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N.J.S.A. 34:15-79(a) is the source of considerable litigation in workers’ compensation. It provides that “Any contractor placing work with a subcontractor shall, in the event of the subcontractor’s failing to carry workers’ compensation insurance as required by this article, become liable for any compensation which may be due an employee or the dependents of a deceased employee of a subcontractor.” There are many cases on the back end where an employee of a subcontractor is injured and brings a claim against the general contractor after the employee’s subcontractor is found to have no workers’ compensation coverage. But the case of Fournier Trucking v. New Jersey Manufacturers Insurance Co., No. A-1353-18T2 (App. Div. April 9, 2020), deals with the situation on the front end – after the policy of insurance is written and before any accident should occur. The focus in this case was on inaccurate information provided by the policy holder to NJM about the risks inherent in its business in order to reduce workers’ compensation premiums.
To appreciate the ruling in this case requires some understanding of the details of the trucking business at issue. Shippers would hire Fournier Trucking to deliver goods primarily to west coast states when the shippers had to deliver less than a full truckload of product or when they had to make deliveries to multiple locations. Fournier Trucking (hereinafter “FT”) would use its own employees to collect loads from its shipping company clients in the tri-state area and then gather them in its New Jersey warehouse. FT would hire independent motor carriers to then haul freight to west coast states. FT would coordinate communication between its customers and the independent carriers, but the carriers provided their own equipment. FT would send the customers an invoice and then pay the carriers for transport services.
The relationship between FT and NJM began in 2003 through an assigned risk policy. At that time FT indicated that it had no owner operators. In its initial audit NJM was of the understanding that FT used no subcontractors or owner operators. For the 2014-2015 policy year, NJM estimated an annual premium of $43,193 with a total annual premium of $45,579. However, an NJM auditor years later happened to notice a discrepancy in the number of drivers reported by FT and the number of drivers which FT listed in a federal licensing database. A site inspection ensued and NJM learned for the first time that FT used between 15 and 20 independent motor carriers for shipping. Naturally, NJM was concerned that it was exposed to much more risk than it had ever appreciated since injured employees of carriers without workers’ compensation coverage could be covered under the above provision in Section 79(a). Therefore NJM unsuccessfully sought information from FT about these carriers and their insurance certifications.
By July 2015 NJM still had not received any Form 1099s or certificates of insurance for the carriers that FT worked with to ship to the west coast. FT refused to provide any such information. NJM was left with no alternative but to estimate the remuneration paid by FT to the uninsured carriers at an amount of $100,000. That raised the total standard premium to $57,043 with the total cost of $70,980. FT protested. While FT insisted that it had agreements requiring the many carriers to maintain insurance, FT would not provide any proof.
On December 23, 2015, FT’s lawyer acknowledged for the first time that their motor carriers “in certain cases employ their own employees.” FT denied that it issued any Form 1099s to the carriers. Two months later, the FT Vice President of Operations denied to NJM that the carriers had any employees, contrary to the admission of their own counsel. She also said that $100,000 would easily cover all payments that FT made to its carriers. Later at trial the Vice President of Operations had to recant her representations and admit as well that the company was in possession of Form 1099s for some motor carriers it worked with in 2015. She also admitted that she never knew whether or not the motor carriers had employees.
Since NJM could not receive information on coverage for FT’s carriers, it did a second audit in 2016 and adjusted the premium for 2014-2015 to $344,001 with a total audited cost of $426,359. NJM indicated that it would not charge FT for any additional risk if the company would just demonstrate proof that the many carriers it worked with maintained workers’ compensation coverage for their employees. FT then sued NJM seeking injunctive relief. NJM counter sued for breach of contract and fraud under N.J.S.A. 34:15-57.4.
During discovery FT listed a total of 81 carriers that it utilized, 15 of which had multiple drivers. The trial judge granted summary judgment in favor of NJM on breach of contract counts and ordered FT to provide copies of information relating to its carriers, including 1099s, certificates of insurances, and names and addresses of the 15 carriers. The trial judge held that NJM was entitled to charge a premium for amounts paid to the uninsured subcontractors pursuant to N.J.S.A. 34:15-79(a).
On June 15, 2018, FT provided documents showing amounts paid to 15 carriers in 2014 totalling $2.59 million dollars, more than 25 times higher than the VP of Operations admitted. Only one of the carriers had workers’ compensation for its employees. Fourteen of the carriers FT was using had no workers’ compensation coverage for their own employees. NJM revised the new premium at this point to $145,321. On the remaining fraud count, the trial judge found that FT was well aware all along that its carriers had employees and had been well aware that it paid far more than $100,000 to its motor carriers. The judge found that FT purposefully and knowingly made misleading and false statements to NJM to avoid payment of additional premiums and withheld material information from NJM in violation of N.J.S.A. 34:15-57.4, the New Jersey Fraud Act.
The trial judge awarded NJM $254,329.17 for unpaid premiums of $145,231, simple interest of $7,603.44, costs of $6,802.73 and attorneys’ fees of $94.692. The judge further found that NJM’s witnesses were entirely credible while finding that FT’s VP of Operations was less than credible.
FT appealed to the Appellate Division which affirmed the trial judge on each issue. FT tried to argue that its motor carriers were independent contractors but not subcontractors under Section 79(a). The Court disagreed: “Because the shipping companies that hire FT for individual shipments exercise little control over FT’s transportation services, FT is clearly a ‘contractor’ for those shipping companies within the meaning of N.J.S.A. 34:15-79(a).” The Court added, “… subcontracting is merely ‘farming out’ to others all or part of work contracted to be performed by the original contractor.” The Court said:
Shippers hire FT to consolidate and transport goods. FT consolidates the goods itself and then subcontracts with the carriers to perform the transportation. Therefore, FT is a contractor, and the carriers it uses to fulfill part of its contracts with shippers are subcontractors.
Next, FT argued that carriers are not employees of FT but are independent contractors. For its part, NJM had already conceded this argument and had never argued that the carriers were employees of FT. Rather, NJM argued that the issue pertained to the employees of the motor carriers who might be injured. The Court said:
By operation of N.J.S.A. 34:15-79(a), to the extent these carriers fail to satisfy their statutory obligation, Fournier Trucking, as the general contractor, is obliged to provide benefits to any carrier employee who suffers an injury while providing services under Fournier Trucking’s general contract.
This opinion provides excellent clarity on the relationship between the terms “independent contractor” and “subcontractor” for purposes of Section 79. In effect, the Appellate Division was saying that for the purposes of Section 79, an independent contractor can be a subcontractor. The case also provides the best discussion of any modern New Jersey case on the duty of the policy holder to provide accurate and complete information to its workers’ compensation carrier and the ramifications of failing to do so. This case is unreported but merits reconsideration by the Committee on Publications.
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 firstname.lastname@example.org.