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Liability Carrier’s Exclusion of Coverage for Workers’ Compensation Injuries Applies to Section 79 General Contractor Determinations of Employment

By on August 9, 2018 in Workers' Comp with 0 Comments

New Jersey has a sensible provision that protects employees of subcontractors who are injured on construction jobs.  If an employee of a subcontractor is injured on a job, and the subcontractor has no workers’ compensation insurance, the injured employee becomes covered by the general contractor’s workers’ compensation policy.  But what if the injured employee instead decides to file a civil suit against the general contractor for negligence?  Does the general contractor’s liability insurance policy cover the civil suit? Can the injured employee sue the general contractor and obtain workers’ compensation from the general contractor?

These questions were answered in DaSilva v. JDDM Enterprises, LLC, David Cohen, t/a JDDM Custom Construction, A-3302-16T2 (July 27, 2018).  The case involved an injury to Mr. DaSilva.  He was working for Hand Brothers on a construction job.  Hand Brothers was a subcontractor of JDDM, the general contractor.  DaSilva fell one story through a cut-out stairwell on the job and suffered injuries.  Hand Brothers had allegedly presented a fake certificate of insurance to JDDM and actually had no compensation coverage.

DaSilva sued JDDM and its principal, David Cohen, seeking damages in a civil action.  JDDM referred the suit to Utica Insurance, its liability carrier.  Utica declined coverage because its policy excluded workers’ compensation injuries.  JDDM and Cohen then filed a third-party declaratory judgment action against Utica, seeking an injunction to compel Utica to defend NJJD and Cohen in the civil action.  Utica then moved for summary judgement arguing that the declaratory judgment suit must be dismissed as Mr. DaSilva’s injuries arose from work. Utica further contended that DaSilva was covered by JDDM under N.J.S.A. 34:15-79 because JDDM was the general contractor.

The trial judge granted summary judgment in favor of Utica.  JDDM and Cohen settled the civil claim with DaSilva and then appealed the decision to let Utica out of the case.  The Appellate Division reviewed the language contained in Section 79.  “Under this provision, a contractor who retains a subcontractor becomes liable for workers’ compensation benefits owed to the subcontractor’s employees if the subcontractor does not provide workers’ compensation insurance.”

The Appellate Division also took note of the fact that JDDM’s workers’ compensation carrier in fact admitted liability under Section 79 to DaSilva. The Appellate Division ruled that Utica’s policy excluding coverage for benefits that are provided or are required to be provided under workers’ compensation was valid.  Since JDDM was required to provide workers’ compensation coverage under Section 79, Utica was well within its rights to deny coverage on the civil suit.

What about the right of DaSilva to sue the general contractor while at the same time asserting coverage for workers’ compensation against the general contractor under Section 79?  Does the exclusive remedy provision apply barring his civil law suit?  The Appellate Division commented as follows: “Because general contractors are not part of an employment contract between a subcontractor and its employees, they are ‘not required to provide workers’ compensation coverage, and do not enjoy the immediate employer’s immunity from tort liability,” citing to Eger v. E. I. du Pont de Nemours Co., 110 N.J. 133, 137 (1988).

So the Court was saying that DaSilva’s civil law suit against the general contractor was not barred under the exclusive remedy provision. That may seem unfair to the general contractor.  However, Section 79 does allow the general contractor to full reimbursement from the subcontractor which failed to carry insurance.  In addition, there would be subrogation issues here under Section 40.  DaSilva had a double recovery here.  He settled his civil suit against the general contractor and obtained workers’ compensation benefits from the general contractor by virtue of Section 79.  Therefore, the worker’s compensation carrier would be entitled to assert subrogation rights and thereby reduce its obligation to DaSilva.

Thanks to our friend Ron Siegel, Esq. for bringing this case to our attention.

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John H. Geaney

About the Author

About the Author:

John H. Geaney, an executive committee member and shareholder with Capehart Scatchard, began an email newsletter entitled Currents in Workers’ Compensation, ADA and FMLA in 2001 in order to keep clients and readers informed on leading developments in these three areas of law. Since that time he has written over 500 newsletter updates.

Mr. Geaney is the author of Geaney’s New Jersey Workers’ Compensation Manual for Practitioners, Adjusters & Employers. The manual is distributed by the New Jersey Institute for Continuing Legal Education (NJICLE). He also authored an ADA and FMLA manual as distributed by NJICLE. If you are interested in purchasing the manual, please contact NJICLE at 732-214-8500 or visit their website at www.njicle.com.

Mr. Geaney represents employers in the defense of workers’ compensation, ADA and FMLA matters. He is a Fellow of the College of Workers’ Compensation Lawyers of the American Bar Association and is certified by the Supreme Court of New Jersey as a workers’ compensation law attorney. He is one of two firm representatives to the National Workers’ Compensation Defense Network. He has served on the Executive Committee of Capehart Scatchard for over ten (10) years.

A graduate of Holy Cross College summa cum laude, Mr. Geaney obtained his law degree from Boston College Law School. He has been named a “Super Lawyer” by his peers and Law and Politics. He serves as Vice President of the Friends of MEND, the fundraising arm of a local charitable organization devoted to promoting affordable housing.

Capehart Scatchard is a full service law firm with offices in Mt. Laurel and Trenton, New Jersey. The firm represents employers and businesses in a wide variety of areas, including workers’ compensation, civil litigation, labor, environmental, business, estates and governmental affairs.

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