Pandemic doesn't excuse construction company from settlement obligations
The case involved allegations of understated payroll and misclassification of workers under New Jersey law.
The Appellate Division of the Superior Court of New Jersey has refused to let a construction company out of a settlement agreement reached with its insurer over unpaid workers’ compensation premiums as a result of misclassifying workers and understating payroll.
The Hartford Underwriters Insurance Co. provided workers’ compensation insurance to Arch-Concept, a construction company, from May 2012 through January 2016, according to the appeals court’s opinion.
On Nov. 4, 2016, The Hartford filed a complaint against Arch-Concept for unpaid premiums due to understatement of payroll and misclassification of workers under the New Jersey Insurance Fraud Prevention Act. The claim for $583,665 in unpaid premiums was subject to treble damages under the IFPA.
According to the opinion, the parties settled for $275,000 on May 31, 2018, to be payable by Arch-Concept in 12 quarterly installments. The settlement stated that if Arch-Concept breached the agreement, a consent judgement would be entered for $425,000 less any payment already made.
Arch-Concept made payments, as per the settlement terms, until June 2020, when they submitted a request to Hartford for forbearance due to the COVID-19 pandemic. The Hartford agreed to that request and a second request, but declined a third. Arch-Concept paid $200,374.33 of the total settlement due by the end of 2020, according to the opinion. When the third request was denied, Arch-Concept made a partial payment.
‘Doctrine of impossibility’ claimed deemed implausible
The Hartford filed a motion to enforce the settlement agreement in the amount of $224,625.67, which represented the $425,000 less payments already made. Arch-Concept and its president, Dusan Lazetic, argued that the company was unable to make the payments due to the pandemic and the shutdown of its business under the doctrine of impossibility, but submitted no documents to support that contention.
Judge Linda Grasso Jones heard oral arguments in Monmouth County Superior Court and ordered enforcement of the settlement agreement for $425,000, less payments made. In a per curiam opinion issued by the Appellate Division, the court agreed with Grasso Jones that the “defendants did not carry their burden to prove that the doctrine of impossibility excused their non-performance of the settlement agreement, that she could not change the terms of the agreement to require another forbearance, and that the damages provision was not an unenforceable penalty.”
“Applying that standard, we conclude 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,” stated the appeals court opinion. “Moreover, we disagree with defendants that the negotiated settlement amount stipulated to by the parties was an unenforceable penalty.”
“One circumstance where a court may vacate a settlement agreement is where the doctrine of impossibility, also known as impracticability of performance, applies,” stated the opinion. “Under that doctrine, ‘a party is excused from having to perform his contract obligations ‘where performance has become literally impossible, or at least inordinately more difficult, because of the occurrence of a supervening event that was not within the original contemplation of the contracting parties.’”
“The parties here are sophisticated commercial entities represented by counsel, who settled defendants’ exposure to over $2,000,000 in damages for a fraction of that amount,” stated the opinion. “In the event of a breach, the parties negotiated a backstop meant to not only compensate plaintiff for the breach but also to limit defendants’ residual exposure from a reinstatement of the complaint so as to ensure defendants were not required to litigate plaintiff’s original claim.”
Judge Garry S. Rothstadt and Judge Avis Bishop-Thompson affirmed the lower court ruling enforcing the terms of the settlement agreement.
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