No Disqualifying Conflict of Interest by Insurance Company-Assigned Counsel in a Workers’ Compensation Case

Alam v. Ameribuilt Contractors, ___ N.J. Super. ___ (App. Div. 2022). This was a workers’ compensation appeal in which the Law Division had disqualified insurance company-assigned counsel for respondent-appellant Ameribuilt Contractors. As Judge Mitterhoff put it in her opinion for the Appellate Division that reversed that ruling, the Law Division acted “on the basis of a perceived conflict between Ameribuilt’s workers’ compensation carrier, Travelers Property Casualty Insurance Co. (Travelers), and Travelers’ ostensible insured, respondent Robert Alam.”

Alam was the acting president and 50% owner of Ameribuilt. He was injured in a motor vehicle accident. He filed a workers’ compensation claim as an employee of Ameribuilt. Ameribuilt’s policy with Travelers did not provide any sort of coverage to Ameribuilt’s employees or shareholders. The only insured was Ameribuilt NJ, Inc.

The parties settled the claim. But under N.J.S.A. 34:15-20, a judge of compensation had to approve the settlement as fair and just under all the circumstances. When the settlement was submitted to a judge, the judge rejected it, finding “an inherent conflict between Ameribuilt Contractors and Ameribuilt Contractors’ Insurer Travelers Property Casualty Co. Ameribuilt Contractors is owned 50% by petitioner Alam. Travelers is denying the compensability of the accident which is against the interest of its insured.” The judge ordered that Travelers assign separate counsel for itself and for Ameribuilt. Ameribuilt sought and was granted leave to appeal.

Judge Mitterhoff observed that reviewing courts give “substantial deference” to administrative determinations. But this was a purely legal issue, so de novo review was appropriate.

In conducting its review, the Appellate Division was “mindful that a corporation is regarded as an entity separate and distinct from its shareholders” and “an entity distinct from its individual officers, directors, and agents.” The Law Division, Judge Mitterhoff said, “failed to distinguish Ameribuilt, the corporation, from Alam, an owner and shareholder…. [T]he sole named insured is Ameribuilt, and neither Travelers nor [the law firm assigned to defend] have taken any position adverse to the company. To the contrary, the successful pursuit of a viable liability defense clearly inured to the company’s benefit. Moreover, if unsuccessful, it is indisputable that Travelers would cover the loss.”

Judge Mitterhoff also noted that assigned defense counsel had recognized “that they were ‘retained’ by Travelers but ‘would need to have an attorney client relationship with the named insured.’ The pursuit of a viable defense to the company’s liability is not only permitted, but required, under Ameribuilt’s insurance contract with Travelers, providing that: “[Insurer] ha[s] the right and duty to defend, at [insurer’s] expense, any claim, proceeding or suit against [Ameribuilt] for damages payable by this insurance. [Insurer] ha[s] the right to investigate and settle these claims, proceedings and suit.”

Thus, there was no conflict. The Appellate Division reversed the ruling of the compensation judge and remanded the matter to a different judge to decide on the fairness and reasonableness of the settlement.