What happens to an innocent injured employee when an employer commits fraud in the application process for a workers’ compensation policy?  In American Millennium v. Berganza, 386 N.J. Super 484 (App. Div. 2006) the Appellate court examined the case where a drywall subcontractor, Berganza, obtained workers’ compensation coverage through an insurance broker that was placed with American Millennium Insurance Company on January 18, 2003 with an effective date of January 19th.  On January 21, 2003, Berganza’s employee Jose Arias fell off of a ladder and broke his leg on the work site.  The trial judge found that Berganza reported the accident to the broker on January 24, 2003, who in turn notified American Millennium on January 28, 2003.  On January 29 or 30th, American Millennium issued the insurance policy to Berganza with an effective date of January 19, 2003.  American Millennium declined coverage and filed a suit to void the policy stating that a review of their documents revealed that the employer, Berganza made fraudulent statements in the application process, and that the accident happened before the policy was actually issued, although it was backdated to before the accident. The Appellate court held that American Millennium could not deny its obligation to the injured employee based on fraud committed by the employer because the policy was in effect on the date of the injury to the employee, and there was no valid cancellation.

In addition, in the case of Alea North America Insurance Company v. Salem Masonary, 2006 U.S. Dist. LEXIS 84135, The United States District Court for the District of New Jersey followed the decision in American Millennium and refused to allow a workers’ compensation policy to be voided for fraud on the part of the employer in obtaining the policy.   In the Alea case, Salem Masonry Company employed Nuno Alexandre to do masonry work.  On its insurance application Salem stated that none of its employees performed work at more than 15 feet above ground.  Nuno Alexandre fell down an elevator shaft 5 – 6 stories high sustaining catastrophic injuries.  Realizing that Alexandre fell from more than 15 feet above ground Alea brought an action to rescind the policy.  The U.S. District Court followed American Millennium, which had just been decided, and stated that it stands for the proposition that a “…policy issued on the untrue statements made by the employer is no defense. “  The court also stated that the reasoning in American Millennium “ is sound, and most likely captures the sentiments of New Jersey’s highest court if it were to hear the case. Moreover, workers’ compensation laws were enacted at the turn of the twentieth century to protect workers.”  Alea at 15.  Case law makes it clear that fraud on the part of an employer in the workers’ compensation setting should NOT be allowed to penalize an innocent employee.