State News : New Jersey

In the past month three clients have asked what they should do when there is a third party award larger than the comp award and the adjuster needs to pay a permanency award.  For example:  the claimant recovers $750,000 in a third party law suit.  The total medical and temporary disability benefits are $150,000, and the permanency award is 50% of partial total at 2013 rates or 300 weeks at $551 per week for a total of $165,300.  The claimant has already repaid $100,000 minus $750 for costs of suit to resolve the lien on the medical and temporary disability benefits. Now only the permanency award needs to be paid.  Does the adjuster pay the permanency award over 300 weeks or does the adjuster pay one lump sum to the claimant?

            This situation happens quite frequently, and the answer to the question can be found in the case ofOwens v. C&R Waste Material, 76 N.J. 584 (1977).  That case involved an award in workers’ compensation for total and permanent disability benefits; however, the third party recovery was higher than the total workers’ compensation payments.  The employer argued that the payments for permanency should be made over 450 weeks.  The employee argued that the adjuster should pay one third of the permanency amount due in one check. 

First, the New Jersey Supreme Court made clear that in a situation where the third party award is larger than the total workers’ compensation benefits,the employer is relieved of all liability to the claimant, other than to pay the employer’s share of the attorney’s fee in the third party case.  That percentage is usually one third.  That point must be emphasized because it means that the employer is not really paying workers’ compensation benefits in this situation:  the employer is just reimbursing petitioner for counsel fees.

Next, the court dealt with the argument that it is unfair to require the employer to accelerate the permanency payments in one lump sum because the employee might die during the period of the payments of total and permanent disability.  The employer further argued that if the employee should die during the period of permanency payments and not be survived by dependents, then all the employer would have to pay is a contribution to funeral expenses. 

The Supreme Court rejected the employer’s argument:

We disagree and conclude that the legislative intent as expressed in N.J.S.A. 34:15-40 is that the computation of the employer’s pro rata share of the attorney’s fee in the third party recovery should be based on the potential compensation liability from which it has been released and does not depend on the happenstance of whether such liability were to terminate prematurely.

The Court added, “Since the obtaining by the employer of this tangible benefit coincides with the third-party recovery, it follows that the obligation to share legal expenses attributable to that recovery should be satisfied at the same time those expenses are borne by the employee.”

So, let’s go back to the initial example above.  Does the employer pay $551 per week over 300 weeks reduced by two thirds or does it just issue one lump check in the amount of $55,100, which is  one third of $165,300?  Under the rationale ofOwens, the answer is the employer pays one lump sum check for $55,100.  It does not make the payments over a period of 300 weeks.

While it is true that Owens was a claim for total and permanent disability, the rationale should be the same whether the award is for partial or total permanent disability.  The point is that the employer is not paying the employee workers’ compensation benefits.  It is reimbursing the employee for its share of counsel fees, and the Supreme Court felt that this should be done

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John H. Geaney, Esq., is an Executive Committee Member and a Shareholder in Capehart Scatchard's Workers’ Compensation Group.  Mr. Geaney concentrates his practice in the representation of employers, self-insured companies, third-party administrators, and insurance carriers in workers’ compensation, the Americans with Disabilities Act and Family and Medical Leave Act. Should you have any questions or would like more information, please contact Mr. Geaney at 856.914.2063 or by e‑mail at jgeaney@capehart.com.