The Appellate Division, Third Department last week decided a policy-driven issue in Matter of Cruz v.  New Millennium Constr. & Restoration Corp. as to whether Workers’ Compensation Law sec. 54(5) abrogates a workers’ compensation carrier’s ability to rescind the insurance contract retroactively based on a material misrepresentation. 

The case involved the death of 12 workers and injuries of 2 others in a 2001 construction accident in which an exterior scaffold collapsed during a building reconstruction project in New York City.  The decedents and injured employees’ employer had misrepresented the extent of the work to its workers’ compensation carrier.

The Third Department held that, among other things, the carrier could not retrospectively rescind the workers’ compensation policy even where the insured had made a material misrepresentation because allowing a carrier to do so would cut against the protection of the Workers’ Compensation Law.  The decision is obvious a compromise, allowing insurers to ferret out frauds and providing protection to innocent workers whose employers make misrepresentations on their insurance policies.