be to render the mandate a nullity. Defendant would incentivize schools to routinely deny a defense to their teachers and other employees. We cannot countenance such a scenario. The anti-subrogation provisions of N.J.S.A. 59:9-2(e) do not apply here.

This appeal involves the interpretation of education laws by the Commission. Courts give due deference to an agency's interpretation of a statute in an area over which it has regulatory power. Univ. Cottage Club of Princeton New Jersey Corp. v. N.J. Dep't of Envtl. Prot., 191 N.J. 38, 48 (2007); Glukowski v. Equity One, Inc., 180 N.J. 49, 66 (2004). Such deference is appropriate because the responsibility for assessing the wisdom of policy choices and resolving the struggle between competing views of the public interest is not a judicial one; an agency has greater familiarity with the ever-changing facts and circumstances surrounding the subjects regulated. Id. at 65 (citing F.D.A. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132, 120 S. Ct. 1291, 1300, 146 L. Ed. 2d 121, 134 (2000)).

Pursuant to N.J.S.A. 18A:6-9, the Commissioner exercises the statutory and regulatory authority vested by the education laws. "The Commissioner has long had significant responsibility and sweeping remedial powers for enforcing equal protection in the administration of the public education laws." Balsley v. N. Hunterdon Reg'l Sch. Dist. Bd. of Educ., 117 N.J. 434, 442 (1990). The issue here is within the scope of the Commissioner's statutory and regulatory authority.

For purposes of determining whether a matter is appropriate for summary decision, a court should deny summary decision only where the party opposing the motion has come forward with evidence that creates a "genuine issue as to any material fact challenged." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 529 (1995) (citation omitted). On a motion for summary decision, the court must grant all favorable inferences to the non-movant. Id. at 536. The inquiry is "'whether the evidence presents a sufficient disagreement to require submission to [a factfinder] or whether it is so one-sided that one party must prevail as a matter of law.'" Liberty Surplus Ins. Corp. v. Nowell Amoroso Klein Bierman, P.A., 189 N.J. 436, 445-46 (2007) (quoting Brill, supra, 142 N.J. at 536).

Defendant asserts that the ALJ and Commissioner did not properly consider the legislative history of the statute, which would have led them to conclude that Horace Mann was not entitled to reimbursement because it is not in the class of people that the Legislature intended to permit to seek reimbursement.

Defendant contends that the intention of N.J.S.A. 18A:16-6 is to reimburse school board officers and employees for legal expenses incurred defending a civil action, but that this statute does not confer a benefit on an insurance company that pays for the school board employee's legal expenses pursuant to the employee's union's insurance policy.

N.J.S.A. 18A:16-6 provides:

Whenever any civil or administrative action or other legal proceeding has been or shall be brought against any person holding any office, position or employment under the jurisdiction of any board of education, including any student teacher or person assigned to other professional pre-teaching field experience, for any act or omission arising out of and in the course of the performance of any duties of such office, position, employment or student teaching or other assignment to professional field experience, the board shall defray all costs of defending such action, including reasonable counsel fees and expenses, together with costs of appeal, if any, and shall save harmless and protect such person from any financial loss resulting therefrom; provided that

a. no employee shall be entitled to be held harmless or have his defense costs defrayed in a disciplinary proceeding instituted against him by the board or when the employee is appealing an action taken by the board; and

b. indemnification for exemplary or punitive damages shall not be mandated and shall be governed by the standards and procedures set forth in N.J.S.A. 59:10-4. Any board of education may arrange for and maintain appropriate insurance to cover all such damages, losses and expenses.

The statute obligates a board of education to defray all costs incurred by an officer or employee of the board in defending a civil suit where the cause of action: (1) arose out of the performance of his/her duties, and 2) occurred in the course of performing those duties. In the context of the defense of a civil action, the outcome of the litigation is irrelevant, the statute protects both successful and unsuccessful litigants as long as the above two criteria are satisfied. Lonky v. Bd. of Educ. of Bayonne, EDU 07205-05, final decision, (July 7, 2008) (slip op. at 3), .

As a teacher, Waters held, at all relevant times, an "office, position or employment under the jurisdiction of any board of education." The allegations must necessarily be understood to have arisen solely because of and in the course of Waters' employment as a teacher. See Bower, supra, 149 N.J. at 431.

Waters is eligible to seek reimbursement because the settlement that he negotiated is a final disposition in Waters' favor for the purposes of N.J.S.A. 18A:16-6. See Sahli v. Woodbine Bd. of Educ., 386 N.J. Super. 533, 535 (App. Div. 2006), rev'd in part on different grounds, 193 N.J. 309, 323 (2008).

Defendant further argues that Horace Mann cannot seek reimbursement under N.J.S.A. 18A:16-6 because it is not a Board employee. Defendant provides an extensive analysis of the legislative history in order to support its claim that the indemnification clause applies directly and exclusively to school board members, school employees and those preparing for teaching careers. Nothing in the legislative history supports its position.

Defendant cites language from Hartmann v. Maplewood Sch. Transp. Co., 106 N.J. Super. 187, 192 (Law Div. 1969), aff'd o.b., 109 N.J. Super. 497 (App. Div. 1970), certif. denied, 57 N.J. 124 (1970), for the proposition that Horace Mann does not have a right to indemnification: "These statutes have been construed to be for the sole benefit of the school employees covered . . . . No case hts [sic] been cited or found extending the right of indemnification to any person not an employee of a school board." Id. at 192-93. Hartmann has been interpreted to stand for the proposition that the statutory definition of "school employee" does not extend to an independent contractor for the school board who has allegedly engaged in misconduct while carrying out contractual duties for the school board. Sahli, supra, 386 N.J. Super. at 539. Although the language in Hartmann is expansive, it does not apply to the facts presented here. Hartmann involved a school bus driver employed by a school bus company that in turn contracted with a school board. The issue was whether the driver was a "school employee" for the purposes of N.J.S.A. 18A:16-6. That is not the issue here; Waters was within the class of employees protected by N.J.S.A. 18A:16-6.

Similarly, Sahli, supra, 386 N.J. Super. at 538, involved an attorney who represented the defendant school board and also served as the board's secretary pro tem. An administrative assistant employed by the board sued Sahli and the board. Sahli was defended by his malpractice carrier, Lloyds of London. After the underlying suit was settled, Sahli and Lloyds sought reimbursement of costs pursuant to N.J.S.A. 18A:16-6. Sahli, supra, 386 N.J. Super. at 534-35. The Supreme Court held that as the board's attorney, Sahli was not entitled to indemnification for actions performed in that capacity because he was an independent contractor rather than a board employee; however, he was entitled to indemnification for services he performed as secretary pro tem of the board. Sahli, supra, 193 N.J. at 313.*fn1

The Court observed, "[In his capacity as board counsel, Sahli was] a professional with his own liability coverage for his legal practice, . . . insurance coverage for the risks resulting from [the] suit." Id. at 318. The purpose of the statute is to ensure that a successful school board employee does not have to bear the cost of defending himself, whereas an independent contractor, such as a board attorney, likely has alternative means of protecting himself from liability. Although an independent contractor is not entitled to reimbursement under N.J.S.A. 18A:16-6 because he has his own professional liability insurance, the school board must protect its employees by providing legal counsel, liability insurance, reimbursement for legal counsel, or reimbursement for liability insurance. Otherwise, a school board could shirk its statutory financial obligation to defend an employee by refusing to defend the suit and leaving the employee's union with the expense of defending the suit.

In Lonky, supra, EDU 7205-07, like Sahli, the teacher received representation pursuant to an insurance policy, and neither the parties nor the adjudicator expressed any reservation about providing payment to the insurance company for the costs of the litigation. As in this case, Horace Mann bore Lonky's defense costs due to the refusal of the Bayonne Board of Education to defend her at the outset of the lawsuit. The Commissioner found that the board of education had an obligation to reimburse legal expenses.

Defendant asserts that the purpose of N.J.S.A. 18A:16-6 is to protect an employee from financial loss; consequently, an employee who has not suffered financial loss cannot recover. Here, the Board suggests Waters suffered no financial loss because the insurance company paid the costs and fees associated with the matter. Defendant attempts to distinguish Lonky on the grounds that, in that case, there was a reimbursement agreement, between Lonky and Horace Mann, whereas here, there was no similar agreement between Waters and Horace Mann or Waters and NJEA. This distinction is both illusory and immaterial. In Lonky, the outcome of the case was not premised on the existence of a reimbursement obligation.

Even if Sahli could be read to require that a school employee have a financial stake in the matter, Waters meets that requirement. His elected collective bargaining representative, NJEA, had an insurance policy on behalf of all union members to cover the costs of litigation. Waters "paid" for the policy through his union dues, which contributed to the funds NJEA used to purchase the policy. That Waters chose to protect himself from potentially ruinous defense costs cannot innure to the benefit of the Board.

The ALJ stated that the intent of N.J.S.A. 18A:16-6 was to defray a school employee's expenses in the face of a lawsuit. As noted above, due deference must be given to an agency's interpretation of a statute in an area over which it has regulatory power. Univ. Cottage Club, supra, 191 N.J. at 48; Glukowski, supra, 180 N.J. at 66. The ALJ's statement is supported by the language of the statute, its legislative history and the case law interpreting the statute. The ALJ further noted, While Waters has not gone out of pocket for the expenses for which he now seeks reimbursement, in the face of the Board's refusal to provide a defense, Waters was faced with four choices: raise the money himself; persuade a defense counsel to take the case and cover the upfront costs in hopes of indemnification; forgo hiring counsel to provide a defense; or draw upon the insurance policy.

The purposes and policies of the statute are advanced by allowing for reimbursement of costs in situations in which, in the face of board refusal to defend a case, a school employee relies on his union's insurance policy as a means to fund legal representation. To conclude otherwise would create a loophole for school boards that would undermine the statutory purpose of defraying the costs of a school employee's defense of a suit. A qualifying employee who is defended by an insurance company is entitled to indemnification pursuant to N.J.S.A. 18A:16-6 and 6.1, even when the reimbursement monies will ultimately be paid to the defending insurer rather than the employee.

There are no facts in dispute in this case. The ALJ and the Commissioner correctly obligated the Board to reimburse plaintiffs.

Affirm.


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