Workers’ Compensation Liens Rule!!! The Appellate Division Fends Off Another Challenge to Section 40 of New Jersey’s Worker’s Compensation Statute

Defense Digest, Vol. 22, No. 4, December 2016

By Robert J. Fitzgerald, Esq.*

The New Jersey Appellate Division has once again confirmed the supremacy of Section 40 in protecting a New Jersey workers’ compensation lien. In Paulette Dorflaufer v. PMA Management Corp., 2016 N.J. Super. Unpub. LEXIS 1861 (N.J.App.Div. Aug 9, 2016), the plaintiff was hit by a car while working as a part-time crossing guard. She filed a workers’ compensation claim against her employer, as well as a third-party negligence action against the automobile driver. The civil case settled for $95,000 for her “pain and suffering.”

Prior to the settlement of the negligence action, the employer in her workers’ compensation claim asserted a Section 40, N.J.S.A. 34:15-40, claim against the settlement proceeds for $46,856.22, the amount of medical benefits it paid. Section 40 provides that an employer is entitled to recover a percentage of the workers’ compensation benefits it pays against a negligent third party. For reasons not stated in the opinion, Dorflaufer refused to pay the lien, contending that the defendant was only entitled to reimbursement of temporary benefits paid and that medical benefits were not payable from her third-party tort action.

Both parties filed for summary judgment. The court granted the employer’s cross-motion, upholding its right to recovery by referencing the plain language of Section 40 that any sum the plaintiff recovers from a third-party settlement is subject to a lien:

The statute states that any money paid to an injured employee from a third-party settlement reduces the liability of the plaintiff’s insurance carrier and entitles it to reimbursement for medical payments made. There is nothing in the statute that says it matters what the settlement was specifically compensating the plaintiff for or whether the plaintiff recovered full damages from it.

The court noted that the plaintiff presented no case law, statute or rule supporting her argument that the civil action settlement for pain and suffering is somehow exempt from a worker’s compensation lien. The court also noted the strong public policy against double recoveries.

On appeal, the plaintiff argued again that an employer cannot recover medical payments it made on behalf of an employee from the employee’s settlement for pain and suffering. More specifically, the plaintiff argued that, since personal injury protection (PIP) medical payments are not recoverable against the driver, an employer should not be able to recover medical expenses that it paid arising from an employee’s automobile accident.

The Appellate Division disagreed, confirming the Section 40 lien. The court noted the plain language of Section 40(b):

If the sum recovered by the employee or his dependents from the third person or his insurance carrier is equivalent to or greater than the liability of the employer or his insurance carrier under this statute, the employer or his insurance carrier shall be released from such liability and shall be entitled to be reimbursed, as hereinafter provided, for the medical expenses incurred and compensation payments theretofore paid to the injured employee or his dependents less employee’s expenses of suit and attorney’s fee as hereinafter defined.

The court also noted the Supreme Court’s long-held policy against a double recovery for a plaintiff:

Read in conjunction, Section 40 and our collateral source statute … plainly require that a third-party tortfeasor be held to the full extent of its liability for a workplace injury, that the employer or compensation carrier be repaid for benefits paid to the injured worker pursuant to the [Workers’ Compensation] Act without regard to the compensability of the claim, and that the employee not obtain a double recovery.

Utica Mut. Ins. Co. v. Maran & Maran, 667 A.2d 680 (N.J. 1995).

The court in Dorflaufer concluded with very strong language:

We are convinced that, based upon the plain language of Section 40, there is no bar to a workers’ compensation lien for reimbursement of medical expenses from an employee’s settlement in a third-party automobile negligence action. There is nothing in Section 40 that prevents a lien from applying where the settlement represents payment for pain and suffering. The fact that PIP benefits are not recoverable against a tortfeasor has no bearing on an employer’s Section 40 lien rights.

In Dorflaufer, the court has again affirmed the strength of a Section 40 workers’ compensation lien and the public policy against a double recovery. Regardless of how a third-party settlement or judgment is characterized—”pain and suffering,” “loss of consortium,” etc.—a workers’ compensation lien will always be given first priority for reimbursement given the clear statutory language. If a negligent party causes a work injury, that negligent party, not the employer, should bear the financial responsibility. It is somewhat surprising that a large portion of workers’ compensation appellate litigation is focused on trying to avoid or weaken Section 40 given the court’s decisions. However, as long as the public policy against double recoveries remains intact, Section 40 will continue to help employers seek financial reimbursement against negligent third-parties where appropriate.

*Bob is a shareholder in our Cherry Hill, New Jersey office who can be reached at 856.414.6009 or rjfitzgerald@mdwcg.com.

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_{Defense Digest, Vol. 22, No. 4, December 2016. 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. © 2016 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.}