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

December 22, 2011


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 ...

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