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Davis v. OneBeacon Ins. Group
Citations: 721 F. Supp. 2d 329; 2010 U.S. Dist. LEXIS 64020; 2010 WL 2629053Docket: Civil Action No. 09-cv-4179 (NLH)(KMW)
Court: District Court, D. New Jersey; June 28, 2010; Federal District Court
Frank Davis, Sr. and Carolyn Davis are plaintiffs in a case against OneBeacon Insurance Group and others, regarding a workers' compensation dispute. Frank Davis suffered severe left shoulder injuries while employed by South Jersey Overhead Door Company and was recommended surgery by his orthopedic surgeon, Dr. Robert Dalsey. OneBeacon, identified as the workers' compensation insurer, refused to authorize the surgery despite multiple requests. After exhausting remedies with the New Jersey Division of Workers' Compensation, Davis filed suit in state court seeking compensatory and punitive damages for pain and suffering due to the denial of necessary medical treatment. The case was removed to federal court by Pennsylvania General Insurance Company, which claimed to be the actual workers' compensation carrier for Davis's employer. Pennsylvania General moved to dismiss the complaint, while Davis cross-moved to remand the case back to state court. The District Court denied Pennsylvania General's Motion to Dismiss and also denied Davis's Cross-motion to Remand. The court asserted jurisdiction under 28 U.S.C. § 1332, noting complete diversity between the parties and that the amount in controversy exceeds $75,000. On April 18, 2007, Judge Butler ruled that OneBeacon was required to approve shoulder surgery recommended by Dr. Dalsey, its authorized treating physician, deeming OneBeacon's refusal to authorize the surgery a violation of Section 15 of the Workers' Compensation Act, N.J.S.A. 34:15-1 et seq., and unconscionable. The Judge noted that OneBeacon's denial lacked a sound medical basis and disregarded the severity of Davis's injury and the consequences of delayed treatment, despite the recommendations of its own physician. The Judge indicated that while the Workers' Compensation Act does not provide for compensation for Davis's pain and suffering resulting from OneBeacon's conduct, he could pursue civil remedies for those damages in another court, suggesting reference to Rothfuss v. Bakers Mutual Insurance Company of New York. On April 13, 2009, Davis filed a two-count complaint in the Superior Court of New Jersey against OneBeacon, alleging that its refusal to authorize necessary treatment resulted in injuries not compensable under the Act, including pain, suffering, and emotional distress. Davis's wife, Carolyn, also claimed loss of consortium. They sought compensatory and punitive damages. On August 17, 2009, the defendant removed the case to federal court, asserting that the proper defendant was PA General, a Pennsylvania corporation, not OneBeacon, which it claimed does not exist as a legal entity. PA General issued the insurance policy to Overhead Door. PA General moved to dismiss the complaint on August 28, 2009, while Davis cross-moved to remand the case to state court, arguing that diversity jurisdiction was lacking since both he and OneBeacon were citizens of New Jersey. Davis supported his claim by referencing various documents that identified OneBeacon as the workers' compensation insurer and argued that PA General only identified itself as such after removal. Both PA General and OneBeacon are licensed to operate in New Jersey. Davis argues that under 28 U.S.C. 1332(c)(1), the workers' compensation insurance carrier for his employer should be considered a citizen of New Jersey, the state where the insured resides. He contends that the case involves novel New Jersey law issues that should be resolved by the New Jersey judiciary, and if the Court has jurisdiction, it should decline to exercise it. PA General counters that OneBeacon is merely a trade name for a group of companies and asserts that it is incorporated in Pennsylvania and has its principal place of business in Massachusetts, thereby establishing diversity jurisdiction. PA General disputes Davis's interpretation of 28 U.S.C. 1332(c)(1), arguing that Davis's claims relate to alleged misconduct by PA General, not the insured employer, and thus the employer's citizenship should not affect jurisdiction. It maintains that if the Court has jurisdiction, it cannot avoid exercising it simply due to state law implications. The excerpt explains that a defendant can remove a case to federal court under 28 U.S.C. 1441, but bears the burden of proving federal jurisdiction throughout the litigation process. The court must resolve factual and legal uncertainties in favor of the plaintiff and strictly construe removal statutes. The Court ultimately disagrees with Davis's argument, clarifying that a 'direct action' against an insurer exists only if it could impose liability on the insured. Since Davis's claims are against the insurer for its actions, and not the employer, the employer's citizenship does not apply. The procedural posture in question does not constitute a 'direct action' under 28 U.S.C. § 1332(c)(1), as established in *Travelers Indem. Co. v. Bailey*, where a 'direct action' refers to a lawsuit where the claimant sues the insurer directly rather than the insured for compensation. Additionally, as per *Myers v. State Farm Ins. Co.*, an insured party's suit against an insurer does not qualify as a 'direct action' since the insurer is not merely a 'payor of a judgment' for the insured’s negligence. The court agrees with PA General that, despite New Jersey law's relevance, diversity jurisdiction permits the case's removal and adjudication. Davis fails to provide compelling legal justification for the court to decline jurisdiction based on potential novel legal issues in New Jersey law. The court also evaluates whether OneBeacon is a valid defendant and if its citizenship affects diversity jurisdiction. PA General asserts that it is the proper defendant and that OneBeacon is merely a trade name for a non-existent entity. An affidavit from Dennis R. Smith confirms that OneBeacon lacks legal status, assets, and the capacity to conduct insurance business. PA General provides evidence, including an insurance policy issued under its name, letters confirming its status as the insurer, and documentation showing its role in the case. Conversely, Davis argues that OneBeacon was identified as the workers' compensation insurer during administrative proceedings and that service was properly made on OneBeacon. Davis also submits documentation from the New Jersey Department of Banking and Insurance indicating that both entities are licensed in New Jersey. Ultimately, the court concludes that diversity jurisdiction is indeed present in this case. Davis has failed to provide evidence that effectively disputes the claims made by Smith and PA General regarding OneBeacon's status as an insurance carrier. References to OneBeacon in state administrative proceedings and the 'Certificates of Authority' issued by the Department of Banking and Insurance are insufficient to establish OneBeacon as a legal entity that insured Davis's employer. The court notes that these certificates do not confirm OneBeacon's existence as a legal entity subject to suit in New Jersey, nor do they clarify its relationship with PA General, which is based in Pennsylvania and Massachusetts. A non-existent business entity is not required to consent to case removal, and its citizenship is irrelevant for determining diversity jurisdiction. Consequently, the court denies Davis's Cross-motion to Remand and asserts diversity jurisdiction over the case. Regarding PA General's Motion to Dismiss, PA General argues that Davis's common law claim for denial of medical treatment is barred by the statute of limitations and New Jersey's Workers' Compensation Act. The court will evaluate these arguments under the standard for a motion to dismiss, which requires accepting the allegations in the complaint as true and assessing whether they present a plausible claim for relief, following the guidelines established in the cases of Twombly and Iqbal. The court will analyze the complaint by separating factual assertions from legal conclusions to determine the sufficiency of the claims presented. A complaint must establish more than mere entitlement to relief; it requires sufficient factual matter to suggest that the necessary elements of a claim exist, as per the Twombly standard. This standard does not necessitate a probability of success at the pleading stage but demands enough facts to create a reasonable expectation that discovery will yield evidence of the claim. The burden lies with the defendant to demonstrate that no claim has been presented. In the context of the statute of limitations, PA General argues that Davis's claim, based on personal injury, is subject to New Jersey's two-year statute, asserting that it accrued on September 20, 2006, when Davis filed for Temporary Disability and Medical Benefits. PA General contends that Davis's suit, filed in April 2009, is therefore untimely. PA General also disputes Davis's claims that equitable tolling or the discovery rule apply. Conversely, Davis claims his cause of action did not accrue until he exhausted administrative remedies on April 18, 2007, when a workers' compensation judge ruled on his benefits motion. He further argues that his claim resembles a tortious injury to statutory rights, warranting a six-year statute of limitations, and that both equitable tolling and the discovery rule are applicable. The Court must examine the origins of this common law cause of action. A precedent case, Rothfuss v. Bakers Mutual Insurance Company of New York, involved an employee suing his employer's insurer for failing to authorize necessary medical treatment after an on-the-job injury. The trial court dismissed the case, citing the exclusivity of the Workmen's Compensation Act as a remedy. However, the Appellate Division upheld the dismissal of claims related to inadequate medical treatment but reversed the dismissal of claims alleging wrongful conduct by the insurer, which caused unnecessary suffering to the employee. The panel determined that common law remedies for injuries and suffering are not compensable under the New Jersey Workmen's Compensation Act, allowing for potential claims outside of statutory limitations. Following the Rothfuss case, the Appellate Division clarified that a common law cause of action arises when an insurance carrier fails to provide necessary medical benefits as determined by its physician. The key issue is whether Davis's claim is within the statute of limitations, which typically begins with the negligent act or omission, but is subject to the 'discovery rule'—where the limitations period starts only upon actual or constructive discovery of essential facts. Davis's claim, while related to his workers' compensation proceedings, is governed by N.J.S.A. 34:15-15, which mandates employer obligations for medical treatment. The Division of Workers' Compensation has exclusive jurisdiction over workers' compensation claims, and it is expected that injured employees exhaust administrative remedies before seeking judicial relief. The court emphasized that the Division should first address the underlying issues of Davis’s claim. The limitations period is applied flexibly to achieve justice, and in this case, Davis's cause of action accrued on April 18, 2007, when the compensation judge mandated the provision of medical benefits and concluded his involvement. Thus, Davis's suit, filed on April 14, 2009, is deemed timely regardless of whether a two-year or six-year statute of limitations applies, and the statute of limitations does not bar his claim. The court will proceed to examine the merits of Davis's claim. PA General contests Davis's common law claim based on Rothfuss, arguing that recent legislative changes (N.J.S.A. 34:15-28.1 and N.J.A.C. 12:235-3.14) enhance the Division of Workers' Compensation's enforcement capabilities, thereby nullifying the Rothfuss cause of action or at least barring Davis's claim due to failure to exhaust administrative remedies. PA General asserts that Davis's claim stems from the same conduct for which he previously received disability benefits and penalties against PA General under the Act, which already addressed the alleged unreasonable delay in authorizing surgery. Davis counters that PA General, as an insurer, cannot invoke employer immunity under the Act. He differentiates between temporary disability benefits and medical benefits, claiming the statutory framework allows for recourse against an insurer's bad faith denial of the former but not the latter. Consequently, he argues that the compensation judge's awards do not preclude a Rothfuss claim. Davis cites N.J.A.C. 12:235-3.14(a)(5), indicating the compensation judge referred this matter for further proceedings, validating his lawsuit. The Workers' Compensation Act generally provides the exclusive remedy for work-related injuries in New Jersey, limiting injured employees to remedies within the Division of Workers' Compensation, even if necessary medical treatment is withheld. However, an injured employee may pursue a legal action against a workers' compensation carrier if the carrier's actions exceed standard coverage responsibilities. The Rothfuss claim potentially qualifies as a narrow exception to this exclusivity, as Davis alleges that PA General acted in bad faith by failing to authorize surgery recommended by its treating physician. The primary legal question remains whether the Rothfuss cause of action endures after subsequent amendments to the workers' compensation laws, with relevant case law, including Dunlevy v. Kemper Insurance Group, providing context for this analysis. The plaintiff claimed that the insurer acted with negligence and bad faith by refusing to make payments, causing significant emotional and physical distress. The Appellate Division upheld the trial court's dismissal, determining that N.J.S.A. 34:15-28.1 serves as the exclusive remedy for intentional and wrongful termination of temporary disability benefits, preempting any common law claims. The court referenced the precedent set in Rothfuss, which linked the specificity of remedies in workers' compensation law, emphasizing that specific legislative remedies must encompass the entirety of available redress. The panel noted that the absence of common law remedies in N.J.S.A. 34:15-28.1 indicates legislative intent to limit redress to the penalties outlined within that statute. The court also distinguished this case from Dunlevy, clarifying that it does not involve the wrongful termination of court-ordered benefits but rather concerns the insurer's refusal to approve a medically recommended procedure. N.J.S.A. 34:15-28.1 specifically addresses penalties for unreasonable or negligent delays or refusals of temporary disability compensation, stipulating a 25% penalty on overdue amounts and establishing a 30-day delay as a presumption of negligence. The statute does not address an insurer's refusal to authorize medical treatment recommended by its own physician. The case of Flick v. PMA Insurance Company, 394 N.J.Super. 605, 928 A.2d 54 (2007), is relevant, where a plaintiff sued his employer's workers' compensation administrator for improperly delaying and denying medical treatment and benefits while his disability claim was pending. The Appellate Division upheld the trial court's dismissal, citing the plaintiff's failure to exhaust administrative remedies available under N.J.S.A. 34:15-28.1 and N.J.A.C. 12:235-3.14. The panel referenced Rothfuss, which acknowledged an employee's limited right to pursue a common-law action against an insurer for willfully failing to provide medical benefits when the insurer had voluntarily undertaken to examine and treat the employee. In contrast, the Flick panel emphasized that the defendant did not provide its own physician but allegedly obstructed the plaintiff's access to third-party medical procedures. The panel noted that the regulatory enforcement measures in place were not available at the time of Rothfuss. Ultimately, a plaintiff can pursue the common-law cause of action established in Rothfuss only under specific circumstances. The Rothfuss precedent allows for claims against an insurer for failing to follow its own physician’s recommendations, which establishes a basis for liability beyond statutory obligations. Thus, the Rothfuss cause of action remains available under its limited conditions. PA General cites N.J.A.C. 12:235-3.14 to argue that Davis's Rothfuss claim should be precluded, highlighting that the regulation allows various remedies for an employer's unreasonable failure to comply with a compensation judge's order or legal requirements. The remedies include dismissing claims, closing proofs, excluding evidence, and imposing costs or attorney's fees. The regulation also mandates that a party must respond to enforcement applications within ten days, explaining any noncompliance. However, the regulation does not undermine the Rothfuss cause of action, which involves misconduct beyond the scope of the Workers' Compensation Act. In this context, PA General has not violated any compensation judge's order, nor is Davis seeking to enforce such an order; instead, the compensation judge acknowledged that Davis's claim is independent of the Act. Thus, the Rothfuss claim remains viable and is not barred by the regulation or the Act itself. Consequently, PA General's Motion to Dismiss is denied, and Davis's Cross-motion to Remand to State Court is also denied. An order consistent with this opinion will be issued. Additionally, Carolyn Davis, as a plaintiff for loss of consortium, will be referred to as Frank Davis for clarity. Diversity jurisdiction is a central issue in this case, with the Court accepting the plaintiffs' allegations as true and favorably interpreting them due to PA General's Motion to Dismiss. A work-related injury occurred on November 5, 2001, which did not impact Davis's shoulder, rendering it irrelevant to this opinion. The Court may consider evidence outside the pleadings to address jurisdictional questions. The use of an entity's letterhead on documents does not automatically make that entity a litigant. OneBeacon's frequent mention in state administrative proceedings suggests it is related to PA General's insurance coverage. The Court accepts that OneBeacon is a non-existent entity, negating the need to address fraudulent joinder. Davis's claim in relation to the Workers' Compensation Act will be elaborated on later. Even if the claim's accrual date were determined to be September 20, 2006, equitable tolling principles would still favor Davis, as he was entitled to seek an opinion on denied medical treatment before pursuing a common law action. A referenced case indicates that the relationship between medical benefits and temporary disability compensation under New Jersey statutes may be exclusive, suggesting that medical benefits alone require exhaustion of administrative remedies. The Workers' Compensation Act does not eliminate the possibility of a cause of action under Rothfuss but limits its scope. Although N.J.A.C. 12:235-3.14 has since been repealed, it was applicable at the time the parties engaged with the Division of Workers' Compensation. The Court concurs with PA General that the compensation judge did not "refer" Davis's case for civil proceedings as required by N.J.A.C. 12:235-3.14(a)(5). There is no evidence indicating that a motion was submitted or a hearing conducted to evaluate the appropriateness of any actions or compensatory measures under the relevant regulation. Additionally, the compensation judge's orders lack any reference to the relief options outlined in N.J.A.C. 12:235-3.14. However, the Court disagrees with PA General's claim that Davis needed to file a motion for a referral from the compensation judge to exhaust his administrative remedies before pursuing his current action. Citing the Appellate Division's ruling in Flick, the Court emphasizes that the referral process under N.J.A.C. 12:235-3.14(a)(5) is an alternative means for presenting an enforcement application to the Law Division, and a petitioner can initiate such action independently after exhausting administrative remedies.