MAURO RAMOS PAOLA MEXTICLA v. COUNTRYWAY INSURANCE COMPANY (2010)

In this appeal, we decide whether an underinsured motorist (UIM) carrier is entitled to a set-off from the proceeds of a plaintiff's lawsuit recovery against his employer, pursuant to the intentional wrong exception to the exclusive remedy provision of the Workers' Compensation Act, N.J.S.A. 34:15-8.   We hold that in appropriate circumstances a claim against an employer pursuant to the intentional wrong exception can be the subject of a subrogation claim by a UIM carrier and entitle the carrier to a partial set-off.   However, given the procedural scenario presented here, the UIM carrier is not so entitled.

These are the operative facts.   As the result of an accident on August 6, 2003, Mauro Ramos was severely injured while riding unrestrained in the back of a box truck owned by his employer James Durr Wholesale Florist, Inc. (Durr).¹  Ramos was employed as a migrant worker for Durr. At the time of the accident, neither fixed seating nor restraints were provided for Ramos and his co-workers.   They were required to ride in the rear of the box truck.   Because it was August and there was no ventilation in the rear of the box truck, its overhead door was left open.   As a result of the collision, the workers riding in the rear of the box truck, including Ramos, were thrown out of the vehicle.   Ramos violently impacted the paved highway with his head and shoulder, resulting in a multitude of serious and permanent injuries about his head and body.   Immediately following the accident, Ramos was intubated at the scene by emergency medial personnel and flown by helicopter to Helene Fuld Medical Center.   He was admitted on August 6, 2003 and discharged on August 18, 2003.   Ramos was transferred to St. Lawrence Rehabilitation Center's brain injury unit on August 18, 2003 and discharged on September 17, 2003.

Ramos and his wife, Paola Mexticla, filed an action against Arthur L. McDonnell, the owner, and Kari L. McDonnell, the driver of the vehicle that hit the box truck.   In July 2004, the parties settled that lawsuit for the McDonnells' $15,000 insurance policy limit.

In August 2005, Ramos and his wife filed the present tort action against Durr pursuant to the intentional wrong exception to the workers' compensation bar, N.J.S.A. 34:15-8.²  The suit alleged that over the years, as far back as 1997, Durr received numerous citations and pled guilty to various violations of the Migrant and Seasonal Agricultural Worker Protection Act, 29 U.S.C.A. §§ 1801 to -1872, for unsafe and hazardous labor practices, including the unsafe transportation of seasonal and migrant workers.   The complaint also alleged that on September 6, 2002, almost a year before this accident, three seasonal or migrant workers employed by Durr were killed in a motor vehicle accident as a result of Durr's failure to provide safe transportation.   The transport van used by Durr lacked secure seats, and in addition to those killed, several other workers were seriously injured because they were forced to sit on the floor of the transport vehicle or on milk crates without any restraints.

The Ramos lawsuit sought damages for Durr's “intentionally wrongful, willful, wanton, carelessly, grossly negligent and or reckless [conduct].”   The action sought “compensatory and punitive damages, interest, attorneys' fees, costs of suit and other relief.”   For reasons not clear on this record, after the intentional wrong lawsuit was filed, it was not prosecuted.   Therefore, this lawsuit was pending but not decided when Ramos pursued the UIM against Countryway Insurance Company (CIC), the insurer of the box truck.   CIC received notice of the intentional wrong lawsuit, and denied coverage to Durr under its auto policy.   A different insurer defended Durr against that lawsuit.

In the UIM claim, Ramos alleged the following serious injuries:  multiple trauma and closed-head injury;  unconsciousness and coma during acute phase of injury;  a contusion abrasion of the forehead and the face with extensive hematoma of the scalp and the right side of the head and face;  profuse bleeding and clotting at the bilateral ear canal;  left subdural hematoma;  subarachnoid hemorrhage;  intra cranial bleeding-subdural, subarachnoid, at the left temporal area;  hemorrhagic contusion of the left temporoparietal lobe of the brain;  multiple skull fractures:  basal, right temporal, left parietal;  fracture of the C7 transverse process of the left side;  deep laceration of the right ear posterior portion-complex type;  blunt trauma to the chest and abdomen;  acute respiratory failure secondary to blunt chest injury;  fracture of the left lumbar vertebra at L-4;  contusion abrasion of the right shoulder;  right brachial plexus injury/brachial plexopathy;  rotator cuff tear in the right shoulder;  severe cognitive deficit/closed head injury/brain injury;  sensorineural hearing loss related to temporal bone fracture in right ear;  tinnitus;  scarring about the head, face and body diminished strength about the right arm, shoulder and back;  pain about the right arm, shoulder and back;  personality changes, inability to concentrate, memory deficits, and word seeking delays among cognitive affects of brain injury.

Ramos also sustained economic losses.   The total amount of money expended for Ramos's medical and diagnostic care was $215,272.92, paid by American International Recovery, Inc. as the workers' compensation carrier covering Durr for this accident.   Additionally, the workers' compensation carrier paid Ramos indemnity in the amount of $55,030.42 as temporary disability income benefits.   The total workers' compensation lien amounted to $270,303.34.

The UIM claim was arbitrated.   In February 2007, the UIM panel of three arbitrators found, by a 2-to-1 vote, that McDonnell was “entirely liable” and awarded Ramos $1,300,000 in damages, less the $15,000 credit from the McDonnell settlement.   The arbitrators did not consider the fault of Durr, concluding that the workers' compensation bar or exclusive remedy provision set by N.J.S.A. 34:15-8 would preclude recovery.

After the UIM arbitration was concluded, Ramos pursued the intentional wrong lawsuit and entered into non-binding arbitration of that claim.   The arbitrator of the tort action awarded $2,250,000 million in damages, including punitive damages, and found Durr seventy percent negligent.   Durr moved for a trial de novo.   The parties subsequently settled the matter for $435,000 in February 2008.   There is no indication in the settlement what items of damages were covered by the award, although Ramos signed a release covering, among other things, claims for punitive damages as well as any future right to seek additional workers' compensation benefits.   Two months later, CIC moved to intervene in the tort action against Durr, seeking to obtain the entire settlement proceeds as a set-off against the UIM award.   This motion was denied and CIC's claim was dismissed with prejudice.

On appeal, CIC contends that because it paid the full amount of the UIM award, it is entitled to repayment of all sums obtained from any other source.   We disagree.   Had CIC timely intervened in the lawsuit, it would have been entitled to a set-off of any portion of the intentional wrong settlement that represented compensatory damages, i.e., pain and suffering, loss of enjoyment of life, lost wages, disfigurement and permanent disabilities.   On the other hand, it is clear that CIC would not be entitled to recover from any portion of the settlement representing punitive or exemplary damages for Durr's wrongful conduct.   Moreover, CIC would not be entitled to any portions of the settlement representing future workers' compensation benefits.   See Walkowitz v. Royal Glove Ins. Co., 149 N.J.Super. 442, 446-48 (App.Div.), certif. denied, 75 N.J. 584 (1977).

At the outset, we note that this case presents an unusual situation because the UIM arbitration occurred long before the disposition of the intentional wrong action.   Usually, the UIM arbitration follows or is contemporaneous with the resolution of all causes of action asserted by a claimant, although it need not be.   See Longworth v. Van Houten, 223 N.J.Super. 174, 193-94 (App.Div.1988).   CIC blames Ramos's counsel for this situation.   We are not persuaded.

First, both Longworth, supra, 223 N.J.Super. at 193-94, and Vassiliu v. Daimler Chrysler Corp., 356 N.J.Super. 447, 459 (App.Div.2002), aff'd in part and rev'd in part, 178 N.J. 286 (2004), emphasize the UIM carrier's duty to promptly intervene in an action against a tortfeasor or to otherwise assert its rights against any tortfeasor.   That did not happen here.   The intentional wrong action was filed before the UIM lawsuit was commenced.   CIC admits that it knew about the filing of the intentional wrong suit, yet it did not intervene.   Second, as the trial judge correctly noted, there is no competent evidence in the record to support a finding that CIC was misled into believing that the intentional wrong claim was being abandoned.

Third, subrogation/set-off is an equitable remedy.   The judge concluded that here it was not an appropriate remedy based on CIC's failure to protect its rights by intervening in the claim against Durr. Our review of this decision is pursuant to the abuse of discretion standard.   See Sears Mortgage Corp. v. Rose, 134 N.J. 326, 354 (1993).   We perceive no abuse of discretion in this decision.

However, while we agree with the trial judge's results, we part company with the judge's interpretation of the UIM statute, N.J.S.A. 17:28-1.1e.³ Our scope of review of the application of N.J.S.A. 17:18-1.1(e) is de novo.   The Superior Court's “interpretation of the law and the legal consequences that flow from the established facts are not entitled to any special deference.”   Manalapan Realty L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 278 (1995);  Illva Saronno Corp. v. Liberty Hill Realty, Inc., 344 N.J.Super. 443, 450 (App.Div.2001).

In affirming the judgment, we nonetheless reject Ramos's argument and the judge's finding that CIC had no cognizable subrogation right on the grounds that the claims against Durr arise from the employment relationship.   The intentional wrong claim arises out of Durr's operation of its vehicle in the transportation of Ramos and other workers.   We are mindful that in Walkowitz, supra, 149 N.J.Super. at 448, we recognized that a workers' compensation set-off provision in a UM endorsement was repugnant to the statute and invalid.   However, here, the intentional wrong claim is not a workers' compensation action.  N.J.S.A. 34:15-8.

The equitable principle of subrogation permits UIM carriers to recover against all available tortfeasors.   See N.J.S.A. 17:28-1.1(e).   Subrogation is an equitable device designed to compel the “ultimate discharge of an obligation by the one who in good conscience ought to pay it.”  Standard Accident Ins. Co. v. Pellecchia, 15 N.J. 162, 171 (1954).   Moreover, subrogation fulfills the dual purposes of avoiding unjust enrichment to an insured who obtains recovery for the same injury from both his insurer and the tortfeasor and precludes the tortfeasor from escaping all liabilities of damages that the tortfeasor has caused.  Ibid. UIM coverage encompasses insurance for damages because of bodily injury and property damage resulting from an accident “arising out of” the ownership, maintenance, operation or use of an underinsured motorist vehicle.  N.J.S.A. 17:28-1.1e(1).   The term “arising out of” in the statute requires a showing of a “substantial nexus” between the use of the automobile and the injury to give rise to the obligation of coverage.  Sciascia v. American Ins. Co., 183 N.J.Super. 352, 358 (Law.Div.1982), aff'd, 189 N.J.Super.   236 (App.Div.1983).

In Bauter v. Hanover Ins. Co., 247 N.J.Super.   94 (App.Div.1991), certif. denied, 126 N.J. 335 (1991), we held that the tortfeasor's vehicle related conduct was not independent of the liability of the tavern keeper in serving alcoholic beverages to the UIM tortfeasor.  Id. at 101.   We noted that the essence of the claim against the tavern keeper was its act in excessively serving the UIM tortfeasor.  Ibid. However, there could be no claim against the tavern keeper “but for” the use of the tortfeasor's UIM motor vehicle.   Ibid.

The situation here is similar to that in Bauter.   Durr's intentional act in disregarding a known safety hazard enhanced and contributed to the injuries sustained in the motor vehicle accident.   The employer's actions cannot be described as causing independent injuries.   Instead, Durr was comparatively negligent in causing the injuries.

Thus, we disagree with the judge's conclusion that the damages arose out of the employment context and that set-off was therefore barred under Walkowitz, supra, 149 N.J.Super. at 448.   Ramos's injuries would not have occurred “but for” the motor vehicle accident.   Consequently, regardless of the tortfeasor or the liability policy, the injuries sustained were “substantially related” to Durr's intentional wrong and the underlying motor vehicle accident.

The core issue on this appeal is whether the subsequent settlement with Durr's liability carrier, AIG, constituted a “duplicate” payment for purposes of N.J.S.A. 17:28-1.1e. The obvious answer is that we simply do not know because CIC, with knowledge of the pending intentional wrong claim against Durr, never intervened in that suit nor put Ramos on notice of its potential subrogation/set-off claim.   This failure deprived Ramos of the opportunity to address CIC's present claim or negotiate a better settlement.   It also denied Ramos the opportunity to structure the settlement so as to allocate damages between those that might be subject to the subrogation/set-off claim and those flowing from Durr's intentional wrong.

We have recognized that N.J.S.A. 17:28-1.1e requires the set-off against the UIM limits of all prior recoveries by the injured party, including recoveries from non-automobile insurance policies.  Bauter, supra, 247 N.J.Super. at 99.   The policy in question contains a “limit of insurance” provision that is consistent with the language contained in N.J.S.A. 17:28-1.1e(1).   The policy provision states:

3.  With respect to damages resulting from an “accident” involving an “underinsured motor vehicle,” the Limit of Insurance shall be reduced by all sums paid by or for anyone who may be legally responsible[.]

[Ibid.].

Courts have construed and applied similar language in accordance with the statute as providing UIM carriers with a pro tanto set-off when the insured recovered against other tortfeasors, including recoveries from non-automobile insurance policies.   See Vassiliu, supra, 356 N.J.Super. at 457-58;  Bauter, supra, 247 N.J.Super. at 101.

Here, it is possible that the subsequent settlement proceeds reflect compensatory and punitive damages related to the intentional wrong claim, a withdrawal of the application for review or modification of the formal award in the workers' compensation case, and a release from any further review or modification of the workers' compensation award.   Thus, some of the damages associated with the intentional conduct may not have been reflected in the UIM arbitration award.   Damages relating to the intentional conduct could not have been awarded in the UIM arbitration because neither Durr nor AIG were parties to the UIM arbitration.   The UIM arbitrators expressly acknowledged that Durr's liability was not reflected in the damages award.   However, as stated above, the opportunity for allocating those damages has been lost.⁴

As previously noted, we are mindful that equitable remedies are largely left to to the judgment of the court, which has to balance the equities and fashion a remedy.   Such decisions will be reversed only for an abuse of discretion.   Sears Mortgage Corp., supra, 134 N.J. at 354.   Our Supreme Court has established that “[o]n appellate review, the decision of the trial court must stand unless it can be shown that the trial court palpably abused its discretion, that is, that its finding was so wide of the mark that a manifest denial of justice resulted.”  State v. Carter, 91 N.J. 86, 106 (1982).   We conclude that the judge was correct in denying CIC's claim for a set-off.

In further support of the set-off claim, CIC contends that the doctrines of res judicata and collateral estoppel and the state Supreme Court's decision in Zirger v. Gen. Accidental Ins. Co., 144 N.J. 327, 343 (1996), require a finding that plaintiff's damages are capped at the amount of the initial arbitration award.   We disagree.

The doctrines of collateral estoppel, res judicata, and issue preclusion serve the important policy goals of “finality and repose;  prevention and needless litigation;  avoidance of duplication ․ elimination of conflicts, confusion, an uncertainty;  and basic fairness.”  First Union Nat'l Bank v. Penn Salem Marina, Inc., 190 N.J. 342, 353 (2007);  In re Estate of Dawson, 136 N.J. 1, 20 (1994).   Thus, where the issue between the parties has been fairly litigated and determined, it should not be relitigated.  Penn Salem, supra, 190 N.J. at 353.

Here, evidence relevant to Durr's intentional wrong was not offered in the UIM arbitration.   Nor was any evidence concerning a possible right to re-open the workers' compensation claim.   Thus, there was not a substantial overlap of evidence in both actions.   Further, the claims involved different causes of action.   The UIM arbitration involved the underinsured's negligence.   On the other hand, the cause of action in the wrongful act settlement was grounded in an intentional wrong committed by the employer.   Consequently, the claims in both actions were not in fact closely related and did not involve the application of the same rule of law.   Because the damages recovered in the subsequent settlement did not entirely constitute a duplicate recovery, the policy considerations in Zirger, supra, 144 N.J. at 343, were inapplicable.

CIC's remaining appellate contentions do not warrant discussion in a written opinion.   R. 2:11-3(e)(1)(E).   Our finding that the subsequent settlement did not constitute a duplicate recovery entitles Ramos's counsel to the appropriate attorney's fees.   See R. 1:2.7(d).

Affirmed.

FOOTNOTES

FN1. The florist business, James Durr Wholesale Florist and its owner, James Durr, were also defendants.   We will refer to defendants collectively as “Durr.”.  FN1. The florist business, James Durr Wholesale Florist and its owner, James Durr, were also defendants.   We will refer to defendants collectively as “Durr.”

FN2. In addition, Ramos filed a workers' compensation claim petition..  FN2. In addition, Ramos filed a workers' compensation claim petition.

FN3. This provision provides UIM coverage for “damages because of bodily injury and property damage resulting from an accident arising out of the ownership, maintenance, operation or use of an underinsured motor vehicle.”  N.J.S.A. 17:28-1.1e..  FN3. This provision provides UIM coverage for “damages because of bodily injury and property damage resulting from an accident arising out of the ownership, maintenance, operation or use of an underinsured motor vehicle.”  N.J.S.A. 17:28-1.1e.

FN4. Further, in light of the opprobrious conduct alleged in the complaint, including failure to provide safe transportation even after other workers were killed in an earlier accident, allocation of the entire settlement to punitive damages would not have been unreasonable..  FN4. Further, in light of the opprobrious conduct alleged in the complaint, including failure to provide safe transportation even after other workers were killed in an earlier accident, allocation of the entire settlement to punitive damages would not have been unreasonable.

PER CURIAM