By Marc R. Jones

Workers' compensation insurance in New Jersey, as in most states, is mandated by statute. It was enacted to provide a system of benefits to workers who are injured while at work so as to facilitate an economic recovery for them, to minimize litigation for the employers, and to reduce the burden of litigation within the court system.

It has been described as an "... historic #trade-off' whereby employees relinquish their rights to pursue common law remedies in exchange for prompt and automatic entitlement to benefits for work-related injuries."

A key aspect of this "trade-off" is what is commonly referred to as the "Workers' Compensation Bar," which is codified in New Jersey's Workers' Compensation Act and provides as follows:

"[i]f an injury or death is compensable under this article, a person shall not be liable to anyone at common law or otherwise on account of such injury or death for any act or omission occurring while such person was in the same employ as the person injured or killed, except for intentional wrong."

The Workers' Compensation Bar provides statutory protection for employers who purchase and provide workers' compensation benefits to their employees from personal injury litigation when their employees are injured at work. The benefit to employees is a consistent and a faster system of applying for and receiving benefits after a work place injury without having to incur the expense and delay of filing a case in court for such benefits.

The Workers' Compensation Bar is really the cornerstone of the workers' compensation system, and it provides the biggest incentive to encourage employers to purchase and maintain workers' compensation benefits for their employees.

The workers' compensation system is not without exception, and when a worker's injuries have been caused by an employer's "intentional wrong," such acts void the "trade-off," and the employee may seek both workers' compensation benefits and pursue a common-law remedy.

Until recently, the Workers' Compensation Bar was considered to be "ironclad."

The New Jersey Supreme Court has over the past five years, however, begun to further define the term "intentional wrong" as set forth in the Act and has further clarified it to permit not just an overt intentional act on the part of the employer, but even "actions taken with a subjective desire to cause harm," as well as "instances where an employer knows the consequences of those acts are substantially certain to result in such harm."

The workers' compensation insurance industry wrote their policies to include an "intentional wrong" exclusion that precludes coverage for defense and indemnification for bodily injuries "intentionally caused or aggravated by" the employer. It was assumed that the scope of this exclusion included the acts of an employer that were "substantially certain" to result since the "substantial certain" analysis did not create a new exception to the Workers' Compensation Bar as codified, but merely was a clarification of what acts qualified as "intentional acts."

The New Jersey Supreme Court's December 4, 2006, decision in the case of Beseler Company v. O'Gorman & Young, Inc., however, shows that, in fact, the "intentional wrong" exclusion in a standard workers' compensation policy does not encompass acts that are "substantially certain" to result.

In Beseler, the Supreme Court was asked to interpret the "intentional wrong" exclusion contained in the workers' compensation policy, the wording for which is commonly used in the industry in such policies.

In the underlying case an employee alleged that he was injured by the intentional acts of his employer when a large press brake machine that he was assigned to operate compressed unexpectedly, amputating eight of his fingers. He alleged that the employer removed certain safe guards on the machine which created a "substantial certainty" that he would be injured, and he pursued a common law and workers' compensation claim.

Beseler requested a defense from its workers' compensation carrier based on the "intentional wrong" exclusion in its policy. The carrier reasoned that this exclusion relieved them of the duty to defend Beseler against the plaintiff's "substantial certainty" claim.

Beseler then filed a declaratory judgment action, and the motion court ruled in favor of Beseler, rejecting the carrier's position.

The Appellate Division affirmed, rejecting NJM's interpretation and holding that the exclusion does not apply in this matter.

The Supreme Court also affirmed the Appellate Division's decision and held that:

"[t]he policy language does not unambiguously exclude injuries falling under the "substantial certain" prong of the intentional-wrong exception recognized by Laidlow.

The C.5. exclusion precludes coverage for bodily injuries "intentionally caused or aggravated by" the employer. That language clearly excludes only injuries that result from a subjective intent to injure. However, once Laidlow was decided, it became clear that there are alternative methods of proving an intentional wrong and avoiding the exclusivity of the workers' compensation remedy. The substantial certainty method of proof is distinct, but also will demonstrate an "intentional wrong." C.5.'s language does not unambiguously exclude such claims from coverage.

An insured could reasonably conclude that the "intentionally caused or aggravated by" language is narrower than the statutory "intentional wrong" exception under the workers' compensation scheme.

The Supreme Court, in this decision, adopted the position as stated in the Beseler Appellate Division case that the "intentional wrong" exclusion contained in the workers' compensation policy did not exclude "an unintended injury caused by an intentional wrong."

The Supreme Court further determined that this ruling was in accord with holdings in other jurisdictions that interpreted the same exclusion.

The effect of this ruling has yet to be fully determined; however, it appears reasonable to conclude that workers' compensation insurers, if they intend to continue writing policies to exclude all intentional acts by employers, will be forced to re-write their "intentional wrong" exclusions to encompass not just intentional acts, but acts that are also "substantially certain" to result.

This ruling continues the New Jersey Supreme Court's efforts to "walk a narrow line" on this issue. It permits employees to pursue claims in workers' compensation and common law for intentional acts and injuries that were "substantially certain" to result, but it refuses to allow insurance carriers to rely on their "intentional wrong" exclusions when it comes to providing a defense to the insureds when a plaintiff alleges that his or her injuries were "substantially certain" to result.

The workers' compensation industry is now forced to make certain coverage and underwriting determinations, and they must adjust their policy language, exclusions and pricing accordingly.

Marc R. Jones is an associate in the Cherry Hill, N.J., office of Marshall, Dennehey, Warner, Coleman & Goggin. This column first appeared in the law firm's Defense Digest. The law firm's Web site is http://www.marshalldennehey.com.

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