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The Appellate Division's recent decision in N.J. Transit Corp. v. Sanchez, 457 N.J. Super. 98 (App. Div. 2018), addressed conflicting interpretations of law as to the subrogation rights of a workers' compensation carrier against a motor vehicle accident tortfeasor who is protected under the Automobile Insurance Cost Reduction Act (AICRA). The Sanchez panel rejected the approach of Continental Ins. Co. v. McClelland, 288 N.J. Super. 185 (App. Div. 1996), and reaffirmed the holding in Lefkin v. Venturini, 229 N.J. Super. 1 (App. Div. 1988), which has been followed in subsequent decisions.

In McClelland, the workers' compensation carrier filed a subrogation action against the defendant driver-tortfeasor in order to recover workers' compensation benefits paid to its insured. The court held that the carrier was subject to the “verbal threshold” defense under AICRA, thereby effectively barring its claim for reimbursement of benefits under Section 40 of the Workers' Compensation Act (WCA). The McClelland panel reasoned that the employee “could not have recovered any medical payments from defendant” under AICRA, and thus the carrier, who was stepping into the shoes of the insured employee, was equally barred from recovering these benefits from the defendant.

In Lefkin, the injured employee's workers' compensation carrier similarly paid for his medical expenses and disability benefits after the employee was injured in a motor vehicle accident.  The underlying negligence suit settled, and the carrier thereafter sought to assert a Section 40 lien on the settlement sum. The injured plaintiff filed suit against his automobile carrier, claiming that the auto carrier should be responsible for payment of the Section 40 lien that related to medical expenses since it failed to pay Personal Injury Protection (PIP) benefits. The trial court dismissed the claims against the auto carrier. The Appellate Division, affirming in part and reversing in part, clarified each party's obligation as to reimbursement of medical expenses as follows:

In the circumstances here, three potential sources of reimbursement of his medical expenses were available to plaintiff: workers' compensation benefits, PIP benefits, and recovery from the tortfeasor. It is, moreover, clear that the overall legislative intention is ultimately to assure a plaintiff-insured-worker such reimbursement, but only by way of a single recovery. Where only two potential payment sources are implicated, the controlling statute plainly dictates which of the two is primary. Thus, where both workers' compensation benefits and proceeds of a tort action have been recovered, the tort recovery is primary. This accords with the purpose of N.J.S.A. 34:1540, which is to implement the employer's right to subrogation against the tortfeasors responsible for its payment obligation to its employee. See, e.g., Schweizer v. Elox Div. of Colt Industries, 70 N.J. 280, 359 A.2d 857 (1976); United States Casualty Co. v. Hercules Powder Co., 4 N.J. 157, 72 A.2d 190 (1950). Where only the workers' compensation benefits and PIP benefits are available, the primary burden is placed on workers' compensation as a matter of legislative policy by way of the collateral source rule of N.J.S.A. 39:6A-6. See, generally, Aetna Ins. Co. v. Gilchrist Bros., Inc., 85 N.J. 550, 428 A.2d 1254 (1981). And when only PIP benefits and tortfeasors liability are involved, the primary burden is placed as a matter of policy on the PIP carrier by N.J.S.A. 39:6A-12. See, e.g., Cirelli v. The Ohio Casualty Insurance Co., 72 N.J. 380, 386, 371 A.2d 17 (1977).

Lefkin, 229 N.J. Super. at 8-9.

The Appellate Division in Lefkin affirmed the trial court's ruling as to the dismissal of claims against the auto carrier and found that there is no bar against recovery of the medical expenses by the workers' compensation carrier. Id. at 9.

Recently, the Appellate Division in Sanchez addressed the issue of whether a workers' compensation carrier could seek reimbursement of medical expenses and wage loss benefits from the tortfeasor in a motor vehicle accident under circumstances wherein the employee failed to overcome the verbal threshold.

In Sanchez, New Jersey Transit owned the vehicle operated by David Mercogliano, who was involved in a motor vehicle accident under the scope of his employment. Sanchez, 457 N.J. Super. at 104. The parties stipulated that Mercogliano did not sustain permanent injuries as defined by N.J.S.A. §39:6A-8(a) in order to overcome the verbal threshold. Meanwhile, NJ Transit's workers' compensation carrier paid him benefits for medical expenses and wage loss, and thereafter initiated a subrogation action against the tortfeasor to recover the monies paid to the injured employee. The trial court, in relying on the holding in Continental, barred NJ Transit's subrogation rights of recovery and held that the workers' compensation carrier did not have rights superior to the injured employee under AICRA. Id. at 104-105. The trial court further stated that “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.” Id. at 105-106. NJ Transit appealed the decision.

The Appellate Division reversed and remanded, holding that the right of workers' compensation carriers to subrogate against tortfeasors for benefits paid to injured employees is governed by the WCA rather than AICRA. Therefore, workers' compensation carriers are entitled to reimbursement from tortfeasors for benefits paid in connection to lost wages and medical expenses. Id. at 107-113. The Appellate Division rejected the notion that workers' compensation carriers effectively step into the shoes of their insured and that they are thus restricted to the same recovery as that of the injured workers under AICRA (rather than the absolute rights of recovery under the WCA). Id. at 111-12. In evaluating the interplay between the WCA and AICRA, the court reasoned that the absence of such legislative intent was persuasive evidence in support of its decision. The court opined that AICRA was enacted 87 years after the WCA, and the Legislature would have plainly set forth such an intent “[i]f the Legislature had intended to treat workers injured in automobile accidents different from workers injured in any other name.” Id. at 112. Furthermore, the Appellate Division stated that “nothing in AICRA changed the statutory provisions on which Lefkin relied,” and there is no reason to believe that the result would have been any different in Lefkin (which was decided before AICRA was enacted). Id. at 109-110.

The Appellate Division further held that reimbursement against third-party tortfeasors for workers' compensation benefits did not conflict with the collateral source rule under N.J.S.A. §39:6A-6, as NJ Transit did not seek reimbursement from the tortfeasor's auto insurer. Id. at 113. Rather, NJ Transit sought reimbursement from the tortfeasor, which would merely be subject to indemnification by the tortfeasor's insurer under any liability coverage. Finally, NJ Transit only sought to recover benefits for economic losses such as medical expenses and lost wages. The court explained that the verbal threshold has no impact on the court's analysis since it would only apply to non-economic losses, such as pain and suffering.

In short, the Appellate Division sided with prior panels in supporting workers' compensation carriers' right to subrogate against negligent third-party tortfeasors for benefits paid for economic losses pursuant to N.J.S.A. 34:15-40 of the WCA. Id. at 113. While Sanchez conflicts with McLelland, the Sanchez panel clearly cited Talmadge v. Burn, 446 N.J.Super. 413 (App.Div. 2016), and Lambert v. Travelers, 447 N.J.Super. 61 (App.Div. 2016), to note that the weight of published authority has previously sided with the reasoning of Lefkin. While the split among panels may invite Supreme Court scrutiny in the future, for now the weight of appellate authority supports workers' compensation carriers in their efforts to obtain reimbursement from third-party tortfeasors.

Nabila Saeed is an associate with Methfessel & Werbel in Edison. She is a member of the firm's Liability Defense team.