October 31, 2022

Good Things Come In Small Package – Appellate Division Reverses A Conflict Of Interest Opinion Against An Insurance Carrier – Appointed Attorney Defending A Worker’s Compensation Claim Filed By A Shareholder Of The Employer

On October 28, 2022, the Appellate Division issued its decision in  Robert Alam v. Ameribuilt Contractors, A-2114-21, approved for publication that same day. We congratulate the Workers’ Compensation team here at Brown & Connery which appealed the case on behalf of its client, and succeeded in getting a reversal on a significant issue in the Division of Workers’ Compensation.

Petitioner filed a Claim Petition alleging he sustained injuries in a motor vehicle accident which he claimed happened in the course of his employment. Ameribuilt’s workers’ compensation carrier, Travelers, assigned the defense of this claim to our office – Brown and Connery LLP. An answer to the claim was filed admitting coverage and employment, but noting that whether the petitioner was in the course of employment was under investigation. The issue of whether petitioner was in the course of his employment was questionable since his accident occurred on a detour from a work related route. This issue involved the application of the “going and coming rule” and the compensability of claims occurring in transit. (Briefly, for a claim to be compensable while an employee is travelling that employee must be in the performance of his or her duties. For a further discussion of this issue, please see our prior blog, “Nostalgia For a Great Hot Dog Results In A Finding Of No Compensability,” published on Brown & Connery’s website on July 28, 2021.)

Petitioner and respondent began settlement negotiations. Because liability was disputed the parties agreed to enter into a lump sum settlement pursuant to N.J.S.A. 34:15 – 20 (Section 20).

However, when the parties approached the  Compensation Court for approval of the settlement, it determined that defense counsel had a conflict because petitioner was an owner of respondent. Since petitioner, an owner of the company, stated he was in the course of employment, the Court found that defense counsel was in direct conflict with the respondent, and, therefore, Travelers must assign two attorneys: a different attorney to represent the employer, and an attorney to represent Travelers. The order entered on February 1, 2022 directed:

Brown and Connery is removed as counsel on this case because it has an inherent conflict between Ameribuilt Contractors and Ameribuilt Contractors’ Insurer Travelers Property Casualty Co. Ameribuilt Contractors is owned 50% by petitioner Alam. Travelers is denying the compensability of the accident which is against the interest of its insured. Travelers shall assign counsel for itself and for Ameribuilt on or before March 14, 2022.”

The decision was appealed, arguing that on both the law and the facts, there was no conflict of interest, particularly given the long-standing distinction between a corporate entity and the members or employees of that entity. The interests of the entity were to raise and litigate issues of liability. By resolving the claim on a disputed basis via a proposed Section 20 order, the entity’s goals were achieved.
After the filing of the appeal the Worker’s Compensation Court issued an amplification of reasons for the decision explaining:

The insurer Travelers is not a party to this suit even though it retained B&C to defend the claim. In this case, assigned insurance counsel–B&C–is challenging the validity of the claim filed by the petitioner who is the president/owner of the respondent/insured.

 The Court also asked B&C who it represented[,] and counsel advised he represented both Travelers and Ameribuilt. The Court advised counsel that was incorrect. The attorney assigned by an insurance carrier to provide a defense to the insured does not and cannot represent the interests of the insurance carrier. See, N.J. RPC 1.7 (the ethics rule prohibiting concurrent conflicts of interests). . . . It is obvious that B&C is taking its direction from the insurer Travelers and not from the insured Ameribuilt.”

In addressing the order disqualifying Brown and Connery, the Appellate Division noted that while insurance counsel is required to represent the insured’s interest as if the insured hired counsel directly, in this particular case, the sole named insured was Ameribuilt. Neither Travelers nor Brown and Connery had taken any position adverse to the company. On the contrary, the successful pursuit of a viable liability defense clearly was to the benefit of the company. It was also indisputable, according to the decision, that if the defense was unsuccessful, Travelers would cover the loss. The Appellate Division noted that the pursuit of a viable defense to the company’s liability is not only permitted, but required under the insurance conflict contract with Travelers, quoting a provision that Travelers has the right and duty to defend any claim, proceeding or suit against Ameribuilt for damages payable by insurance. Travelers also had the right to investigate and settle these claims, proceedings and suit.
The Appellate Division reversed and remanded to a different judge for the limited purpose of determining whether the settlement terms are fair and reasonable in accordance with the statute.

While the Appellate Court did not directly address the propriety of a Section 20 in this case, the decision does cite Kibble v. Weeks Dredging & Const. Co., 161 N.J. 178, 188 (1999) (quoting N.J.S.A. 34:15-20) :

“For a Section 20 lump-sum settlement to be effective, the only statutory requirements are that [(1)] the settlement be approved by the judge of compensation as ‘fair and just under all the circumstances,’ and [(2)] that the settling petitioner be represented by counsel.”

It is interesting that the Court did not find it necessary to remand with any other instructions to the Court below than to determine if the settlement terms are fair and reasonable in accordance with the statute. It may be that the use of Section 20 dismissals becomes more widespread in the near future.

If you have any questions, comments or concerns about this topic or other issues related to your worker’s compensation needs, please feel free to contact any member of the workers’ compensation group here at Brown & Connery, LLP via email or call 856-854-8900. Also, please visit the Brown and Connery website at www.brownconnery.com to learn more about our legal services.

By:  Alfred Vitarelli, Associate at Brown & Connery, LLP