Nagy: How to Properly Cancel a Workers' Compensation Policy
Friday, May 13, 2022 | 0
Often, cases are referred to me where the policy was canceled prior to the alleged date of loss.
The claimant-petitioner has retained an attorney and has filed a claim petition in the Division of Workers’ Compensation. The petitioner’s counsel has reviewed the New Jersey Compensation Rating and Inspection Bureau website and found the policy that would have been in effect at the time of the date of loss and has named that carrier. The carrier retains counsel and seeks to deny the claim for lack of coverage.
The question is whether there is sufficient evidence to prevail on a motion to strike carrier.
Prior to filing a motion to strike carrier, there are certain steps and documents that should be reviewed between counsel and the carrier regarding the effectiveness of the cancellation. In New Jersey, there is a strong public policy favoring uninterrupted workers’ compensation coverage for all employees. As a result, an insurance carrier must strictly comply with all statutory and regulatory mandates regarding any cancellation of a policy.
It is therefore beneficial to review NJSA 34:15-81, Cancellation of Contract. The statute lays out three individual steps that must be followed in order for cancellation to be effective. Section 81 states that no policy for workers’ compensation coverage is deemed canceled until the following three criteria are met:
- (a) At least 10 days’ notice in writing of the election to terminate such contract is given by registered mail by the party seeking cancellation thereof to the other party thereto.
- (b) Until like notice shall be filed in the office of the commissioner of banking and insurance, together with a certified statement that the notice provided for by paragraph “a” of this section has been given
- (c) Until 10 days have elapsed after the filing required by paragraph “b” of this section has been made.
While the foregoing three steps appear to be straightforward, there are various ways in which a potential issue may arise and therefore result in a finding of improper cancellation. The New Jersey Supreme Court has held that there needs to be strict compliance with the statute in order for cancellation to be effective (Sroczynski v. Milek, 2008).
Consider an example of a policy issued to an employer for a policy period beginning on Feb. 1, 2019, through Feb. 1, 2020. During the policy period, the employer fails to make payments on the policy leading to cancellation. The carrier sends a notice to the employer on July 1, 2019, stating the following:
“We hereby notify you that the policy identified above will be canceled effective 12:01 a.m. July 30, 2019, in accordance with the cancellation condition of the policy and that all liability of the company under such policy will cease at that time. Premium adjustment will be made to the date of cancellation and statement rendered. The reason for this action is: nonpayment of premium.”
With respect to the first step in canceling a policy, a notice needs to be generated by the carrier and sent to the employer with at least 10 days’ notice of the date of the cancellation. So far, our cancellation example appears to comply with subsection (a) of the statute, as the notice is sent on July 1, 2019, and gives more than 10 days’ notice.
Subsection (a) of the statute also states that this notice must be sent by “registered mail.” The statute does not define “registered mail.” In practice, the carrier should send the notice to the employer by certified mail. The carrier should retain any and all transmittal information with the Postal Service regarding sending of the notice of cancellation, as these documentary proofs are vital in the carrier’s motion to strike carrier for lack of coverage.
Sending the cancellation notice to the employer is not the end of the journey for the carrier. The carrier must also submit a “like notice” to the office of the commissioner of banking and insurance. The statute does not require “exact same notice,” but rather states “like notice.” The commissioner of banking and insurance in New Jersey has designated the Compensation Rating and Inspection Bureau (CRIB) as the entity to receive the like notice.
CRIB requires that the like notice be submitted electronically and has provided a reference form to be used by carriers for the submittal of like notice.
At the bottom of the form, there is a certification for which the carrier must provide a signatory. The certification is required in the like notice submittal to CRIB. Subsection (b) of the statute has two clauses that must be adhered to in order for the cancellation to be effective. The first is that the like notice is filed with CRIB, and the second is that a certified statement must be provided by the carrier that the employer was provided notice in accordance with subsection (a), i.e., that the employer was provided notice of the election to terminate via registered ("certified") mail with at least 10 days’ notice. These steps are required.
Finally, the statute requires one last step for the policy to be effectively canceled. Subsection (c) of the statute requires that at least 10 days have elapsed since the filing of the notice with CRIB prior to the cancellation taking effect.
Let us return to our example policy that is being canceled by our hypothetical carrier. The policy period is for the year Feb. 1, 2019, through Feb. 1, 2020, and, due to nonpayment of premium, the policy is being canceled. The notice of cancellation is sent to the employer via registered mail on July 1, 2019, stating that the policy will be canceled effective July 30, 2019.
The carrier should at that time submit the like notice to CRIB that the policy is being canceled with the effective date of cancellation being reported as July 30, 2019.
What, then, occurs if the like notice to CRIB is not submitted until Aug. 15, 2019, and an injury occurs to an employee at the company on Aug. 5, 2019, and the company did not obtain replacement coverage? In my experience, any issue with the filing of the like notice creates strong arguments by petitioner’s counsel that the policy was not effectively canceled. The carrier will try to argue that the policy was effectively canceled on July 30, 2019, per the notice to the employer and that it is incumbent upon the employer to obtain proper coverage.
The New Jersey Workers’ Compensation Act provides certain timelines and a procedure that must be strictly complied with in order for the policy to be canceled. In this example, the carrier did not provide the like notice to CRIB until after the date of the loss. As a result, the carrier cannot show compliance with subsections (b) and (c) of the statute.
Let us move the date of loss to Aug. 20, 2019, and the like notice still is submitted to CRIB on Aug. 15, 2019. The carrier can now show that the loss occurred after the date of cancellation and after the filing of the like notice with CRIB. However, again, this fact scenario will likely result in an improper cancellation and a covered loss.
Subsection (c) of the statute requires that at least 10 days have passed since the filing of the notice with CRIB. In this example, only five days have expired. As a result, the petitioner will have a strong argument that the policy was still in effect at the time of the loss despite the policy being canceled as of July 30, 2019.
While the foregoing examples appear to result in simple solutions, Section 81 of the statute often results in lengthy litigation regarding proper proofs of cancellation. As a result, the carrier should retain detailed documentary proofs and evidence of each step of the cancellation in order to properly seek to be stricken for lack of coverage from a pending claim.
Keith E. Nagy is a shareholding attorney with Capehart Scatchard, a defense law firm in New Jersey. This post appears with permission from Geaney's New Jersey Workers' Comp Blog.