Workers’ Compensation Fraudster Settles Exposure & Finds Failure to Pay is Expensive

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Arch-Concept Construction, Inc. appealed the order after determining that defendants’ performance of its obligations under the agreement that the damages stipulated in the agreement were enforceable liquidated damages.

In Hartford v. Arch-Concept Construction, Inc. and Dusan Lazetic, individually and as President No. A-2430-20, Superior Court of New Jersey, Appellate Division (June 29, 2022) the New Jersey appellate court resolved the dispute.
The defendants argued that the doctrine of impossibility applies to its inability to perform under the settlement agreement, that the judge should have extended a forbearance as a matter of equity, and that the damages awarded under the parties’ agreement and a consent judgment are an unenforceable penalty.

FACTS

Hartford sued defendants to recover what it alleged were unpaid premiums. It also sought relief under the New Jersey Insurance Fraud Prevention Act (IFPA). Plaintiff alleged that audits estimated defendants owed plaintiff $583,665 in unpaid premiums and that it was also entitled to treble damages for defendants’ violation of the IFPA.

In the event defendants breached the agreement, they agreed to the entry of a consent judgment in favor of plaintiff and against defendants in the amount of $425,000, An obviously great deal for the defendant who was exposed to a judgment (with treble damages) of over $2 million.

DISCUSSION

The appellate court concluded that Judge Grasso Jones properly determined that defendants did not provide any proof to excuse its nonperformance under the doctrine of impossibility or that they were entitled to a reformation of the settlement agreement on equitable grounds.

Stipulated damage clauses in commercial contracts between sophisticated parties are viewed as presumptively reasonable liquidated damages and courts will enforce such a clause unless the party challenging it proves they are instead an unreasonable penalty.

The judgment was affirmed.

ZALMA OPINION

Workers’ compensation fraud is a crime and a breach of the contract between the insurer and the insured. Under the New Jersey Insurance Frauds Prevention Act an insurer, defrauded, can collect three times the monies owed. In this case the defendant was faced with more than $2 million in exposure that was satisfied, by the settlement for slightly more than 10% of the exposure paid in installments. Hartford succeeded and should immediately execute on the judgment and remember in the future that it is not wise to trust a person willing to defraud the insurer.

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