A recent New Jersey Superior Court Appellate Division decision has ostensibly settled a long-standing subrogation question with regard to whether a worker’s compensation carrier is entitled to subrogation and/or reimbursement from a third-party tortfeasor who is covered by New Jersey no-fault insurance, even though the employee does not otherwise meet the verbal threshold allowing him or her to sue the tortfeasor. New Jersey Transit Corp. a/s/o David Mercogliano v. Sanchez, No. A-0761-17T3, ___ N.J. Super. ___, 2018 N.J. Super. LEXIS 168, 2018 WL 6314177 (Dec. 4, 2018). Assuming the case is not overturned by an appeal to the New Jersey Supreme Court, the subrogation rights of the workers’ compensation carrier are not affected by New Jersey’s no-fault and verbal threshold requirements, as has been suggested in at least two prior appellate decisions.
New Jersey has a version of no-fault automobile insurance laws. Every owner or registered owner of an automobile registered or principally garaged in New Jersey must maintain either a standard or basic automobile liability insurance policy with certain minimum limits of coverage insuring against bodily injury, death or property damage sustained by any person “arising out of the ownership, maintenance, operation or use of an automobile.” N.J.S.A. §§ 39:6A-3, 3.1, and 4; N.J.S.A. § 39:6B-1. The no-fault law exempts holders of Personal Injury Protection (PIP) policies, as required by N.J.S.A. 39:6A-4, from tort liability for non-economic damages (e.g., pain and suffering) unless a “verbal threshold” is met. The verbal threshold applies to an accident and the injured party can recover for non-economic damages from an owner or operator of an automobile eligible for PIP only if the injured party suffers:
- Significant disfigurement or significant scarring;
- Displaced fractures;
- Loss of a fetus; or
- Permanent injury. J.S.A. § 39:6A-8, et seq.
The definition of “automobile” focuses first on the type of vehicle and second on its use. New Jersey Manufacturers Ins. Co. v. Hardy, 840 A.2d 231 (2004). Private passenger automobiles, mini-vans, and SUV’s are automobiles. Pick-up trucks and large vans used for cargo or large numbers of passengers are automobiles only if used for recreational purposes and owned by an individual. N.J.S.A. 39:6A-2. “Verbal threshold” means that for a slightly reduced premium, the automobile owner still obtains personal injury coverage but is excluded from receiving damages for certain injuries, most notably, non-economic losses. N.J.S.A. § 39:6B-1. “Non-economic loss” is defined as “pain, suffering and inconvenience,” unless the threshold is met. N.J.S.A. § 39:6A-2.
For years, some have argued that, if an injured employee is subject to this verbal threshold, a subrogated workers’ compensation carrier should similarly find its subrogation rights limited. Continental Ins. Co. v. McClelland, 672 A.2d 194 (N.J. App. 1996). That no longer appears to be the case.
Workers’ Comp Subrogation and No-Fault Generally
When an employee suffers an automobile accident while in the course of employment, workers’ compensation is the primary source of payment of the employee’s medical bills. This is because the Collateral Source Rule, § 39:6A-6, “relieves the PIP carrier from the obligation of making payments for expenses incurred by the insured which are covered by workers’ compensation benefits.” Lefkin v. Venturini, 550 A.2d 985 (N.J. App. 1988); Lambert v. Travelers Indem. Co. of Am., 2016 WL 4446157 (N.J. Super. 2016). In other words, the statutory scheme is that benefits collectible under workers’ compensation are to be deducted from the benefits collectible under PIP. Bernick v. Aetna, 386 A.2d 908 (N.J. Super. 1978). This deduction is mandatory. Taureck v. Jersey City, 374 A.2d 70 (N.J. Super. Law Div. 1977).
Where a third-party tortfeasor has caused the accident, § 40 prevents a double recovery by requiring the employee to reimburse the workers’ compensation carrier once there is a third-party recovery. The argument against allowing a workers’ compensation carrier to subrogate against or seek reimbursement from a no-fault carrier is that, if the employee was not seriously injured in a work-related accident, he would have received PIP payments and would have been statutorily-barred from recouping these PIP medical payments from the tortfeasor. Therefore, the argument goes, the workers’ compensation carrier should be similarly barred. There are only two decisions which hold that a workers’ compensation carrier is subject to the same verbal threshold as the employee in a third-party situation: Patterson v. Adventure Trails and Continental Ins. Co. v. McClelland. The rest of New Jersey case law says otherwise. Patterson v. Adventure Trails, 836 A.2d 856 (N.J. Super. 2003); Continental Ins. Co. v. McClelland, 673 A.2d 194 (N.J. App. 1996). These cases are discussed below.
Continental Ins. Co. v. McClelland, 673 A.2d 194 (N.J. App. 1996).
For years, the chief case supporting the argument that a workers’ compensation carrier is subject to the same verbal threshold as the employee when it is subrogating or seeking reimbursement of compensation benefits from a third party was McClelland. The court held that the verbal threshold does apply to a work-related car accident and that a tortfeasor’s liability should be no different simply because the plaintiff was working at the time. McClelland, supra. But this case does not mean that an employee must meet the verbal threshold in order for a workers’ compensation carrier to pursue subrogation or reimbursement. McClelland admits that there is merit to the carrier’s argument that its loss is entirely economic and not subject to the verbal threshold but talks at length about the fact that the verbal threshold applies to a work-related motor vehicle accident. It states that despite the subrogation rights given by § 40, a tortfeasor causing a motor vehicle accident should not face a different liability simply because the person they injured was on-the-job at the time of the accident. The court stated that when there is a work-related accident, the plaintiff, occupying a private passenger vehicle, is entitled to PIP benefits. Because workers’ compensation is primary, the workers’ compensation carrier pays. Section 39:6A-6 provides that workers’ compensation is primary over PIP. Any losses not covered by PIP are recoverable by the employee from the tortfeasor and, therefore, are also subject to reimbursement of or subrogation by the workers’ compensation carrier. McClelland, supra.
The distinction here is that the McClelland decision was based on § 39:6A-12, the Collateral Source Statute which prohibits recovery of amounts covered by PIP, rather than § 40. The court stated that if it were not a work-related accident, the injured party would have been entitled to PIP benefits (workers’ compensation is primary over PIP), and the PIP benefits could not have been recovered from the tortfeasor. N.J.S.A. § 39:6A-6. The court concluded that the result should not be different just because the injured party happens to be working at the time. McClelland, supra. McClelland stands for the proposition that a tortfeasor should not be liable for medical claims resulting from an auto accident because of the mere coincidence that the injured party was an employee entitled to workers’ compensation benefits. The Lambert decision says that a workers’ compensation carrier can subrogate medical bills even if the insured would otherwise have been entitled to PIP benefits. Lambert doesn’t discuss the rationale flowing from McClelland and does not address a verbal threshold which may not have been an issue in that case. The true holding in McClelland, therefore, is not that the threshold applies to limit workers’ compensation subrogation, but rather, that a workers’ compensation carrier is not allowed to recover for claims that would otherwise have been paid by PIP. Legal authorities note that McClelland is at odds with Lambert and other later decisions. Cynthia M. Craig & Daniel J. Pomeroy, New Jersey Auto Insurance Law, § 12:3 at 244-245 and § 15:3-2 at 290-291 (2018) notes that the McClelland decision is at odds with Lambert and other cases.
Patterson v. Adventure Trails, 836 A.2d 856 (N.J. Super. 2003).
Although § 40 authorizes the workers’ compensation carrier to institute a third-party action if the employee does not do so, Patterson tells us that the third party is liable only to the same extent as it would have been liable had the employee himself instituted suit. Patterson is the most current case cited for the proposition that workers’ compensation subrogation is only possible where the verbal threshold is met. However, there is a good amount of misunderstanding about this case and other cases have contradicted the two decisions above.
Cases Holding Workers’ Comp Carrier
Can Seek Reimbursement
The position underscored by the recent Sanchez decision is that § 39:6A-12 does not apply in a way that nullifies the carrier’s statutory right to a workers’ compensation lien under § 34:15-40. Section 39:6A-6 is the New Jersey Collateral Source Statute and requires that benefits collectible under workers’ compensation are to be deducted from benefits collectible under the cited PIP statutes. Because workers’ compensation insurance is primary over PIP as a source of recovery for an injured party’s medical expenses, the workers’ compensation carrier’s argument in favor of allowing subrogation without limitation due to the no-fault threshold is that, to the extent the benefits provided under the PIP statute are available to a claimant through one of the collateral sources delineated in § 39:6A-6, there are no collectible PIP benefits to which that claimant is entitled. The inadmissibility rule (§ 39:6A-12) should only apply to amounts collectible or paid under the PIP statute to an injured person. Collectible benefits do not exist where the benefits provided for under the PIP statute are available to the claimant through a collateral source such as workers’ compensation. Id.
Lefkin v. Venturini, 550 A.2d 985 (N.J. App. 1988).
The interplay between PIP and workers’ compensation was first discussed in Lefkin v. Venturini, 550 A.2d 985 (N.J. App. 1988). In Lefkin, the plaintiff settled a third-party action after receiving $25,000 in workers’ compensation benefits but did not file a PIP claim. Instead, he filed suit against the PIP carrier seeking satisfaction of the workers’ compensation lien. The plaintiff argued that the third-party recovery against the tortfeasor could not have included his medical expenses due to the collateral source inadmissibility feature of § 39:6A-12, and that he was required to reimburse the workers’ compensation carrier out of his own funds, having not recovered medical expenses from another party. This case stated that § 39:6A-12 does not require an exclusion of medical expenses paid by a workers’ compensation carrier being entered into evidence. The Lefkin court announced that an employee is required to reimburse the workers’ compensation carrier from the third-party settlement, because the plaintiff had three potential sources of recovery:
- Workers’ compensation benefits;
- PIP benefits; and/or
- Third-party lawsuit recovery.
In response to the plaintiff’s claim that § 39:6A-12 nullifies the workers’ compensation carrier’s lien under § 34:14-40, the court stated:
The conceptual error plaintiff makes is his assumption that if all three potential payment sources conjoin, the injured party recovers his medical expenses from none of them. The assumption is erroneous because in those circumstances there is no bar against recovery of the medical expense collection or collectible in workers’ compensation from the tortfeasor. This is because PIP benefits are not available to an insured if workers’ compensation benefits are also available to him. Consequently, PIP benefits in that situation are neither collectible nor paid. Hence, N.J.S.A. 39:6A-12, which bars evidence in the third-party action only of “amounts collectible or paid” under PIP coverage, is inapplicable, and there is no other impediment to the plaintiff-insured-employee recovering his medical expenses from the tortfeasor even though that recovery will ultimately be subject to the compensation lien. (emphasis added). Id.
The court held that the medical expenses were recoverable from the tortfeasor, though subject to the workers’ compensation lien. Section 39:6A-12 does not preclude a workers’ compensation carrier’s lien where workers’ compensation medical benefits are, in fact, recoverable from the tortfeasor. Since they are paid under the workers’ compensation statute, they are not paid or collectible under §39:6A-12.
Talmadge v. Burn, 142 A.3d 757 (N.J. Super. 2016).
A similar argument was made in Talmadge v. Burn, 142 A.3d 757 (N.J. Super. 2016). Talmadge was in an auto accident and received workers’ compensation benefits of $84,510.78. She settled her claim against the other driver for $250,000, and Hartford asserted a workers’ compensation lien. The plaintiff moved to reduce the lien, arguing that because she was not able to recover medical benefits in the third-party action, neither should Hartford. The court allowed the subrogation because § 40 permits a workers’ compensation carrier to seek reimbursement of benefits it pays when a third party, other than the employer, caused the employee’s injury, whether or not the employee is fully compensated. Section 40 prevents the employee from retaining any workers’ compensation benefits that have been supplemented by a recovery against a third party. The plaintiff argued that because she was not able to recover medical, Hartford’s subrogation rights were similarly limited. The court held that workers’ compensation was primary, and it relieves the PIP carrier from payment of medical bills. The intent of § 40 is to prevent the employee from recovering compensation benefits while also recovering full damages from a tortfeasor. This is true even if the net recovery after satisfaction of the worker’s compensation lien means the employee will not be made whole. Therefore, the workers’ compensation carrier’s lien, which includes all medical expenses paid, must be satisfied from the $250,000 third-party recovery.
Lambert v. Travelers Indem. Co. of Am., 145 A.3d 1095 (N.J. Super. 2016).
Another recent decision which deals with the interplay of the New Jersey Workers’ Compensation Acts’ (WCA) right of subrogation and New Jersey’s Automobile Insurance Cost Reduction Act (“AICRA”) is the 2016 Superior Court decision of Lambert v. Travelers. Indem. Co. of Am., 145 A.3d 1095 (N.J. Super. 2016). This case dealt directly with the right of an employer/workers’ compensation carrier to seek reimbursement of benefits it pays from PIP carriers from whom benefits would also be recoverable by the employee. In Lambert, the Court held that worker’s compensation reimbursement/subrogation claims are not limited by § 39:6A-12 and stated that nothing in New Jersey’s no-fault law suggests the Legislature meant to treat employees injured in a work-related automobile accident as if they were limited by AICRA’s no-fault system.
The Court discussed the history of the WCA and the legislative history behind the AICRA. It held that the injured employee was required to reimburse Travelers for its medical payments. The Court stated:
[W]hen a worker is injured in the course of his or her employment in a motor vehicle accident and workers compensation benefits have been paid or are payable on behalf of the worker, the right of the injured worker to pursue claims against the tortfeasor and the right of the workers compensation carrier to be reimbursed are governed by the WCA [Workers Compensation Act] and not AICRA.
In short, the Court held that because workers’ compensation benefits are the primary source of recovery for injuries suffered by employees in a work-related automobile accident, and PIP insurers are relieved from the obligation to pay medical expenses under § 39:6A-6, any recovery obtained by the employee from a third-party tortfeasor is subject to the workers’ compensation carrier’s lien. The Court further held that in a third-party action, the evidentiary bar of the Collateral Source Rule does not apply. N.J.S.A. § 39:6A-12. There was no mention of meeting the no-fault threshold before this reimbursement right arises.
Star Ins. v. Magee, BER-L-7185-17 (Sup. Ct. Law Div., April 27, 2018).
An even more recent trial court decision which is unpublished and not good precedent is still very instructive on the prevailing views regarding the intersection between New Jersey no-fault and workers’ compensation subrogation. The defendant moved for summary judgment dismissing Star’s worker’s compensation subrogation claim on the basis that Star could not prove that its insured’s injuries met the verbal threshold. The carrier argued as follows:
- The plaintiff’s claim was for economic damages and, therefore, was not subject to verbal threshold.
- To the extent McClelland holds that worker’s compensation subrogation claims are subject to verbal threshold, the McClelland case was clear that the carrier could subrogate any claims it paid that would not be covered by PIP if worker’s compensation wasn’t available, a point further fleshed out by Patterson v. Adventure Trails. Since Star’s insured was occupying a commercially-owned tractor-trailer, Star’s insured was not entitled to PIP benefits, which only cover occupants of “automobiles.” McClelland, therefore, did not restrict Star’s subrogation claim. Star also noted it would be unfair if the PIP scheme prevented subrogation by worker’s compensation where the insured was not part of the PIP scheme since such insureds would be liable for PIP reimbursement where they were at fault for the accident.
- To the extent McClelland limits worker’s compensation subrogation claims based on the verbal threshold statute, § 39:6A-8, or based on § 39:6A-12, its logic has been undermined by Lambert and other cases.
The trial court denied defendant’s summary judgment motion and indicated that he agreed with all three of Star’s arguments, writing that:
- “Here, even an informal reading of Plaintiff’s Complaint shows that Plaintiff Star Insurance is seeking recovery of the cost of medical benefits and lost wages covered by Plaintiffs workers’ compensation policy. Plaintiff does not need to provide evidence of an injury that falls within a certain category under 39:6A-8(a).”
- “To the extent that some worker’s compensation subrogation claims are subject to the verbal threshold under the statute, the case here is distinguishable. Here, the losses paid by Plaintiff were not compensable under the PIP benefits scheme …”
- “Further, the Courts have found that the Legislature did not intend for AICRA to limit recovery rights in the Worker’s Compensation Act. Lambert v. Traveler’s Indem. Co. of Am., 447 N.J. Super. 61, 75 (App. Div. 2016)”.
This opinion indicates that worker’s compensation carriers should be more aggressive in subrogation efforts even where verbal threshold is not met, and, in particular, in the many cases where the injured employee is occupying a vehicle that is not part of the PIP scheme.
Workers’ compensation insurance is primary over PIP coverage. When an employee suffers a work-related injury in an automobile accident, workers’ compensation is the primary source of satisfaction of the plaintiff’s medical bills under the Collateral Source Rule. N.J.S.A. § 39:6A-6. Section 39:6A-6 relieves the PIP carrier from the obligation of making payments for expenses incurred by the insured which are covered by workers’ compensation benefits. Lefkin, supra.; see also Aetna Ins. Co. v. Gilchrist Bros., Inc., 428 A.2d 1254 (N.J. 1981) (holding the Legislature has expressly provided that PIP payments shall be reduced by collectible workers’ compensation benefits). A PIP carrier can seek reimbursement from the workers’ compensation carrier for any medical expenses paid by the PIP carrier. N.J.S.A. § 39:6A-6. Evidence of medical payments is barred in a civil action only where PIP benefits are either collectible or paid. Where PIP benefits are neither collectible nor paid, the workers’ compensation carrier should be allowed to subrogate, subject to some limitations.
The argument in favor of allowing the subrogation and/or reimbursement rights of a workers’ compensation carrier is that the verbal threshold has nothing to do with a workers’ compensation carrier’s subrogation or reimbursement rights. The no-fault threshold only applies to non-economic damages.
The argument in favor of limiting a workers’ compensation carrier’s right to recover is that the third-party tortfeasor is liable for a subrogation claim only to the same extent as he would have been liable had the injured worker himself instituted suit. Bello v. Comm’r of Dept. of Labor and Indus., 264 A.2d 222 (N.J. 1970). As one court put it:
Although N.J.S.A. 34:15-40 authorizes an employer to institute the action against the tortfeasor if the injured person does not do so, “the third party shall be liable only to the same extent as he would have been liable had the employee himself instituted suit within a year of the accident.” Thus, since [plaintiff] was subject to the verbal threshold, his workers’ compensation carrier is subject to that defense in an action seeking recovery from defendant. McClelland, supra, 288 N.J. Super. at 189-190, 672 A.2d at 196 (citations omitted). Patterson, supra.
The New Jersey courts have discussed the ability of the workers’ compensation carrier to subrogate against a third party and its liability carrier, despite the tort limitations of the no-fault laws.
New Jersey Transit Corp. v. Sanchez, 2018 WL 6314177 (Super. Ct., Dec. 4, 2018).
On December 4, 2018, a Bergin County Superior Court held that a workers’ compensation carrier can obtain reimbursement of medical expenses and wage loss benefits from tortfeasors who negligently caused injuries to an employee in a work-related motor vehicle accident, even if the employee would be barred from recovering non-economic damages from the tortfeasors because he did not suffer a permanent injury or otherwise meet the no-fault threshold.
The Superior Court is the state court in New Jersey, with statewide trial and appellate jurisdiction. The Superior Court has three divisions: The Appellate Division is an intermediate appellate court while the Law and Chancery Divisions function as trial courts.
The motion judge relied on McClelland, holding that the verbal threshold barred the worker’s compensation carrier’s subrogation rights. The Superior Court, Appellate Division held that in subrogation actions against tortfeasors, the reimbursement rights of workers’ compensation carriers are governed by the WCA, not AICRA. It said the workers’ compensation carrier is entitled to reimbursement from the negligent tortfeasors even though the employee could not recover the medical expenses and wage loss from his own automobile insurer or non-economic damages from the tortfeasors. The Superior Court is the state court in New Jersey, with statewide trial and appellate jurisdiction. The Superior Court has three divisions: The Appellate Division is an intermediate appellate court while the Law and Chancery Divisions function as trial courts. New Jersey Transit Corp. a/s/o David Mercogliano v. Sanchez, A-0761-17T3, initial decision (Super. Ct., Dec. 4, 2018); https://njcourts.gov/attorneys/assets/opinions/appellate/published/a0761-17.pdf.
For questions relating to workers’ compensation subrogation and its interface with no-fault automobile insurance, please contact Gary Wickert at [email protected].