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It remains very difficult for New Jersey insurers to cancel policies in workers’ compensation. Strict compliance with N.J.S.A. 34:15-81 is required because the state’s policy favors continuation of insurance coverage. The decision in Pierson v. Travelers Indemnity Company, A-3838-19T2 (App. Div. December 7, 2020) illustrates the specific problem of cancellation related to non-payment of an audit increase of premium.
Nelson Pierson alleged he was injured at Tremarco Brothers on May 7, 2016. The carrier moved to dismiss the workers’ compensation claim petition based on the cancellation of Tremarco’s insurance coverage. The coverage at issue began in March 2014. Tremarco applied to the New Jersey Workers’ Compensation Plan for assignment of an insurance company for workers’ compensation coverage. Travelers was assigned and provided coverage for 2014-2015. It also issued a policy for 2015-2016.
The problem in this case began when the carrier requested an audit during the second policy term. The carrier said that Tremarco failed to cooperate with the audit. The result of the audit led to an amount almost double the previously billed premium. In the pivotal allegation of the case, the carrier alleged that it sent on July 6, 2015 a notice that declared the policy would be cancelled on July 24, 2015 if Tremarco did not pay the additional premium. When Tremarco failed to pay the additional premium by July 24, 2015, the policy was cancelled.
Travelers produced as its witness Timothy Lukes, a senior account manager underwriter, but Lukes was not actually the individual who handled the Tremarco account. Therefore Lukes’ testimony was limited to discussion of how the carrier conducts premium audits and cancellation of policies. The Judge of Compensation noted that Lukes was “unable to explain specific actions or the reasons for the actions taken by Travelers on the Tremarco account.” The individual who actually handled the Tremarco account was not called to testify.
It was the position of the carrier that the July 6 notice would have advised Tremarco that the policy would be cancelled on July 24 unless the additional premium were timely paid. The Judge of Compensation felt that this testimony was at odds with another statement Lukes made, namely that when an additional premium after an audit is being sought, the notice would not ordinarily state that a failure to pay would result in cancellation, only that the failure “can affect your insurability.”
The Judge of Compensation concluded that the cancellation was not clear and unambiguous. The carrier appealed, and the Appellate Division affirmed the conclusion of the Judge of Compensation, rejecting the cancellation. The Appellate Division found it significant that the carrier never produced a witness with personal knowledge of the mailing and receipt of the cancellation notice. The Appellate Division recognized that “facts about mailing may be proven with evidence of an office custom,” but the Court did not believe that sufficient evidence of office custom was proffered. The Court concluded that ultimately it was not clear what the July 6 notice actually said. That fact more than any other doomed the cancellation.
The case shows just how hard it can be to effect cancellation of a policy in New Jersey even when an insured refuses to participate in an audit of its premium and then fails to make timely payment. The public policy in favor of continuation of coverage is so powerful that it can only be overcome with absolute precision with respect to every element of N.J.S.A. 34:15-81, and any variation whatsoever can result in voiding an otherwise legitimate attempt to cancel a workers’ compensation insurance policy.
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John H. Geaney, Esq., is a Shareholder and Co-Chair in Capehart Scatchard's Workers’ Compensation Group. Mr. Geaney concentrates his practice in the representation of employers, self-insured companies, third-party administrators, and insurance carriers in workers’ compensation, the Americans with Disabilities Act and Family and Medical Leave Act. Should you have any questions or would like more information, please contact Mr. Geaney at 856.914.2063 or by e‑mail at jgeaney@capehart.com.