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In New Jersey, Workers’ Compensation Liens Are No Longer Subject to the Verbal Threshold

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By: Robert M. CaplanFabianna Pergolizzi and Brett N. Tishler

The Superior Court of New Jersey, Appellate Division, recently held, in N. J. Transit Corp v. Sanchez, No. A-0761-17T3, 2018 N.J. Super. LEXIS 168 (December 4, 2018), that pursuant to N.J.S.A. 34:15-40(f) (Section 40) of New Jersey’s Workers’ Compensation Act (WCA), workers’ compensation carriers have, without question, the independent right to seek reimbursement from negligent tortfeasors for economic damages. The court’s ruling cleared up years of confusion regarding the scope of recoverability of workers’ compensation subrogation liens. As noted by the court, a carrier’s workers’ compensation lien is NOT affected by New Jersey’s verbal threshold and no-fault statutes.

The underlying matter in N.J. Transit Corp involved an injured worker, David Mercogliano (Mecogliano), who was involved in a motor vehicle collision during the course and scope of his employment. New Jersey Transit Corporation (NJT) owned the vehicle driven by Mercogliano. Mercogliano’s personal automobile insurance policy provided $250,000 in Personal Injury Protection (PIP) benefits and was subject to the verbal threshold limitations set forth in N.J.S.A. 39:6A-8, which is part of New Jersey’s Automobile Insurance Cost Reduction Act (AICRA), N.J.S.A. 39:6A-1 to 35, et. seq. Pursuant to N.J.S.A. 39:6A-8, New Jersey residents who opt for the lower premium verbal threshold, also known as the “limitation on lawsuit,” are unable to file civil lawsuits to obtain financial compensation for pain and suffering damages unless their injuries fall under certain categories: (1) death; (2) dismemberment; (3) loss of a fetus; (4) significant disfigurement or scarring; (5) displaced fractures; or (6) permanent injury.

As a direct result of Mercogliano’s injuries and lost wages, NJT’s workers’ compensation carrier issued $33,625.70 in workers’ compensation benefits to and/or on behalf of Mercogliano. The payments were comprised of medical benefits, temporary indemnity benefits, and permanent indemnity benefits.

NJT initiated an independent subrogation action pursuant to N.J.S.A. 34:15-40(f) (Section 40) of the WCA, which gives a workers’ compensation carrier the right to file a direct action in the name of the injured worker against third-party tortfeasors for recovery of the workers’ compensation lien. Pursuant to N.J.S.A. 34:15-40(f), a subrogating carrier is permitted to seek the full extent of the injured worker’s damages in the action against the tortfeasor, over and above the Section 40 lien itself. The additional money recovered, less fees and costs, goes directly to the injured worker. However, the parties in N. J. Transit Corp stipulated that the injuries sustained by Mercogliano did not pierce the AICRA verbal threshold. Accordingly, if Mercogliano had sued the defendants directly, he could not have recovered for noneconomic damages (pain and suffering) in his personal injury case.

The defendants filed a motion for summary judgment seeking to dismiss the case in its entirety, arguing that Mercogliano was fully compensated by the workers’ compensation carrier for his medical expenses and wage loss and he was not entitled to recover for any noneconomic losses. In granting the defendants’ motion and dismissing the complaint with prejudice, the motion judge held that AICRA trumped the WCA and that NJT did not have an independent right to subrogate against the tortfeasor when the injured employee could not establish a cause of action against the tortfeasor.

Under AICRA, the primary payment of first party benefits comes from an injured party’s own PIP insurer. However, if the injury arises out of a work-related accident, payment of such benefits comes from the employer/workers’ compensation carrier. Although the trial court noted that a “[d]efendant’s liability is not affected by the fortuitous circumstance that plaintiff was entitled to workers’ compensation benefits,” the court also stated that “[t]he compensation carrier’s rights rise no higher than the employee’s rights to which it is subrogated.” Thus, the trial court held that the verbal threshold noted in AICRA barred NJT’s lien claim. To reach its decision, the trial court distinguished other cases in which the plaintiffs pierced the verbal threshold, secured recoveries, and repaid the Section 40 liens, finding it “‘appropriate that the lien on economic damages paid by the workers’ compensation carrier [was] satisfied’ by the plaintiffs’ respective recoveries.”

NJT appealed, arguing that a workers’ compensation carrier’s right of reimbursement is governed by the WCA not AICRA.

The New Jersey Appellate Division reversed the trial court’s grant of summary judgment, holding that a workers’ compensation carrier is permitted to pursue its claim for reimbursement of workers’ compensation benefits against third-party tortfeasors. The appellate court further held that under Section 40, “[a] workers’ compensation carrier is entitled to reimbursement whether or not the employee is fully compensated.” As noted by the appellate court, a workers’ compensation carrier has an independent right to seek reimbursement from the tortfeasor pursuant to N.J.S.A. 34:15-40(f). The court elaborated further by stating that AICRA was enacted 87 years after the WCA and if the Legislature intended to treat workers injured in automobile accidents differently than workers injured in any other manner, it would have unambiguously expressed as much.

The ruling in N.J. Transit Corp stands to be a significant case for subrogating workers’ compensation carriers and is a clear reaffirmation of the sanctity of the WCA and the ability of carriers to recover from third-party tortfeasors. By setting a clear precedent for future workers’ compensation subrogation actions, the court unambiguously barred both plaintiffs and defendants alike from utilizing AICRA as a preclusive tool to prevent full recoveries on workers’ compensation liens.

The workers’ compensation carrier still needs to be wary of those scenarios in which an injured worker files his/her own action and is found not to pierce the verbal threshold, which likely could result in a dismissal. In those instances, in order to assure adequate protection, a subrogating carrier would be wise to contemplate intervention in an effort to seek, independently, its right to reimbursement. While intervention is not always favored in New Jersey, the reasoning found in N.J. Transit Corp provides the substantive and procedural basis for seeking and gaining entry into the litigation.

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