New Jersey Workers’ Compensation Section 40 Subrogation Provisions Beat Back a Challenge by the Motor Vehicle Insurance Verbal Threshold

In New Jersey, the Appellate Division once again has concluded that an employer’s Section 40 subrogation rights exist. It determined that such subrogation rights exist even when the injured worker himself is barred from pursuing damages for pain and suffering under the New Jersey Automobile Insurance Cost Reduction Act (AICRA). New Jersey Transit Corporation, a/s/o David Mercogliano v. Sandra Sanchez and Chad Smith, 2018 N.J.Super. LEXIS 168 (App.Div. Dec. 4, 2018).

In this case, David Mercogliano was involved in a motor vehicle collision during the course of his employment with NJ Transit. The vehicle driven by Mercogliano was owned by NJ Transit and driven by Sandra Sanchez. Chad Smith was the owner of the other vehicle involved. Following the accident, NJ Transit’s workers’ compensation carrier paid Mercogliano $33,625.70 in workers’ compensation benefits under the Workers’ Compensation Act. Mercogliano did not pursue a negligence action.

At that point, NJ Transit initiated a Section 40 subrogation action, which gives the employer the right to pursue the third-party tortfeasors for recovery of damages paid to injured employees. During the litigation of the subrogation claim, it was stipulated that Mercogliano was not permanently injured under AICRA—a/k/a the verbal threshold—and therefore, he was barred from pursuing non-economic damages for pain and suffering. Sanchez and Smith then filed for summary judgment, arguing that since Mercogliano was barred from filing a third-party claim for non-economic damages because of the verbal threshold, NJ Transit’s subrogation claim for economic damages must also be barred.

The motion judge held AICRA trumped the Workers’ Compensation Act. Therefore, since NJ Transit, as subrogee, stands in the shoes of the injured employee and has no rights superior to the injured employee under AICRA, Mercogliano was fully compensated by the workers’ compensation carrier for his medical expenses and wage loss, and he suffered no uncompensated economic loss. Finally, the judge dismissed the subrogation action since Mercogliano was fully compensated for economic damages, concluding the workers’ compensation carrier does not have an independent right to subrogate against a tortfeasor when the injured employee is unable to establish a cause of action against the tortfeasor.

On appeal, the court analyzed the conflict between the Workers’ Compensation Act and AICRA on the issue of subrogation. The court noted that the Workers’ Compensation Act is the exclusive remedy for an employee who suffers a work-related injury. As long as the employee’s injuries were caused by a third-party and not the employer, the act gives the workers’ compensation carrier an absolute right to seek reimbursement from the tortfeasor for the benefits it has paid to the injured employee. Under Section 40, the workers’ compensation carrier is entitled to reimbursement whether or not the employee is fully compensated. Utica Mut. Ins. Co. v. Maran & Maran, 667 A.2d 680, 682 (N.J. 1995). Moreover, under AICRA, the 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.

Here, the court noted that the only benefits ever sought by Mercogliano were under the Workers’ Compensation Act:

There are three potential sources of reimbursement of medical expenses and wage loss incurred by an employee injured in a work-related motor vehicle accident: “workers’ compensation benefits, PIP benefits, and recovery from the tortfeasor.” Here, Mercogliano recovered those losses solely through workers’ compensation benefits. He did not seek or obtain recovery from his PIP insurer or the tortfeasor.

Mercogliano, supra, 2018 N.J.Super LEXIS 168, at *14.

The court also noted in prior decisions that nothing in AICRA’s statutory language or legislative history suggests the Legislature meant to treat workers who are injured in a work-related automobile accident as if they were limited by AICRA’s no-fault system. It wrote that there is no suggestion that the Legislature intended to treat workers’ compensation insurers as if they were PIP insurers. It found that it is fair to assume that had the Legislature intended to effectuate such a major change, it would have used express language in the statute and discussed that incorporation in AICRA’s legislative history.

Finally, in reversing the dismissal of the subrogation action, the court concluded:

AICRA was enacted eighty-seven years after the Workers’ Compensation Act. If the Legislature had intended to treat workers injured in automobile accidents differently from workers injured in any other manner, it would have unambiguously expressed such an intent. We find the same to be true with respect to rights of workers’ compensation carriers to seek recovery pursuant to Section 40, which long pre-dated AICRA’s enactment. We also note NJ Transit seeks to recover benefits paid to Mercogliano for economic loss comprised of medical expenses and wage loss, not noneconomic loss. The verbal threshold does not apply to economic loss.

Id., 2018 N.J.Super. LEXIS 168, at *17 (citations omitted).

This decision once again confirms that an employer’s Section 40 subrogation rights are almost absolute. Even in this case, where the employee did not pursue his own negligence action, an employer clearly has the right and should always pursue subrogation of workers’ compensation benefits whenever possible. From the beginning of their investigation of claims, employers should note when a potential third-party recovery exists so they can fulfill the statutory notice requirements to preserve their subrogation rights. If you have a questions on whether you can pursue a third-party recovery or how to preserve your subrogation rights, contact your defense counsel immediately.

*Bob is a shareholder in our Mount Laurel, New Jersey office. He can be reached at 856.414.6009 or rjfitzgerald@mdwcg.com.

_{Defense Digest, Vol. 25, No. 1, March 2019. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2019 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}