LM INSURANCE CORPORATION v. VITALITY KOBYS
OPINION. Signed by Chief Judge Jerome B. Simandle on 3/20/2017. (dmr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
LM INSURANCE CORPORATION,
HONORABLE JEROME B. SIMANDLE
No. 16-2238 (JBS/KMW)
VITALIY KOBYS d/b/a LADA II
Jonathan Mark Kuller, Esq.
GOLDBERG SEGALLA LLP
902 Carnegie Center, Suite 100
Princeton, NJ 08540
Attorney for Plaintiff
Mark Damian Hoerrner, Esq.
BUDD LARNER PC
150 John F. Kennedy Parkway, CN 1000
Short Hills, NJ 07078
Attorney for Defendant
SIMANDLE, Chief Judge:
Plaintiff LM Insurance Corporation (hereinafter,
“Plaintiff” or “LMIC”) initiated this diversity action against
Defendant Vitaliy Kobys d/b/a LADA II Express Co. (hereinafter,
“Defendant” or “LADA II”) seeking (1) a declaratory judgment
that Defendant agreed that Plaintiff’s premium calculation would
include remuneration Defendant paid to its owner-operators, and
(2) the recovery of a retrospective premium adjustment allegedly
owed by Defendant.
Defendant seeks dismissal of Plaintiff’s
Complaint pursuant to Fed. R. Civ. P. 12(b)(6), and Plaintiff
has filed a cross-motion for partial summary judgment pursuant
to Fed. R. Civ. P. 56.
For the reasons that follow, Defendant’s motion to dismiss
will be denied, and Plaintiff’s cross-motion for partial summary
judgment will also be denied.
A. Factual Background1
On June 20, 2011, Defendant submitted an application to the
New Jersey Compensation Rating and Inspection Bureau (“CRIB”)
requesting CRIB to designate an insurance company to provide it
with workers’ compensation insurance in accordance with the New
Jersey Workers’ Compensation Insurance Plan (“the New Jersey
Plan”). (Compl. at ¶ 12; Ex. B to Compl.)2
Defendant could not
For purposes of the pending motion, the Court accepts as true
the version of events set forth in Plaintiffs’ Complaint,
documents explicitly relied upon in the Complaint, and matters
of public record. See Schmidt v. Skolas, 770 F.3d 241, 249 (3d
Cir. 2014). The Third Circuit has explained that “‘[d]ocuments
that the defendant attaches to the motion to dismiss are
considered part of the pleadings if they are referred to in the
plaintiff's complaint and are central to the claim.” Pryor v.
Nat'l Collegiate Athletic Ass'n, 288 F.3d 548, 560 (3d Cir.
2002) (internal citation omitted).
2 The New Jersey Plan “provides involuntary assigned risk
coverage to New Jersey employers that cannot obtain coverage in
the voluntary market. The risk covered by policies issued
through the [Plan] is defined as ‘the entire insured operations
within the State of New Jersey or to which the New Jersey
Compensation Law is applicable.’” Hornet Exp. v. Zurich Am. Ins.
Grp., 382 N.J. Super. 408, 410 (App. Div. 2006).
purchase workers’ compensation insurance on its own through the
voluntary market, so it applied for insurance via the
involuntary market through the Plan.
In submitting the Plan
Application, LADA II agreed with respect to any insurance
provided to it by a carrier assigned by CRIB that (1) the
provisions of the New Jersey Plan would be applicable, (2) the
provisions of the New Jersey Workers Compensation and Employers
Liability Manual (“Manual”) would be applicable,3 (3) that it
would provide true and correct information, (4) that it would
cooperate fully with any assigned carrier, and (5) that it would
inform any assigned carrier promptly of any changes in the
underwriting information provided. (Id. at ¶ 19.)
also submitted a Truckers Supplemental Application with its main
Plan Application, and in response to a question asking to
describe its business, Defendant replied, “Trucking company/long
haul transportation for hire.” (Id. at ¶¶ 20, 23; Pl.’s SMF at ¶
Furthermore, when asked if it used any owner-operators,
Defendant checked “No.” (Compl. at ¶ 22.)
The New Jersey Plan provides that workers’ compensation and
employers liability insurance provided under it is subject to
the rules, rates, minimum premiums, calculations, and applicable
rating plans of the Manual. (Compl. at ¶ 15; Ex. A to Compl.)
More specifically, Part 4, Section 1, Page 38 of the Manual
provides that “[t]ruckmen engaged in hauling under contract,
whether for one or more individuals or concerns, shall under no
circumstances be classified and rated except in accordance with
the appropriate TRUCKMEN classification. Each classification
includes miscellaneous employees such as terminal employees,
garagemen, and repairmen.” (Pl.’s SMF at ¶ 15.)
Plaintiff alleges that Defendant agreed to the “Hired
Vehicle Rule” portion of the Manual when it applied for coverage
pursuant to the New Jersey Plan. (Id. at ¶¶ 27, 30.)4
result, the Hired Vehicle Rule was applicable to insurance
applied for and obtained by Defendant through the New Jersey
Plan. (Id. at ¶ 28.)
According to the records of the Federal
Motor Carrier Safety Administration, Defendant has been a US
Department of Transportation (“USDOT”) authorized interstate
common carrier, USDOT No. 851399, with eight power units and ten
drivers. (Id. at ¶ 40.)
Initially, in 2011, CRIB designated other insurers to
provide coverage to Defendant under the Plan. (Pl. SMF ¶ 21.)
On April 2, 2014, CRIB directed Plaintiff via a Notice of ReDesignation to provide coverage for Defendant effective June 24,
The Hired Vehicle Rule states: “If vehicles, including drivers,
chauffeurs and helpers are employed under contract and if the
owner of such vehicles has not insured its compensation
obligation and furnished evidence of such insurance, the actual
payroll of the drivers, chauffeurs and helpers shall be included
in the payroll of the insured employer at the proper rate for
the operations in which the insured employer is engaged. If such
payroll cannot be obtained, one-third (1/3) of the total amount
paid for the hire of such vehicle under contract shall be
considered as the payroll of the drivers, chauffeurs and
helpers. If the proprietor or partners who own the vehicles are
also drivers, one-third (1/3) of the contract amount for the
vehicles operated by such proprietor or partners shall be
included in the payroll of the insured employer. Such amounts
shall exclude fuel surcharge costs, in accordance with
Interstate Commerce Commission regulations provided the
employer’s books and records are maintained to show such costs
separately and in summary.” (Compl. at ¶ 27.)
2014. (Id. at ¶ 34; Ex. F. to Compl.)
Defendant had two
policies with Plaintiff – WC5-33S-364619-014 (the “014 Policy”),
which was effective from June 24, 2014 to June 22, 2015, and
WC5-33S-364619-015 (the “015 Policy”), which was effective from
June 22, 2015 to June 22, 2016. (Id. at ¶¶ 35-37.)
been renewed for the period of June 22, 2016 to June 22, 2017.
(Pl.’s SMF at ¶ 24.)
The policies described the process for calculating the
workers’ compensation insurance premiums due, which involved
multiplying a rate by a “premium basis.” (Id. at ¶ 38.)
Plaintiff explains that “premium basis” included payroll “and
all other remuneration paid or payable during the policy period
for the services of . . . [a]ll your officers and employees
engaged in work covered by this policy” and [a]ll other persons
engaged in work that could make us liable under [the workers’
compensation insurance portion] of this policy.” (Id.)
policies further explained that each contract year, Defendant
would pay estimated premiums in advance for the policies as the
final premium was determined “by using the actual, not the
estimated, premium basis and the proper classifications and
rates that applied to [Defendant].” (Id.)
The policies also
stated that “You will let us examine and audit all your records
that relate to this policy.
These records include ledgers,
journals, registers, vouchers, contracts, tax reports, payroll
and disbursement records, and programs for storing and
retrieving data.” (Id.)
Relatedly, each policy contained a New
Jersey Workers’ Compensation Insurance Plan Eligibility
endorsement, which provided that Plaintiff could “audit and
examine [Defendant’s] records and otherwise fully cooperate with
[their] attempts to conduct premium audits or inspect the
workplaces.” (Id. at ¶ 39; Exs. B & C to Kobys Cert.)
On October 2, 2015 and November 24, 2015, Plaintiff
conduced an audit of Defendant’s 014 Policy, and Plaintiff’s
audit representative found that Defendant had over $700,000 of
Class 7219 Truckmen exposure, yet maintained no workers’
compensation coverage in accordance with the provisions of Title
34 of the New Jersey Statutes. (Compl. at ¶ 42.)
calculated the appropriate final premium and tendered a bill to
Defendant, but Defendant has “failed and refused” to pay any of
the adjusted premium amounts. (Id. at ¶¶ 43-44, 51.)
B. Procedural History
Plaintiff filed its Complaint on April 21, 2016. [Docket
Count I requests a declaratory judgment that pursuant
to the Application, the New Jersey Plan, the Manual, and the two
policies between Plaintiff and Defendant, LADA II agreed to the
inclusion in premium base of remuneration paid to various
trucking concerns, who did not maintain workers’ compensation
coverage that complied with New Jersey law. (Id. at ¶¶ 45-47.)
Count II is a breach of contract claim based on Defendant’s
failure to pay premiums. (Id. at ¶¶ 48-51.)
Defendant filed its
Motion to Dismiss on July 11, 2016, and attached a forty-four
page affidavit of Vitaliy Kobys. [Docket Item 8.]5
August 23, 2016, Plaintiff filed its opposition to Defendant’s
Motion to Dismiss, while also filing a cross-motion for partial
summary judgment on Count II. [Docket Item 15.]
opposition to Plaintiff’s motion for partial summary judgment on
September 13, 2016. [Docket Item 19.]
The Court has considered
the papers filed by the parties and rules on the written
submissions and without oral argument, pursuant to Rule 78, Fed.
R. Civ. P.
Plaintiff contends that submission of the Kobys Certification
at this stage is improper because it is outside the pleadings
and should not be considered by the Court on a motion to
dismiss. The Court cannot properly consider the Kobys
Certification at this stage without converting Defendants'
motion to dismiss into a motion for summary judgement. See
Campbell v. John, No. 12-2750, 2016 WL 2347038, at *3 (D.N.J.
May 4, 2016) (declining to consider a certification attached to
the defendant’s motion to dismiss “because a post-complaint
certification is not the sort of document conceived of in the
case law”); Marshall v. Keansburg Borough, No. 13-0533, 2013 WL
6095475, at *8 (D.N.J. Nov. 20, 2013) (declining to consider a
certification attached to the defendant’s motion to dismiss
because “it would require a consideration of matters outside the
pleadings”). Given that Plaintiff has cross-moved for partial
summary judgment on its breach of contract claim, the Court will
consider the Kobys Certification in its analysis of that motion,
along with the other evidence submitted to the record. See infra
STANDARD OF REVIEW
A. Motion to Dismiss Standard
Pursuant to Rule 8(a)(2), Fed. R. Civ. P., a complaint need
only contain “a short and plain statement of the claim showing
that the pleader is entitled to relief.” Specific facts are not
required, and “the statement need only ‘give the defendant fair
notice of what the . . . claim is and the grounds upon which it
rests.’” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citations
omitted). While a complaint is not required to contain detailed
factual allegations, the plaintiff must provide the “grounds” of
his “entitle[ment] to relief”, which requires more than mere
labels and conclusions. Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555 (2007).
A motion to dismiss under Rule 12(b)(6), Fed. R. Civ. P.,
may be granted only if, accepting all well-pleaded allegations
in the complaint as true and viewing them in the light most
favorable to the plaintiff, a court concludes that the plaintiff
failed to set forth fair notice of what the claim is and the
grounds upon which it rests. Id.
A complaint will survive a
motion to dismiss if it contains sufficient factual matter to
“state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009).
Although a court
must accept as true all factual allegations in a complaint, that
tenet is “inapplicable to legal conclusions,” and “[a] pleading
that offers labels and conclusions or a formulaic recitation of
the elements of a cause of action will not do.” Id. at 678. The
Court must construe the complaint in the light most favorable to
the plaintiff. In re Ins. Brokerage Antitrust Litig., 618 F.3d
300, 314 (3d Cir. 2010) (quoting Gelman v. State Farm Mut. Auto.
Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009)).
In considering a motion to dismiss, the Court only
considers “the complaint, exhibits attached to the complaint,
matters of public record, as well as undisputedly authentic
documents if the complainant's claims are based upon these
documents.” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260
(3d Cir. 2006).
If matters outside of the pleadings are
considered, then the motion is treated as a motion for summary
judgment. See Fed. R. Civ. P. 12(d).
Summary Judgment Standard
Summary judgment is appropriate if “there is no genuine
issue as to any material fact and the moving party is entitled
to judgment as a matter of law.”
Alabama v. North Carolina, 560
U.S. 330, 344 (2010) (citations and internal quotation marks
omitted); see also Fed. R. Civ. P. 56(a).
In evaluating Defendant’s motion for summary judgment, the
Court must view the material facts in the light most favorable
to the non-moving party, Defendant, and make every reasonable
inference in that party’s favor.
See Scott v. Harris, 550 U.S.
372, 378 (2007); Halsey v. Pfeiffer, 750 F.3d 273, 287 (3d Cir.
An inference based upon “‘speculation or conjecture,’”
however, “‘does not create a material factual dispute sufficient
to defeat summary judgment.’”
Halsey, 750 F.3d at 287
Rather, the non-moving party must support
each essential element with concrete record evidence.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
the record taken as a whole could not lead a rational trier of
fact to find for the non-moving party,” the Court may grant
Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986).
A. Defendant’s Motion to Dismiss
Defendant argues that Plaintiff’s Complaint should be
dismissed under Rule 12(b)(6) because its policies do not cover
most of the truckers that Defendants use, as the company is
“really a dispatcher/agent for a group of independent truck
drivers.” (Def. Br. at 3.)
More specifically, Defendant claims
that Plaintiff’s 2015 audit was “little more than a pretext”
because Defendant received a bill for a premium adjustment of
$261,816 for the 014 policy, which was over 22 times the premium
that Defendant initially paid under the policy. (Id. at 12.)
Plaintiff replies that Defendant “agreed to precisely the
treatment that LMIC employed with regard to the remuneration
[Defendant] paid to the alleged owner-operators.” (Opp’n at 2.)
1. Count I (Declaratory Judgment)
Plaintiff first seeks relief pursuant to the Declaratory
Judgment Act, 28 U.S.C. § 2201.
The DJA provides that a court
“may declare the rights and other legal relations of any
interested party seeking such declaration.” 28 U.S.C. § 2201(a)
(emphasis added). “The Supreme Court has long held that this
confers discretionary, rather than compulsory, jurisdiction upon
Reifer v. Westport Ins. Corp., 751 F.3d 129,
134 (3d Cir. 2014)(quoting Brillhart v. Excess Ins. Co. of Am.,
316 U.S. 491, 494 (1942)).
This is in stark contrast to the
general rule that “federal courts have a strict duty to exercise
the jurisdiction that is conferred upon them by Congress.”
Reifer, 751 F.3d at 134 (quoting Quackenbush v. Allstate Ins.
Co., 517 U.S. 706, 716 (1996)).
Nonetheless, although the DJA
confers on district courts a “unique and substantial
discretion,” the exercise of that discretion must be “sound and
reasoned.” Reifer, 751 F.3d at 139.
The DJA is commonly invoked
by insurance companies “to seek a declaratory judgment on a
purely state law matter” in federal court based on diversity
subject matter jurisdiction. Id. at 141.
In response to such
cases, the Third Circuit has previously observed that “[t]he
desire of insurance companies and their insureds to receive
declarations in federal court on matters of purely state law has
no special call on the federal forum.” State Auto Ins. Cos. v.
Summy, 234 F.3d 131, 136 (3d Cir. 2000).
became common practice for district courts “to decline to
exercise jurisdiction over declaratory judgment actions,
involving an insurance company, that are solely brought on
diversity, and have no federal question or interest.” Reifer,
751 F.3d at 142.
This principle is especially relevant because
the interest of a state “in resolving its own law must not be
given short shrift simply because one party or, indeed, both
parties, perceive some advantage in the federal forum.” Summy,
234 F.3d at 136.
Where state law is uncertain or undetermined,
the proper relationship between federal and state courts
requires district courts to “step back” and be “particularly
reluctant” to exercise DJA jurisdiction. Id. at 136.
that district courts are limited to predicting—rather than
establishing—state law requires “serious consideration” and is
“especially important in insurance coverage cases.” Id. at 135.
In Reifer, however, the Third Circuit cautioned against
“declining jurisdiction per se” in such cases, because a
“wholesale, ‘revolving door’ dismissal of such cases” would
evidence neither sound nor reasoned discretion. Id. at 147
(citing Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995) and
Bituminous Coal Operators' Assoc., Inc. v. Int'l Union, United
Mine Workers of Am., 585 F.2d 586, 596 (3d Cir. 1978))
(additional citations omitted).
Instead, the Third Circuit
instructed district courts to consider a non-exhaustive list of
factors when determining whether to exercise jurisdiction over
such declaratory judgment actions, including:
(1) the likelihood that a federal court declaration will resolve
the uncertainty of obligation which gave rise to the
(2) the convenience of the parties;
(3) the public interest in settlement of the uncertainty of
(4) the availability and relative convenience of other remedies;
(5) a general policy of restraint when the same issues are
pending in a state court;
(6) avoidance of duplicative litigation;
(7) prevention of the use of the declaratory action as a method
of procedural fencing or as a means to provide another forum in
a race for res judicata; and
(8) (in the insurance context), an inherent conflict of interest
between an insurer's duty to defend in a state court and its
attempt to characterize that suit in federal court as falling
within the scope of a policy exclusion.
Reifer, 751 F.3d at 146.
Based upon the factors enumerated by the Third Circuit, the
Court declines to exercise jurisdiction over Plaintiff's
declaratory judgment claim.
On one hand, the Court is unaware
of any action between the parties pending in state court.
Therefore, there is no concern about duplicative litigation, nor
does Plaintiff have a conflict regarding its duty to defend in a
Moreover, a federal declaration would resolve the
uncertainty between the parties, and would provide future
parties litigating the scope of the New Jersey Plan with
guidance as to the applicability of the Hired Vehicle Rule.
There is no indication that Plaintiff is using the declaratory
action as a method of procedural fencing.
On the other hand,
there are other remedies available, such as compensatory damages
and the New Jersey Declaratory Judgment Act, N.J.S.A. 2A:16-52,
which allows for substantially similar relief to that provided
by the DJA.
Additionally, there is no significant public
interest that this case be resolved in federal court. See 1100
Adams St. Condo. Ass’n v. Mt. Hawley Ins. Co., No. 14-2203, 2014
WL 52855466, at *16 (D.N.J. Oct. 15, 2014).
On balance, the
Reifer factors suggest that the Court shall decline to exercise
jurisdiction over Count I.
2. Count II (Breach of Contract)
Defendant argues for dismissal of Plaintiff’s breach of
contract claim because Plaintiff mischaracterized Defendant’s
truckers as employees, which inflated Defendant’s final premium
New Jersey’s workers’ compensation laws in general are
remedial social laws, and “are to be interpreted in a broad and
liberal manner so as to bring as many cases as possible within
their coverage.” Brunell v. Wildwood Crest Police Dep’t, 176
N.J. 225, 236 (2003) (citations omitted); see also Klein v. New
York Times Co., 317 N.J. Super. 41, 49 (App. Div. 1998)
(explaining that the Act is “humane social legislation designed
to place the cost of work-connected injury upon the employer who
may readily provide for it as an operating expense.” (citation
Defendant argues that Plaintiff fails to state a claim for
breach because Plaintiff’s Complaint “proffers no support for
[Defendant’s] position that the independent truckers are
‘employees,’” and Defendant’s truckers qualify as “independent
contractors” as a matter of law in New Jersey under the “right
to control” and “relative nature of the work” tests. (Def. Br.
at 24, 26.)
As a result, it argues, Plaintiff “was not entitled
to any additional workers’ compensation premium” beyond what
Plaintiff initially estimated. (Id. at 26.)
On the other hand,
Plaintiff argues that it sufficiently states a claim for breach
of the insurance agreements because it alleges that Defendant
failed to pay premiums pursuant to Part 5(C)(2) of the policies.
(Opp’n at 16-17; Compl. at ¶ 49.)
Plaintiff explains that it
has presented a plausible claim of relief because it was “in a
contractual relationship” with Defendant “predicated on the
representations and agreements” of Defendant, so in applying for
workers’ compensation insurance under the New Jersey Plan,
Defendant agreed that the Plan, the Manual and the Hired Vehicle
Rule would apply. (Opp’n at 11.)
The Court agrees with Plaintiff that it has stated a
plausible breach of contract claim under Rule 12(b)(6), Fed. R.
Civ. P., because it has met all elements of a prima facie breach
of contract claim.
In New Jersey, a plaintiff must allege four
elements to state a claim for breach of contract: (1) a valid
contract “containing certain terms,” (2) plaintiff “did what the
contract required them to do,” (3) defendant’s breach of the
contract, and (4) damages resulting from that breach. See Globe
Motor Co. v. Igdalev, 139 A.3d 57, 64 (N.J. 2016)(citations
First, Plaintiff has reproduced and attached portions
of the insurance policies containing the terms of premium
In addition, the basic principles of law governing insurance
policies are well-settled in New Jersey. The goal with
an insurance contract, like the goal with any other contract, is
to determine the intent of the parties. See Stone v. Royal Ins.
Co., 211 N.J. Super. 246, 249 (App. Div. 1986). To determine the
intent of the parties, a court must look at the language of the
policy. Id. When an insurance policy “is clear and unambiguous
... the court is bound to enforce the policy as it is written.”
Royal Ins. Co. v. Rutgers Cas. Ins. Co., 271 N.J. Super. 409,
416 (App. Div. 1994). “It is not the function of the court to
make a better contract for the parties than they themselves have
seen fit to enter into or to alter it for the benefit of one
party and to the detriment of the other.” Id.
Specifically, Part 5(C) of the insurance policies
explain how Plaintiff calculated premiums, stating that the
“premium basis includes payroll and all other remuneration paid
or payable during the policy period for the services of . . .
(2) [a]ll other persons engaged in work that could make us
liable under Part One (Workers’ Compensation Insurance) of this
policy.” (emphasis added)(Compl. ¶ 38.)
It is Plaintiff’s
contention that such a classification is quite broad and would
include the Defendant’s truckers regardless of whether they are
Furthermore, Plaintiff provided coverage for Defendant
between June 24, 2014 and June 22, 2016, conducted an audit, and
tendered a bill for premiums (Compl. ¶¶ 35-36, 41-43), Defendant
“failed and refused to pay said premiums,” (Id. ¶ 44) and
Plaintiff suffered damage as result of the alleged breach. (Id.
at ¶ 51.)
Defendant’s policies explicitly stated how premium
would be calculated up front, that the initial premium was “an
estimate,” and that the “final premium will be determined after
this policy ends by using the actual, not the estimated, premium
basis and the proper classifications and rates that lawfully
apply to the business and work covered by this policy,” and
“information developed by audit will be used to determine final
premium.” (Compl. ¶ 38.)
Because New Jersey courts have not examined this specific
policy provision regarding premium basis, Plaintiff relies on
two out-of-state cases to support its argument that a breach of
contract occurs when an insured fails to pay premiums calculated
under these types of provisions.
In the first case, Nat’l Fire
Ins. Co. v. Beaulieu Co., 140 Conn. App. 571, 59 A.3d 393
(2013), the appellate court affirmed a trial court decision
finding that the plaintiff insurance company was entitled to
include in its premium recalculation for a roofing company “all
persons or entities, whether employees of the defendant or not,
for whom the plaintiff may be liable to pay workers’
compensation benefits, unless the defendant provides that such
coverage was otherwise provided.” Id. at 583 (internal quotation
The court further found that even if the
workers were independent contractors rather than employees, the
insurance company “was entitled to additional premiums for their
work with the defendant because they all fit within part five C
2 of the insurance policy in that they engaged in work that
could make the plaintiff liable to provide workers' compensation
In the second case, La. Workers’ Comp. Corp. v.
N/C Materials, Inc., 858 So. 2d 534 (La. Ct. App. 1st Cir.
2003), in analyzing the exact same language regarding premium
The premium language in Beaulieu is the exact same language as
the case at bar. See Beaulieu, 140 Conn. App. at 575 n.5.
basis, the court held that whether the truck drivers were
employees or independent contractors was “immaterial” because
[a]ccording to the plain language of the insurance policy, even
if the drivers were independent contractors, [the insured] must
report payments to [the insurer].” Id. at 536.
The court added
that “[a]ssertions by [the insured] that none of the truck
drivers ever filed a claim for workers’ compensation coverage is
irrelevant” because “[t]he premiums cover potential exposure to
liability, not actual claims.” Id. at 536-37.
The Court finds
these cases persuasive, as the case at bar closely tracks the
facts of the two non-New Jersey cases, and it is certainly
plausible based on the facts alleged that Defendant agreed to
this premium arrangement and has breached that agreement.
Plaintiff argues that it does not need to allege that the
owner-operators at issue were employees, but rather, that
Defendant could be held liable under the Workers Compensation
Insurance part of the policy for the owner-operators at issue,
and it has done so, in Paragraph 49 of its Complaint. (Opp’n at
That paragraph lays out the necessary factual support
establishing that the truckers at issue could have made
Defendant liable for claims brought under their policies. (Id.
Paragraph 49 of Plaintiff’s Complaint states: “The trucking
concerns to whom LADA II paid remuneration operated under LADA
II’s USDOT authorization, without which those trucking concerns
Taking Plaintiff’s factual allegations as true, Plaintiff
has stated a claim upon which relief can be granted for breach
The New Jersey Plan provided that “[t]he employer
accepts all provisions of the plan and complete responsibility
for the statements in the Application Form when he affixes his
signature thereto,” and the Plan provided that workers’
compensation and employer’s liability insurance provided under
it would be subject to the rules, rates, minimum premium
calculations and applicable rating plans of the New Jersey
Workers’ Compensation and Employer’s Liability Insurance Manual.
(Ex. A to Compl.) Furthermore, the Plan specifically states that
“[t]he employer accepts all of the provisions of the Plan and
complete responsibility for the statements in the Application
Form when he affixes his signature thereto.” (Ex. A to Compl.)
Defendant agreed to the audit in the policies (see Compl. ¶ 38),
and despite its argument that Plaintiff “automatically
designated” the truckers as employees, the Complaint states
otherwise. (Compl. ¶¶ 42, 49.)
Whether Defendant is actually
bound by the Plan and Manual is a question more suited for
summary judgment, see infra Part IV.B.1.
For the purposes of
this motion to dismiss, Plaintiff has essentially pled that we
it faced potential exposure for Defendant’s truckers, and that
could not act as common carriers in interstate commerce. Without
engaging the same trucking concerns, LADA II could not have
it was entitled to charge premium for that risk.
fundamental concept of insurance centers on the transfer of
risk. U.S. Mineral Products Co. v. Amer. Ins. Co., 348 N.J.
Super. 526, 544 (App. Div. 2002).
Thus, Plaintiff has plausibly
stated a claim for breach of contract.
a. A New Jersey Compensation Court Could Have
Jurisdiction for Truckers Not Based in New
Defendant makes a series of other arguments in favor of
dismissal, which the Court will now address. First, Defendant
argues that Plaintiff’s Complaint must be dismissed because a
New Jersey Workers’ Compensation Court9 would not have
jurisdiction over any claim asserted by the “vast bulk” of
Defendant’s truckers as they do not live or work in New Jersey,
nor did they receive and sign their Independent Contractor
Agreements in New Jersey. (Def. Br. at 15, 18.)
policies with Defendant only cover claims under the Workers
Compensation Law of New Jersey. (Exs. B, C to Kobys Cert.)
result, it argues, even assuming that the truckers were LADA
employees, there would be no coverage for them under Plaintiff’s
workers’ compensation policies. (Id. at 19.)
however, cites Connelly v. Port Authority of New York and New
Jersey, 317 N.J. Super. 315, 320 (App. Div. 1998) to demonstrate
The New Jersey Division of Workers’ Compensation has “exclusive
original jurisdiction of all claims for workers’ compensation
benefits.” N.J.S.A. 15-49(a).
the various grounds by which a New Jersey Workers’ Compensation
Court could have jurisdiction over a claim involving a trucker.
(Opp’n at 22.)10
These include (1) the fact that Defendant is
located in a single state, New Jersey, where it solicits drivers
from its New Jersey location, (2) the assignment of all trips
and loads begin with Defendant from its New Jersey location and
all drivers are paid by Defendant from its New Jersey location,
(3) the drivers make pickups in Newark, NJ and Rahway, NJ, (4)
the drivers make deliveries in the state of New Jersey, (5)
Defendants’ Independent Contractor Agreement requires that
owner-operators maintain Workers’ Compensation insurance, and
(6) the Agreement also contains a New Jersey Jurisdiction
Clause. (Opp’n at 22.)
At this early stage in the litigation,
the Court declines to dismiss Plaintiff’s Complaint on this
ground because it appears that a New Jersey Workers’
Compensation Court could have jurisdiction over potential claims
asserted by some of Defendant’s truckers.
issue will require further development of the record regarding
In Connelly, the court embraced the jurisdictional analysis
articulated in the Larson’s Workers’ Compensation Law treatise.
317 N.J. Super. at 319. The six bases upon which New Jersey may
apply its Workers’ Compensation Act include: (1) the place where
the injury occurred; (2) the place of making the contract; (3)
the place where the employment relation exists or is carried
out; (4) the place where the industry is localized; (5) the
place where the employee resides; or (6) the place whose statute
the parties expressly adopted by contract. Id. The Connelly
court also explained that “an injury in New Jersey will trigger
jurisdiction in the New Jersey compensation court.” Id. at 320.
contacts sufficient to warrant coverage under New Jersey law.
See International Schools Servs., Inc. v. New Jersey Dept. of
Labor and Workforce Dev’t, 408 N.J. Super. 198, 216 (App. Div.
It is evident that Defendant’s argument regarding
jurisdiction turns on a factual dispute that would require the
Court to look beyond the face of Plaintiff's complaint and
therefore cannot be resolved on a motion to dismiss.
b. Trans American Does Not Preclude Plaintiff’s
Complaint from Proceeding at this Stage.
Next, Defendant argues that even with respect to the
truckers based in New Jersey, Plaintiff’s Complaint must still
be dismissed because Plaintiff mistakenly shifts the burden onto
Defendant to rebut the presumption that its truckers were
employees. (Def. Br. at 20.)
Defendant relies on Aetna
Insurance Co. v. Trans American Trucking Service, Inc., 261 N.J.
Super. 316 (App. Div. 1993), since it is “almost identical” to
the present matter. (Def. Br. at 23; Reply Br. at 9.)
In Trans American, like in the present action, an insurer
sued a trucking company to recover premiums after an audit led
to an upward adjustment of premiums based on the company’s use
of outside truckers in addition to its regular full-time
drivers. 261 N.J. Super. at 321.
The insurer explained that it
adjusted the premium based on the Hired Vehicle Rule found in
the Manual. Id. at 320.
The court affirmed summary judgment in
favor of the trucking company as it “found no authority which
elevates the [New Jersey Workers’ Compensation] Manual above the
legal definition of independent contractor,” and therefore held
that the insurer could not apply the Manual’s Hired Vehicle Rule
to charge Trans American premiums for independent contractors.
Trans American, 261 N.J. Super. at 328, 330.
In addition, the
court held that the “manual’s hired vehicle rule cannot change
the burden of proof and allow an insurer to assume that outside
truckers retained under an independent contractor agreement are
an insured’s ‘employees’ after it has received evidence of their
independent contractor status because of a mere possibility of
some future claim of employee status.” Id. at 330.
The parties sharply dispute the applicability of Trans
American to the instant matter. Defendant claims that Trans
American remains “binding precedent” and urges the Court to
follow the Trans American holding that the burden of proof with
respect to whether an independent driver is an “employee” within
the meaning of the Workers’ Compensation statute is on the
insurer. (Reply Br. at 1-2.)
Plaintiff argues that Trans
American is “of very dubious precedential value” because it (1)
misstates the statutory authority of CRIB, and (2) at the time
of the Trans American holding, Trans American’s workforce of
sole proprietor owner-operators could not possibly have been
subject to the Workers’ Compensation Act because N.J.S.A. 34:1536 has since been amended to allow sole proprietors to obtain
workers’ compensation coverage. (Opp’n at 14-15.)11
correct that Trans American remains good law in New Jersey, but
Plaintiff is also correct that the New Jersey Legislature has
since undercut portions of the opinion.
Particularly, in 2009,
the legislature modified Title 34 in 34:15-90.2 regarding the
powers and responsibilities of CRIB in 2009. (Opp’n at 12.)12
First, N.J.S.A. 34:15-90, which describes the makeup of CRIB,
now states that CRIB “shall have authority to
. . . (e)stablish
and maintain rules, regulations, and premium rates for workers’
compensation and employers’ liability insurance and equitably
adjust the same, as far as practical, to the hazard of
individual risks, by inspection by the bureau.” N.J.S.A. 34:1590.1-2.13
According to the legislative history, the new statute
“revises the membership of CRIB’s governing committee, not
currently codified in the statutes, to make it more inclusive of
all parties involved with the workers’ compensation systems,”14
Plaintiff also points to Re/Max of N.J. v. Wausau Ins. Cos.,
744 A.2d 154, 155-56 (N.J. 2000) for the proposition that CRIB’s
“function . . . is to establish the classification of risks,
base rates, system of merit or schedule rating and premiums to
be charged based on those risks, N.J.S.A. 34:15-88 and -89.”
12 N.J.S.A. 34:15-90.2 repealed N.J.S.A. 34:15-89 and N.J.S.A.
34:15-90. (Opp’n at 12.)
13 One treatise describes CRIB as a “quasi-independent,
privatized instrumentality of the State of New Jersey created by
the legislature and supervised by the Commissioner of
Insurance.” 38 N.J. Prac., Workers' Compensation Law § 6.1 (3d
14 Instead of CRIB member insurance companies choosing all CRIB
directors, now, six directors are elected by the insurance
companies, three are appointed by the Commissioner of Banking
while it also “clarifies CRIB’s authority with respect to its
members and its authority.” NJ S. Comm. State., S.B. 1917,
In Trans American, the Court described CRIB as
“appear[ing]” more an arm of the insurance industry or a
cooperative agency than a governmental agency.” 261 N.J. Super.
at 320 n. 4.
While it is not necessarily clear that, as
Plaintiff argues, the “Legislature has clearly responded to
[Trans American’s] derisive observations,” N.J.S.A. 34:15-90.1-2
does make clear that CRIB has authority to establish rules
related to the Manual, which includes the Hired Vehicle Rule.15
More importantly, while the parties dispute the
applicability of Trans American, the case at bar is
distinguishable from Trans American because Plaintiff here
currently disputes the independent contractor status of the
operators at issue, whereas in Trans American, the insurer in
conceded that the workers were independent contractors. 261 N.J.
Super. at 327. Plaintiff is therefore not “assum[ing]” that
and Insurance (one must be from a licensed insurance producer,
one must be from business and one must be from labor). N.J.S.A.
15 Additionally, Trans American relies on N.J.S.A. 34:15-36 for
the proposition that sole proprietors have no workers’
compensation obligation to insurance, but that statute has since
been amended to allow sole proprietors the opportunity to elect
to obtain workers’ compensation coverage. (Opp’n at 14-15.) The
Court does not find that this amendment makes Trans American of
dubious precedential value because the court primarily relied on
other grounds in finding that the Hired Vehicle Rule did not
apply to the independent contractors.
Defendant’s truckers are employees, and has indeed plead facts
indicating that the truckers were employees. (See Compl. ¶ 49.)
Even if the “burden shifts to [the insurer] to disprove
[independent contractor] status” where “an insurer seeks to
impose charges despite contracts which show independent
contractor status,” that does not require dismissal on a
Additionally, unlike Trans American, where the
existence of the Manual was apparently ambiguous in the
employer’s application, here, Defendant obtained insurance
through the involuntary state-sponsored Plan, which specifically
states that Defendants’ insurance was subject to the rules,
rates, minimum premiums, calculations, and applicable rating
plans of the New Jersey Workers’ Compensation and Employers
Liability Insurance Manual. (Exs. A and B to the Compl.); In
Trans American, however, the Court noted that the record did not
indicate specifically what the insurer’s manual was, or the
actual basis and method of calculation of the insurer’s claimed
rate charges).16 261 N.J. Super. at 324.
Defendant argues that like in Trans American, “Plaintiff
apparently concedes that the independent truckers are not
employees because it seeks to charge premium for them based on
the ‘hired vehicle’ rule.” (Def. Br. at 26). This is not the
case, as nowhere in Plaintiff’s papers or exhibits does it
concede that Defendant’s truckers are independent contractors.
Defendant argues that “[i]f Plaintiff contended that the
independent truckers were ‘employees,’” it would simply seek
additional premium for them, and not need to resort to the
‘hired vehicle’ rule.” However, Plaintiff does seek to charge
Defendant also claims that Trans American controls on the
issue of whether the failure to pay premiums for the drivers
constituted a breach of the insurance agreement. (Reply Br. at
Defendant points to language in Trans American stating
that the insurance company has “a right to charge premiums” back
if an injured claimant is successful in establishing employee
status, so Plaintiff’s complaint fails to allege a breach of the
insurance policies. Trans American, 261 N.J. Super. at 330.
This argument is misguided, as it speaks more towards the amount
of damages, and not the existence of a cause of action of
The court has already found that Plaintiff has properly
plead a prima facie case of breach of contract.
significant factual differences in Trans American and the case
at bar, Defendant cannot rely on Trans American in arguing for
dismissal under Rule 12(b)(6).
c. Whether the Truckers Are Independent
Contractors or Employees Is a Question That is
Too Premature to Decide on the Pleadings
Defendant next argues for dismissal because the truckers at
issues are independent contractors.
Given the fact that the
financial benefits under the workers' compensation act extend
only to employees, N.J.S.A. 34:15-1, the question of whether a
LADA II driver is an employee or an independent contractor is
additional premium, as the unpaid premiums are the basis of its
breach of contract claim.
crucial to the determination of whether the drivers are required
to maintain coverage and, in turn, whether insurance carriers
may legitimately include the agents in calculating premiums.
Kertesz v. Korsh, 296 N.J. Super. 146, 152, (App. Div. 1996).
See generally 38 N.J. Prac., Workers’ Compensation Law § 5.1
through § 5.9 (3d ed.)
For example, under the Workers’ Compensation Act, the term
“employee” is given a broad definition and includes “all natural
persons ... who perform services for an employer for financial
consideration.” N.J.S.A. 34:15-36.
It is also clear that the
term “employee” is to be liberally construed so as to bring as
many persons as possible within the coverage of the Act. Brunei1
v. Wildwood Crest Police Dep’t, 176 N.J. 225 (2003); Green v.
DeFuria, 19 N.J. 290, 296 (1955).
As a consequence, a variety
of working relationships have been held to be covered by the
Act, including those not necessarily confined to traditional
employment settings. Marcus v. Eastern Agricultural Ass'n, Inc.,
58 N.J. Super. 584, 590, (App. Div. 1959), rev'd on dissent, 32
N.J. 460 (1960).
In addressing the employee/independent contractor issue,
New Jersey courts have applied two tests; the so-called “control
test” and the “relative nature of the work test.” Tofani v. Lo
Biondo Bros. Motor Express, Inc., 83 N.J. Super. 480, 484-92,
(App. Div. 1964); see also Caicco v. Toto Bros., Inc., 62 N.J.
The “control test” is the older of the two and, in
general, is based on the notion that when an individual is an
independent contractor, that person carries on a separate
business and contracts to do work according to his or her own
methods, without being subject to the control of an employer,
except as to the results.
When the relation is that of employer
and employee, on the other hand, the employer not only retains
the right to control what is done but also to direct the manner
in which the work is completed. Kertesz v. Korsh, 296 N.J.
Super. 146, 152 (App. Div. 1996).
The primary factors to
analyze here include “evidence of the right to control, right of
termination, furnishing of equipment, and method of payment.”
Trans American, 261 N.J. Super. at 326-37 (citation omitted).
As for the “relative nature of the work test”, not only is
it the more modern of the two, it is also believed to be the
more realistic test in terms of the objectives of the workers
compensation act, Kertesz, 296 N.J. Super. at 154.
focus is the worker's degree of independence and whether his or
her work is an integral part of the regular business of someone
As noted, under this test, one looks to the extent of the
economic dependence of the worker upon the business served, as
well as the relationship of the nature of the person's work to
the operation of the business as a whole. Re/Max of New Jersey,
Inc. v. Wausau Ins. Cos., 304 N.J. Super. 59, 68 (App. Div.
Stated differently, the key question is whether the
nature of the work done by the individual is an integral part of
the regular business of the employer and/or whether the worker
is economically dependent on that business. Kertesz, 296 N.J.
Super. at 154.
Defendant argues that the truckers are independent
contractors under the “right to control” test because (1) it had
no right to hire or fire the truckers, (2) the truckers were
paid a fee for the job, not a salary, and (3) Defendant did not
deduct any amounts for income tax or social security (Def. Br.
Defendant argues that the truckers are independent
contractors under the “relative nature of the work” test because
Defendant is simply a trucking dispatcher/agent, and it only
gets a commission for each job. (Def. Br. at 29-30.)
the truckers are not “integral” to Defendant’s operation, and
the truckers “did not ‘substantially depend’ on LADA.” (Id. at
On the other hand, Plaintiff argues that “the drivers at
issue could not engage in interstate commerce without a USDOT
authorization and LADA II was highly dependent on the use of the
drivers themselves and their equipment in LADA II’s business
operations.” (Opp’n at 20).
As a result, they argue that the
LADA truckers “were not merely clogs (sic) in the wheel of LADA
II’s trucking business,” they were “the wheels on which LADA II
depended.” (Opp’n at 16.)
The drivers at issue made themselves
“substantially dependent” on LADA II “economically, during the
period in question.” (Opp’n at 20); see also Caicco v. Toto
Bros., Inc., 301 A.2d 143, 146 (N.J. 1973).
sufficiently stated a claim that Defendant’s truckers were
employees, and the Court will address this fact-specific inquiry
further in Part IV.B.1.
d. Plaintiff Has Stated Sufficient Facts
Indicating that the Hired Vehicle Rule Applies
to Defendant’s Truckers
As explained earlier, the Hired Vehicle Rule allows
insurance carriers like Plaintiff writing workers’ compensation
policies in New Jersey to charge premiums for vehicles under
hire to an employer at a rate of one-third of the total amount
paid for the hire of such vehicle.
Here, the specific amount of
premium for the truckers was calculated based on the Hired
Vehicle Rule found in the Manual.
Defendant argues that
Plaintiff inappropriately relies on the Hired Vehicle Rule
because that rule does not apply to sole proprietors such as
these truckers, as the rule only applies to vehicle owners that
have an “obligation” to purchase workers compensation insurance,
which does not include sole proprietors. (Def. Br at 32-33.)
And to the extent the Hired Vehicle Rule does apply, Defendant
argues that it was satisfied during the 2015-2016 policy period
by the truckers obtaining “occupational accident insurance,”
which Defendant made available to Plaintiff during the auditing
process. (Def Br. at 34-35.)
Defendant again relies on Trans
American, 261 N.J. Super at 331-32, in arguing that sole
proprietors are not required to purchase workers’ compensation.
Plaintiff responds that the occupational policies do not
satisfy the Workers’ Compensation obligation of the owneroperators. (Opp’n at 22.) It cites to CRIB Advisory Bulletin
10A, which states that “any ‘alternative coverage’ including any
‘Occupational Accident Coverage,’ which is not prohibited in New
Jersey, is neither a replacement for, nor the statutory
equivalent of the Standard Workers Compensation and Employers
Liability Policy.” (Opp’n at 22-23.)17
Moreover, some truckers
had coverage by May 2016, but the Complaint was filed on April
21, 2016. (Opp’n at 23.)
Defendant does not aver that it
purchased workers’ compensation insurance for these workers, and
the fact that Defendant bought Occupational Accident Coverage
for the truckers does not necessarily equate with the purchase
Interpretive bulletins do not rise to the level of a
regulation and do not have the effect of law, so a court is not
required to give effect to an administrative interpretation.
Brooks v. Village of Ridgefield Park, 185 F.3d 130, 135 (3d Cir.
1999) (citing Batterton v. Francis, 432 U.S. 416, 425 n.9
(1977)). Instead, the level of deference given to an
interpretive bulletin is governed by the bulletin’s
persuasiveness. Reich v. Gateway Press, Inc., 13 F.3d 685, 699
n.17 (3d Cir. 1994).
of workers’ compensation insurance.
The Court declines to
dismiss Plaintiff’s Complaint on this ground also.
Plaintiff therefore states a plausible claim under Rule
12(b)(6), and its motion to dismiss will be denied.
B. LMIC’s Motion for Partial Summary Judgment on Count II
Plaintiff also cross-moves for partial summary judgment on
the breach of contract claim against Defendant, and the motion
relies heavily on many of the same points asserted in
Plaintiff’s opposition to Defendant’s Motion to Dismiss.
Court may only grant summary judgment regarding the
interpretation of a contract, such as the insurance policies at
issue here, if “the contract is so clear that it can be read
only one way.” PaineWebber Inc. v. Hoffman, 984 F.2d 1372, 1378
(3d Cir. 1990)(quoting Tigg Corp. v. Dow Corning Corp., 822 F.3d
358, 361 (3d Cir. 1987)).
For the following reasons, because
Defendant is entitled to all inferences in its favor in the
context of Plaintiff’s cross-motion for partial summary
judgment, Court denies the motion.
1. Breach of Contract (Count II)
a. The Role of the Plan and Manual
Plaintiff first argues for summary judgment on its breach
of contract claim because Defendant agreed to be bound by the
Plan and Manual when it initially applied for workers’
compensation insurance in 2011.
Defendant responds that
Plaintiff has failed to establish that either the Plan or the
Manual is binding on Defendant, as it points to language in the
Plan indicating that the Plan has “no role” once CRIB has
assigned coverage for an employer to an insurer. (Reply Br. at
23; Ex. A to Pl. MSJ Br.)
On the other hand, Plaintiff points
to language from Hornet Exp. v. Zurich American Ins. Grp., 382
N.J. Super 408, 411 (App. Div. 2006), where the court examined a
similar policy and explained that pursuant to the Plan, the
policy the insurer issued to the employer “was required to
contain the specific policy provisions set forth in the
Plaintiff argues that the Court should grant it
summary judgment because it calculated the Defendant’s premiums
and “faithfully following the provisions of the New Jersey
Manual and the policies – whose provisions are also mandated by
CRIB.” (Pl.’s MSJ Br. at 5.)
Defendant claims that the Plan encompasses only Section 14
of Part Three to the Manual, when the part of the Manual that
Plaintiff seeks to impose on Defendant, the Hired Vehicle Rule,
is not part of the Plan; rather it is contained in another
portion of the Manual (Part Three, Section 3, ¶ 46). (Reply Br.
It claims that there is simply no evidence it ever
agreed to be bound by the Plan or the Manual in any fashion.
(Id. at 24.)
There is sufficient evidence into the record indicating
that Defendant did not agree to abide by the Plan and the
Manual, thereby precluding summary judgment.
applied to CRIB for coverage pursuant to the Plan on June 20,
2011 (Griffith Cert. ¶ 13), but Plaintiff did not begin to
provide coverage for Defendant until June 24, 2014, over three
years later. (Id. at ¶ 26.)
Defendant explains that he “did not
understand that some of the common terms used in the [2011 Plan]
application had a technical meaning in the manual,” so he did
not feel the need to correct the language that his insurance
broker used when filling it out. (Supp. Kobys. Cert. ¶ 5.)
Additionally, Plaintiff never contacted Defendant “to ensure
that the information on the application or its supplement
remained accurate in 2014 when it underwrote” the policies. (Id.
Even more importantly, Plaintiff presents no evidence that
it provided Defendant with copies of the Plan and Manual nor
that Defendant was aware of the policy provisions supposedly
binding Defendant to all terms in the entire Plan and Manual.
The only reference to the Manual in Defendant’s actual policies
was in the Premium section, where it stated “[t]he premium for
this policy will be determined by our Manuals of Rules,
Classifications, Rates and Rating Plans.” (Ex. F. to Griffith
There is no mention of the Plan or the Hired Vehicle
Rule anywhere in Defendant’s policies.
Even if Defendant was
bound by the Plan, Defendant would have to probe deeply into the
fine print for the clause stating insurance provided under the
Plan is subject to the Manual, a 371-page document. (Ex. A. to
The Court therefore finds that there is a
question of material fact as to what terms of the Plan and
Manual are incorporated in Defendants’ policies as well as
whether Defendant agreed to be bound by the Plan or the Manual.
Thus, summary judgment is inappropriate.
To hold otherwise
given the current record would not comport with New Jersey law
embracing reasonable expectations of the insured. See Zacarias
v. Allstate Ins. Co., 775 A.2d 1262, 1264 (N.J. 2001)(explaining
that insurance policies are contracts of adhesion and “are
subject to special rules of interpretation”).
b. Classification of Defendant’s Truckers
The parties dispute the degree of control that Plaintiff
exercised over Defendant’s truckers, and Defendant argues that
Plaintiff’s cross motion for partial summary judgment should be
denied because the truckers at issue do not meet the New Jersey
common law tests for employees.
Plaintiff’s rationale for
including the drivers' payroll and remuneration in its
calculation of the premiums is that the drivers were legally
considered to be employees of Defendant, while Defendant
considers the drivers to be independent contractors because LADA
had no right to hire or fire the workers under the control test.
(Reply Br. at 27.)
Viewing the evidence in the light most
favorable to Defendant as the nonmoving party, the Court
concludes that there exists a genuine issue of material fact as
to the classification of the Defendant truckers. See Rong Chen
v. Century Buffet and Restaurant, No. 09–1687, 2012 WL 113539
(D.N.J. Jan. 12, 2012) (denying summary judgment where there
existed a genuine issue of material fact as to the amount of
control exercised over putative employee); cf. id. at *3
(“Because of the fact-intensive nature of the inquiry, an
employer determination can rarely be made on summary judgment.”)
Plaintiff relies on Tofani v. LoBiondo Brothers Motor
Express, Inc., 83 N.J. Super. 480 (App Div. 1964), aff’d, 43
N.J. 494 (1964) to support its claim that the truckers here are
employees. In Tofani, the Plaintiff was an owner-operator and
leased his tractor to Defendant.
The Court found that Plaintiff
was an employee under both the “control” and “relative nature of
the work” tests because (1) Plaintiff leased the use of his
tractor to Defendant, (2) he personally undertook the sole
operation of that tractor on a regular and continuing basis,
“thereby becoming a working cog in the conduct” of Defendant’s
regular business, (3) he was economically dependent on Defendant
and not conducting a separate and independent business, and (4)
his work constituted an integral part of the regular and
continuous functioning of the Defendant’s trucking enterprise.
Id. at 493.
Plaintiff attempts to equate the situation in
Tofani with the facts here, since 20 of Defendant’s
owner/operators did the “vast bulk” of LADA II’s work, and the
owner/operators “leased their tractors and themselves” to
But Defendant submits evidence in the record that the
truckers are not economically dependent on LADA because the
truckers “choose to use [Defendant’s] back office functions in
order to make their lives easier,” as a trucker “can obtain
loads on his own, but it can be time consuming to find a load at
a good time and a good price.” (Reply Br. at 30; Supp. Kobys
Cert. at ¶ 11.)19
Defendant also submits evidence in the record
Plaintiff also submits its auditor’s letter to Defendant
explaining that the owner-operators are not independent
contractors so the Hired Vehicle Rule applies. (Ex. J. to
Griffith Cert). The auditor explains that Defendants operations
“are not consistent with a trucking broker because owner-drivers
are hauling under LADA II Express Co.’s authority . . . A broker
should be an independent intermediary involved in the business
transactions only.” (Id.)
19 Plaintiff relies on Re/Max of New Jersey, Inc. v. Wausau
Insurance Cos., 304 N.J. Super 59, 68 (1997), where the trial
court found that real estate agents were employees under the
“relative nature of the work” test. The court heavily relied on
the fact that the “agents work for the [broker] office
exclusively.” Id. (emphasis added). The New Jersey Supreme
Court later affirmed the trial court’s holding, and added that
determination of whether a real estate sales agent is an
employee or an independent contractor is regulated by licensing
statutes. Re/Max v. Wausau Ins. Cos., 744 A.2d 154, 157 (N.J.
2000). Here, there is no evidence of owner-operators working
exclusively for Defendant, nor is there an analogous statute
that regulates the classification of owner-operators.
suggesting that Plaintiff is not merely seeking to charge
premiums for drivers earning significant income from the work
obtained through Defendant, but that Plaintiff is seeking to
charge premium “for all drivers, some of whom carried as little
as one load and earned only $2,000.” (emphasis added)(Def. MSJ
Br. at 32; Supp. Kobys Cert., Ex. C.)
There is also evidence
suggesting that the truckers held themselves out as separate
trucking companies and were free to accept loads from any other
source. (Original Kobys Cert. at Ex. A, ¶¶ 1, 4a.)20
insists that it was truthful when it disclosed on its initial
Plan application that it had one truck and one driver. (Supp.
Kobys Cert. ¶ 8.)
Seven of the fifteen inspections were for the
truck that Defendant owns and disclosed on its insurance
application. (Id. at ¶ 9; Griffith Opp’n Cert. Ex. F.)
Defendant presents evidence that just five truckers used its MC
number over a two-year period, whereas thirty-two truckers used
Defendant also argues that Plaintiff is not entitled to
premium with respect to its out-of-state truckers because any
claim by those truckers would either be filed in another state,
or a New Jersey Compensation Court would lack jurisdiction to
hear their claim. (Reply Br. at 32.) Defendant submits evidence
that only 4 of 37 truckers between 2014 and 2016 were
incorporated in New Jersey, and the out-of-state claim
endorsement in Defendant’s policy is only triggered if the
worker was primarily employed in New Jersey and was only in the
other state on a “temporary” basis. (Original Kobys Cert. ¶ 9,
Ex. D.) As a result, the Court cannot grant Plaintiff’s crossmotion for summary judgment at this juncture as factual disputes
remain regarding what truckers would be covered under
their own MC number. (Supp. Kobys Cert. ¶ 10.)
clarify these factual disputes, so the Court declines to grant
Plaintiff’s pre-discovery motion for summary judgment.
Finally, the parties dispute what regulatory scheme applies
to determine whether owner-operators are deemed employees.
Plaintiff proposes that the Court adopt regulations from the
Federal Motor Carrier Safety Administration, where the term
“employee” is broadly defined to include “a driver of a
commercial vehicle (including an independent contractor while in
the course of operating a commercial motor vehicle.” (Pl. MSJ
Br. at 12) (citing 49 C.F.R. § 390.5)).
On the other hand,
Defendant argues that other New Jersey state statutes are more
specific and more applicable to define coverage under the New
Jersey scheme than federal regulations; for instance, the New
Jersey Unemployment Compensation law provides that “employment”
shall not include
Services performed by operators of motor vehicles . . . who
own their equipment or who lease or finance the purchase of
their equipment through an entity which is not owned or
controlled directly or indirectly by the entity for which
the services were performed and who were compensated by
receiving a percentage of the gross revenue generated by
the transportation move or by a schedule of payment based
on the distance and weight of the transportation move.
N.J.S.A. § 43:21-19(i)(7)(X).
Defendant argues that this
exception applies to the truckers who own their own vehicles and
are paid a percentage of the gross revenue generated by each
load. (Original Kobys Cert. at ¶¶ 2, 5-7, 9.)
While both the
FMSCA and unemployment compensation law definitions of
“employee” are persuasive, the Court will rely on New Jersey
statutory and common law regarding workers’ compensation, as
described supra, in determining the definition of “employee” for
workers’ compensation purposes in New Jersey.
The Court denies partial summary judgment at this early
stage in the litigation. There is a genuine dispute of material
fact on the issue of whether the LADA II truckers are in fact
employees or independent contractors, and this determination
appears to differ among each independent trucker.
As a result,
Plaintiff’s calculation of the post-audit retrospective premium
adjustment, the amount allegedly owed by Defendant to Plaintiff,
depends upon the determination of fact questions.
reasons, Plaintiff’s cross-motion for partial summary judgment
In sum, the Court denies Defendant’s motion to dismiss
Plaintiff’s Complaint, and denies Plaintiff’s cross-motion for
partial summary judgment on Count II.
March 20, 2017
s/ Jerome B. Simandle
JEROME B. SIMANDLE
Chief U.S. District Judge
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