State News : New Jersey

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, Esq., is an Executive Committee Member and a Shareholder 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.