Eger v. E.I. Du Pont DeNemours Co.

539 A.2d 1213, 110 N.J. 133, 1988 N.J. LEXIS 33

• Court: Supreme Court of New Jersey
• Decided: April 20, 1988
• Status: Published

Opinions

The opinion of the Court was delivered by

HANDLER, J.

Clifford Eger, a New Jersey resident, worked as a draftsman for Allstates Design and Development Co., Inc. (Allstates), a New Jersey corporation, from 1964 until 1983. During this time, E.I. du Pont DeNemours & Co. (Du Pont) hired Allstates as a subcontractor to provide various design, drafting, and model building services in connection with Du Pont’s operation of the Savannah River Nuclear Plant, a South Carolina facility owned by the United States Department of Energy, which manufactures radioactive isotopes for defense and industrial uses.

On various occasions over the course of his nineteen-year employment with Allstates, Eger was sent to the Savannah River facility to perform certain tasks in connection with his development of particular designs to suit engineering specifications provided by Du Pont. Plaintiffs allege that on one or more of his trips to the Savannah River facility, Eger was exposed to radioactivity that caused him to contract acute myeloblastic leukemia, a form of leukemia known to be caused by exposure to radiation and certain toxic chemicals.

Due to his illness, Eger left Allstates in July of 1983. Prior to his departure, in March of 1983, Eger filed a workers’ compensation action in New Jersey against Allstates. Subsequently, in April of 1984, Eger and his wife, Mildred, brought a third-party tort action against Du Pont and Allstates, the hospital and doctors responsible for Du Pont’s screening program, and various chemical companies. The plaintiffs have since dismissed without prejudice the common-law actions against Allstates and the chemical companies.

Du Pont moved for summary judgment, claiming that as the statutory employer of Eger under the South Carolina workers' compensation act, it was immune from common-law tort liability. The Law Division granted this motion. On appeal by the plaintiffs, directed to Du Pont only, in a per curiam unpublished opinion, the Appellate Division affirmed the trial court’s ruling. We granted plaintiffs' petition for certification, 107 N.J. 634 (1987), and now affirm the judgment of the Appellate Division.¹

I.

There is a difference in the role of a general contractor in the workers’ compensation systems of New Jersey and South Carolina. In New Jersey, the rights and duties defined by the workers’ compensation statute arise out of the employment contract between the employee and his immediate employer. The employer, unless adequately self-insured, is required to purchase workers’ compensation insurance providing benefits in accord with a statutory schedule for all injuries arising out of and in the course of employment regardless of the fault of the employer. N.J.S.A. 34:15-7. In return for the employer assuming the burden of providing this coverage, the employee surrenders the right to pursue any other remedy against the employer, thus immunizing the employer from tort liability. N.J.S.A. 34:15-8. General contractors, however, are not parties to the employment contract between a subcontractor and its employees. They are therefore not required to provide workers’ compensation coverage, and do not enjoy the immediate employer’s immunity from tort liability. Corbett v. Starrett Bros, 105 N.J.L. 228, 231 (E. & A. 1928). While a general contractor may be called on to provide workers’ compensation to the employee of a subcontractor that has violated its statutory obligation to provide workers’ compensation coverage, N.J.S.A. 34:15-79, this secondary liability is imposed to ensure that a worker has some source of recovery, and to provide an incentive for general contractors to place work with insured subcontractors; it has no bearing on the tort liability of a general contractor to a subcontractor’s employee. See, e.g., Boehm v. Witte, 95 N.J.Super. 359, 366 (Law Div.1967).

Under South Carolina law, however, a general contractor is equated with a workers’ immediate employer for the purposes of workers’ compensation. S.C.Code § 42-1-430. Thus, an injured employee of a subcontractor can sue either the subcontractor, the immediate employer, or the general contractor, the statutory employer, for workers’ compensation, S.C.Code § 42-1-450, and the general contractor is required to provide coverage for the employees of its subcontractors as if they were its own employees. S.C.Code § 42-1-410. Although provision is made for general contractors to shift the ultimate responsibility for compensation expenses onto an insured subcontractor, S.C.Code § 42-1-440, general contractors in South Carolina, unless self-insured, must nevertheless carry insurance providing primary compensation coverage, and thus are accorded the same immunity from tort liability as immediate employers. S.C. Code § 42-1-540; see Parker v. Williams & Madjanik, 275 S.C. 65, 70-72, 267 S.E.2d 524, 527 (1980) (a workers’ compensation claim is the only relief an employee can seek against his or her statutory employer).

In sum, the laws of New Jersey provide that the subcontractor is primarily liable for workers’ compensation; the general contractor is only secondarily liable. Immunity from a third-party tort claim is conferred only on the subcontractor, who as the employer is obligated to provide workers’ compensation coverage, while the general contractor remains exposed to tort liability. In contrast, South Carolina renders both the general contractor and the subcontractor directly responsible for providing workers’ compensation coverage, and in return immunizes both from tort liability. Therefore, in this case, under New Jersey law, the Egers could bring a third-party action in tort against Du Pont and Du Pont could not claim immunity, while under South Carolina law Du Pont as a statutory employer responsible for workers’ compensation coverage could claim absolute immunity from this tort action.

II.

Three decades ago, in Wilson v. Faull, 27 N.J. 105 (1958), this Court was confronted with an identical² conflict between New Jersey and Pennsylvania workers’ compensation laws. We held that a tort action by a New Jersey resident against his statutory employer, a general contractor required by Pennsylvania law to provide compensation coverage for subcontractors’ employees at a Pennsylvania worksite, was barred by the exclusive remedy provision of the Pennsylvania workers’ compensation statute. Arguing that Wilson represents a mechanical and outmoded approach to conflict of laws, plaintiffs urge this court to abandon the rule in Wilson and allow them to maintain their tort action against Du Pont.

In determining that the exclusive remedy provision of the Pennsylvania statute should be honored, the Court in Wilson stressed that it was rejecting the application of any mechanical rule to resolve the choice of law question:

Choice of law in the situation presented here should not be governed by wholly fortuitous circumstances such as where the injury occurred, or where the contract of employment was executed, or where the parties resided or maintained their places of business, or any combination of these “contacts.” Rather, it should be founded on broader considerations of basic compensation policy which the conflicting laws call into play, with a view toward achieving a certainty of result and effecting fairness between the parties within the framework of that policy. The injured workman has a prompt and practical compensation remedy in any state having a legitimate interest in his welfare. The person who provides that compensation in an interested state has a definitive liability which is predictable with some degree of accuracy and is granted an immunity from an employee’s suit for damages which does not disappear whenever his enterprise chances to cross state lines and the suit is brought in another state. [27 N.J. at 124.]

The Wilson court, in determining the appropriate choice of law, was thus cognizant of the need to consider basic compensation policy and to provide fairness and certainty for the parties involved. Far from an inflexible application of the then-common lex loci delecti rule, the Wilson decision recognized the interest of New Jersey in the application of its own law and actually approved of the application of the New Jersey statute to determine the level of compensation benefits to which the plaintiff there was entitled. Wilson v. Faull, supra, 27 N.J. at 116-17. It concluded, however, that Pennsylvania’s interest in preserving the fundamental quid pro quo of workers’ compensation—providing an expeditious and certain remedy for employees in return for a limitation on the employer’s liability— dictated that Pennsylvania’s immunization of statutory employers from tort liability should be honored.

The Court’s decision in Wilson foreshadowed, if it did not fully comport with, contemporary choice of law doctrine in which the determinative law is that of the state with the greatest interest in governing the particular issue. See, e.g., Veazey v. Doremus, 103 N.J. 244, 248 (1986). As this Court noted in Mellk v. Sarahson, 49 N.J. 226 (1967), in which we explicitly adopted the governmental interest test, the Wilson court made its choice of law decision “only after full consideration of the policies and purposes of the rules of the states involved.” Id. at 229. We remain satisfied that Wilson represents an accurate balancing of the interests involved.

III.

We reach the same result in this case—to honor the exclusive remedy provision of a foreign state’s workers’ compensation statute—on a balancing of the governmental interests involved. South Carolina has a genuine and legitimate interest in protecting the welfare of persons working within its borders, affixing responsibility for that protection, regulating the safety of the workplace, and allocating the financial costs resulting from employment accidents. To address these governmental concerns, South Carolina, as part of its comprehensive workers’ compensation scheme, has required that a general contractor assume the burden of furnishing workers' compensation coverage for the employees of its subcontractors as if they were in fact employees of its own. This imposition of liability furthers South Carolina’s interest in protecting the welfare of its workers by giving them the right to seek compensation benefits from either their immediate employer or the usually more fiscally responsible statutory employer, namely, the general contractor, see Marchbanks v. Duke Power Co., 190 S.C. 336, 344, 2 S.E.2d 825, 828 (1939), thus providing a safeguard against the insolvency of either potential source of benefits. Parker v. Williams & Madjanik, supra, 275 S.C. at 72-74, 267 S.E.2d at 528.

Application of New Jersey law to allow a tort suit against a South Carolina general contractor such as Du Pont would undermine the foundation of that state’s workers’ compensation statute. Immunity from tort liability of a party obligated to provide compensation coverage is an essential element of the fundamental equation in every workers’ compensation system: the statutorily imposed agreement in which an employer provides compensation coverage protecting employees injured in all work-related accidents without regard to fault in return for immunity from suit based on fault arising from such accidents. 2A A. Larson, Workmen’s Compensation Law § 65.11 12-9 (1987). As one court has noted:

The employer has incurred the burden of providing workmen’s compensation insurance. The employee has foregone his right to sue the employer for negligence. But both have also gained. The employer has gained an immunity from common law suit. The employee has gained a right to relief even where his injury did not arise through the fault of his employer. The courts clearly consider that this system of mutual give and take would be upset if the employee could sue for negligence in another jurisdiction.

[Jonathan Woodner Co. v. Mather, 210 F.2d 868, 873-74 (D.C.Cir.) (footnote omitted), cert. denied, 348 U.S. 824, 75 S.Ct. 39, 99 L.Ed. 650 (1954) quoted in Wilson v. Faull, 27 N.J. at 119 (emphasis added).]

Thus, the obligation to provide workers’ compensation coverage and immunity from tort liability are linked in any integrated and comprehensive workers’ compensation scheme. This is illustrated by New Jersey’s variant scheme in which the general contractor is not required to provide compensation coverage, and is exposed to potential tort liability. Nevertheless, it can insulate itself from any liability for workers’ compensation by insisting that its subcontractors comply with their statutory obligation to carry workers’ compensation insurance. In contrast, there is nothing a South Carolina general contractor can do to avoid primary liability for workers’ compensation benefits. Therefore, subjecting a South Carolina general contractor to tort liability in addition to the expense of providing compensation coverage for all employment-related accidents would frustrate that state’s interest in regulating the manner in which victims of industrial accidents are compensated.

The question remains whether New Jersey has any countervailing interest strong enough to warrant the imposition of tort liability under its law on a general contractor in situations where South Carolina has granted that general contractor immunity. Subjecting statutory employers such as Du Pont to tort claims by employees of subcontractors would have two possible consequences: it would allow plaintiffs to obtain additional damages beyond a workers’ compensation award, and would permit the subcontractor to be reimbursed for any compensation benefits it has paid. New Jersey’s interest in securing either of these consequences, however, is not strong enough to outweigh South Carolina’s interest in immunizing general contractors required to provide workers’ compensation coverage for subcontractors’ employees from tort suits by those same employees. See Jonathan Woodner Co. v. Mather, supra, 210 F.2d at 873-74.

Turning first to the comparative importance of New Jersey’s interest in encouraging added damage awards, the fact that plaintiffs in this case are protected by both Allstates’ and Du Pont’s compensation coverage and thus are assured of receiving compensation benefits plays a significant role in the weighing of governmental interests. In cases such as Mellk v. Sarahson, supra, 49 N.J. 226, and Mullane v. Stavola, 101 N.J.Super. 184 (Law Div.1968), in which courts refused to apply the host-immunity statutes of foreign states in lawsuits between New Jersey residents arising out of automobile accidents occurring in foreign states, the courts disregarded the immunity recognized by the foreign states since those states had no real interest in having their law applied to New Jersey residents, whereas New Jersey had a great concern in seeing that its injured residents received compensation. Mellk v. Sarahson, supra, 49 N.J. at 233.

As illustrated by the prior discussion, however, South Carolina has a great interest in having other states recognize the tort immunity conferred on general contractors, since this immunity is part of the quid pro quo that is fundamental to South Carolina’s workers’ compensation system.³ More importantly, New Jersey’s interest in seeing that its injured residents receive compensation has not been neglected; it has been addressed through the workers’ compensation system. Unlike the situation in Melik in which the court was confronted with the choice of either allowing a tort remedy or denying such a remedy with the attendant risk of the uncompensated resident becoming a public charge as a result of the accident, an injured resident who is covered by workers’ compensation is guaranteed payment of medical expenses and disability benefits for work-related accidents. His or her right to compensation does not depend on the inherently uncertain process of establishing tort liability. Therefore, workers’ compensation, which was intended to prevent injured workers from becoming public charges by shifting to industry the expense of compensating work-related injuries, see Boyle v. G & K Trucking Co., 37 N.J. 104, 112 (1962); Morris v. Hermann Forwarding Co., 18 N.J. 195, 197-98 (1955), reasonably satisfies the state’s interest in providing a source of compensation for injured workers.⁴ To the extent that a third party tort action would augment the employee’s recovery, such a remedy is ancillary to the central goals of workers’ compensation and is primarily for the benefit of the employee, see United States Casualty Co. v. Hercules Powder Co., 4 N.J. 157, 165 (1950), only incidentally furthering any state interest. See 4 A. Larson, Workmen’s Compensation Law § 88.14 16-145 (1987).

The second consequence of allowing a tort suit under New Jersey law is to provide a vehicle for the reimbursement of compensation paid by the employer. Since an action for reimbursement of compensation expenses can be brought only in the name of the injured employee, see N.J.S.A. 34:15—40(f), denial of such a tort suit by recognition of Du Pont’s immunity under South Carolina law will extinguish Allstates’ right to seek reimbursement of any compensation it is ordered to pay plaintiffs. Reimbursement from the proceeds of a tort award against a negligent third party, however, does not advance a significant state interest under the circumstances of this case. As this court recently observed in Midland Insurance Co. v. Colatrella, 102 N.J. 612, 618 (1986), the primary concern of the Legislature in enacting the reimbursement provisions of N.J.S. A. 34:15-40 was to integrate all available sources of recovery in order to prevent double recovery on the part of an employee having both a statutory right to compensation and an action in tort against a third-party wrongdoer. See New Amsterdam Casualty Co. v. Popovich, 18 N.J. 218, 226-27 (1955); United States Casualty Ins. Co. v. Hercules Powder Co., supra, 4 N.J. at 163 (discussing legislative history and intent of N.J.S.A. 34:15-40). Reallocation of the burden of providing compensation to reflect the relative fault of the contractors involved is at best an ancillary function of the workers’ compensation statute.

Furthermore, in light of the fact that under South Carolina law a general contractor always has the right to seek indemnity for compensation expenses from an insured subcontractor, S.C. Code § 42-1-440, subcontractors such as Allstates are aware that they will be called on to bear the full burden of providing compensation coverage. Unlike the situation with regard to true third parties, however, a subcontractor and general contractor can adjust the terms of their contractual relationship to allocate the burden of providing compensation coverage. See Parker v. Williams & Madjanik, supra, 275 S.C. at 72-74, 267 S.E.2d at 528 (“As a practical matter [the general contractors] absorbed the cost of coverage through their contracts with those who agreed to actually perform the work.”). New Jersey thus has no strong countervailing interest that would justify upsetting South Carolina’s statutory scheme in order to do what the parties to the contract themselves have the capacity to do.

IV.

South Carolina has a legitimate interest in the application and effectuation of its workers’ compensation laws. This interest is not outweighed by any important New Jersey governmental interest that would be materially furthered by allowing plaintiffs to maintain their tort suit against Du Pont. Furthermore, the concern that led South Carolina to immunize general contractors, the necessity of preserving the fundamental quid pro quo of workers' compensation limiting the liability of a party that bears the expense of providing compensation coverage, is also reflected in the structure of our own workers’ compensation system. The only relevant difference between the two states’ laws is that South Carolina has extended the benefits and burdens conferred on immediate employers by its workers’ compensation statute to general contractors, in order to provide covered employees with a greater certainty of recovery.

Honoring the exclusive remedy provision of a foreign state’s statute under the facts presented in this case reflects the majority approach today, see 4 A. Larson, Workmen’s Compensation Law, supra, § 88.11 16-133 n. 13 (citing cases), and was the majority rule thirty years ago when it was endorsed by Wilson. The meritorious considerations favoring the Wilson rule remain persuasive. See Restatement (Second) of Conflicts‘of Laws, § 184 (1971) (adopting the outcome in Wilson as the choice of law rule in workers’ compensation cases); 4 A. Larson, Workmen’s Compensation Law, supra, § 88.13 16-141 (recognizing Wilson as the leading case on application of a foreign state’s exclusive remedy provision).

For the reasons expressed above, the Court adheres to its decision in Wilson. Accordingly, the judgment of the Appellate Division is affirmed.

1 We express no opinion as to plaintiffs' ability to maintain such a suit if it had been alleged that Du Pont’s conduct towards Eger amounted to an “intentional wrong." See Millison v. E.I. du Pont de Nemours & Co., 101 N.J. 161, 182 (1985) (fraudulent concealment of employees’ work-related illness was an intentional wrong not subject to the exclusive remedy provision of the workers’ compensation statute).

2 Although the dissent attempts to distinguish Wilson on the grounds that the Pennsylvania statute at issue there did not explicitly provide general contractors the right to shift the burden of providing compensation onto its subcontractors, see infra at 146 (Stein, J., dissenting), it appears to have been common practice at the time for the subcontractors to assume this burden as part of the parties contractual relations. In such situations, both the general contractor and the subcontractor were immune from tort liability. See, e.g. Capozzoli v. Stone & Webster Engineering Corp., 352 Pa. 183, 188, 42 A.2d 524, 526 (1945). In fact, the general contractor in Wilson itself was immunized despite the fact that the New Jersey subcontractor in that case paid the compensation award. Thus neither in Wilson or the case at hand did the general contractor bear the ultimate responsibility for providing compensation benefits.

3 It also plays a role in regulating the structure of contractor/subcontractor relationships. South Carolina enacted its statutory employer provision in part to remove the incentive for contractors to place work with subcontractors with small numbers of employees that are not required by South Carolina law to provide workers' compensation coverage. See Marchbanks v. Duke Power Co., supra, 190 S.C. at 344, 2 S.E.2d at 828.

4 Moreover, to the extent that New Jersey's interest in providing adequate compensation to injured resident workers might be threatened by a foreign state’s less generous compensation schedule, the injured employee retains the option of seeking compensation under the New Jersey statute. This practice, which allows the employee to seek the highest available amount of compensation, is consonant with the remedial purposes underlying compensation enactments, see Boyle v. G & K Trucking Co., supra, 37 N.J. at 112, and in fact was followed in Wilson v. Fault, supra, 27 N.J. at 116-17, 124.