Geaney: Insurance coverage Provider Didn’t Show Correct Cancellation of Coverage| Staff Compensation Information

By John H. Geaney

Friday, December 11, 2020 | 151 | 0 | min read

It remains very difficult for insurers in New Jersey to terminate employee compensation contracts. Strict compliance with the NJSA. 34: 15-81 is required as government policies favor continuation of insurance coverage.

John H. Geaney

The Pierson v Travelers Indemnity Co. ruling illustrates the specific issue of cancellation related to non-payment of an exam premium increase.

Nelson Pierson alleged he was injured at Tremarco Brothers on May 7, 2016. The carrier rejected the request for employee compensation due to the termination of Tremarco’s insurance coverage.

The disputed coverage began in March 2014. Tremarco filed with the New Jersey Workers’ Compensation Plan for an insurance company to be assigned to cover employee compensation. Travelers were assigned and insured for 2014-2015. A guideline for 2015-2016 was also issued.

The problem started when the carrier requested an audit during the second term of the contract. The carrier said Tremarco did not cooperate with the test. The result of the audit resulted in an amount that was almost twice the premium that was previously billed.

In the decisive allegation of the case, the carrier alleged that it sent a notice on July 6, 2015 stating that the policy would be canceled on July 24, 2015 if Tremarco did not pay the additional premium. When Tremarco failed to pay the additional premium by that date, the policy was canceled.

Travelers produced Timothy Lukes, a senior account manager underwriter, as witnesses, but Lukes wasn’t the person managing the Tremarco account. Therefore, Lukes’ testimony was limited to discussing how the carrier is conducting premium audits and canceling policies. The Compensation Judge found that Lukes “was unable to explain certain actions or the reasons for the actions taken by travelers on the Tremarco account”.

The person who actually managed the Tremarco account was not asked to testify.

According to the air carrier, the July 6 notice would have informed Tremarco that the policy would be canceled on July 24 if the additional premium was not paid on time. The indemnity judge found that this statement contradicted another statement by Lukes, namely that when an additional award is requested after an audit, the notice normally does not state that failure to pay would result in cancellation, only that that non-payment “May affect your insurability.”

The compensation judge concluded that the cancellation was not clear and precise. The carrier appealed and the appeals division upheld the judge’s conclusion and declined to set aside. The appeals department found that the carrier never produced a witness with personal knowledge of the shipment and receipt of the cancellation policy.

The Appeals Division recognized that “facts about the shipment can be proven with evidence of office use,” but the court did not believe there was sufficient evidence of office use. The court concluded that it was ultimately unclear what the July 6th notice actually said. That fact, more than any other, made the cancellation fail.

The case shows how difficult it can be to cancel a policy in New Jersey even if an insured person refuses to take a premium review and then fails to make timely payment. Public policy in favor of continuation of cover is so powerful that it can only be overcome with absolute precision in relation to any element of NJSA 34: 15-81, and any deviation can lead to an otherwise legitimate attempt to recruit an employee terminate, annulled ‘indemnity insurance.

John H. Geaney is an attorney, executive committee member, and shareholder in Capehart Scatchard, a defense law firm in New Jersey. This post is published with permission from Geaney’s New Jersey Workers’ Comp Blog.