N.J. Top Court Applies Exclusive Remedy Rule, Policy Language to Find No Duty to Defend

Case File

The Garden State's exclusive remedy rule along with policy language prevented a contractor from enforcing a duty to defend against its insurer. Simply Research subscribers have access to the full text of the case.

Case

Rodriguez v. Shelbourne Spring, LLC, No. 089044 (N.J. 12/12/24).

What Happened

While on the job, a worker for an electrical contractor opened an electrical panel on a breaker and injured himself. The worker initially filed a petition for workers' compensation benefits, and the contractor's insurer complied with its contractual obligation and processed the petition.

After the worker began receiving workers' compensation benefits, he filed a personal injury complaint seeking money damages for his workplace injuries and named the contractor as a defendant.

The insurer disclaimed an obligation to provide a defense, determining that the policy excluded "any obligation imposed by a workers' compensation ... law."

The contractor filed a third-party complaint against the insurer, alleging that the insurer wrongfully disclaimed defense coverage. In response, the insurer filed a motion to dismiss, which the trial judge granted.

After its motion for reconsideration was denied, the contractor appealed and Appellate Division affirmed, prompting the contractor to appeal to the New Jersey Supreme Court.

Rule of Law

A duty to defend arises from an insurer's contractual obligation on the language of the insurance policy, and an insurer is contractually obligated to provide the insured with a defense against all actions covered by the insurance policy.

Addtionally:

+ A duty to defend comes into being when the complaint states a claim constituting a risk insured against, regardless of the claim's likelihood of success.

+ A duty to defend will arise even if the claims are poorly developed and almost sure to fail, so long as they comprehend an injury that may be within the policy.

+ Liability of the insured to the plaintiff is not the criterion for a duty to defend; it is the allegation in the complaint of a cause of action, which, if sustained will impose a liability covered by the policy.

+ Whether an insurer has a duty to defend is determined by comparing the allegations in the complaint with the language of the insurance policy. When the two correspond, the duty to defend arises, irrespective of the claim's actual merit.

+ An insurer has no duty to defend against a claim that measured by the pleadings, even if successful, would not be within the policy coverage.

Regarding the role of workers' compensation benefits, in New Jersey, as in other states, workers' compensation is the exclusive remedy for injured employees who qualify under state workers' compensation law, with the only exception being injuries caused by intentional wrongs for which an employee may seek redress under common law causes of action.

The test for determining when an employer's conduct rises to the level of an "intentional wrong" was spelled out in Laidlow v. Hariton Machiner Co., Inc., 790 A.2d (N.J. 2002):

(1) The employer must know that his actions are substantially certain to result in injury or death to the employee.

(2) The resulting injury and the circumstances of its infliction on the worker must be: a) more than a fact of life of industrial employment; and b) plainly beyond anything the legislature intended the Workers' Compensation Act to immunize.

Additionally, the Laidlow case detailed that an intentional wrong is not limited to actions taken with a subjective desire to harm but also includes instances where an employer knows that the consequences of those acts are substantially certain to result in such harm.

What the New Jersey Supreme Court Said

According to the Garden State's top court, the trial judge mischaracterized the worker's argument as "specifically and solely" amounting to a Laidlow claim. Looking to Van Dunk v. Reckson Associates Realty Corp., 45 A.3d 965 (N.J. 2012), the court noted that the "'dividing line between negligent or reckless conduct on the one hand and intentional wrong on the other hand must be drawn with caution' to avoid employees finding a loophole to the Act's exclusivity bar."

In the worker's case, his negligence, gross negligence, and recklessness claims were limited by the Workers' Compensation Act's exclusivity bar.

So Was there a Duty to Defend?

The insurer did not have a duty to defend the contractor, according to the New Jersey Supreme Court, because money damages for negligence-based tort claims did not fall under the policy language, “benefits ... required by a workers’ compensation law,” which instead included recovery of medical benefits; death benefits for dependents; and temporary disability benefits, permanent total benefits, or permanent partial benefits regardless of fault.

"[The worker]'s personal injury lawsuit does not seek benefits as defined by the Act; instead, it seeks money damages as compensation for his workplace injuries," the court wrote. "[The worker] already recovered those benefits available under [the policy] for his injury, and [the insurer] satisfied its contractual obligation to [the contractor] by providing [the worker] with those workers' compensation benefits."

Additionally, the court pointed out that policy language specifically excluded from insurance coverage any claims for "bodily injury intentionally causes or aggravated by" the contractor, meaning that the insurer had no duty to defend on the worker's Laidlow claims either.

"In sum, none of [the worker]'s claims -- whether for negligent, grossly negligent, or recklessly indifferent conduct or for intentional wrongdoing -- fall [sic] within the coverage established" under the insurance policy, the court concluded.

Takeaway

A worker's claims of negligence, gross negligence, and recklessness won't be enough to trigger the “substantially certain to result in injury” exception to New Jersey's exclusivity remedies bar.

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