State News : New Jersey

One of the most significant cases to be decided by the Appellate Division with respect to subrogation rights was issued on December 4, 2018 in New Jersey Transit Corporation v. Sanchez, A-0761-17T3 (App. Div. December 4, 2018).  The case will have an impact on how employers deal with a very common scenario in New Jersey.

David Mercogliano was injured in a motor vehicle accident during the course of his employment. NJ Transit owned the vehicle driven by Mercogliano and paid workers’ compensation benefits to Mercogliano in the amount of $33,625.70 (comprising $6,694.04 in medical benefits, $3,982.40 in temporary disability benefits, and $22,949.26 in permanent partial disability benefits).  Mercogliano did not sue the driver of the other vehicle, Sanchez, or the owner of the vehicle, Smith.  Instead, NJ Transit filed a subrogation action pursuant to N.J.S.A. 34:15-40(f) against the third party defendant carriers.  That provision allows the workers’ compensation carrier or employer to file a suit after one year against a tortfeasor, if the tortfeasor has not filed suit.

The trial judge ruled against NJ Transit on the ground that the verbal threshold barred any such subrogation claim since Mercogliano himself could not meet the verbal threshold because he did not sustain a permanent injury as defined by N.J.S.A. 39:6A-8(a).  In essence, the trial court held that NJ Transit stood in the shoes of Mercogliano.   NJ Transit appealed.

In a decision that will surely lead to the filing of more subrogation suits, the Appellate Division reversed in favor of NJ Transit.  This decision has been published, so its impact will be great. First, the Appellate Division observed that the verbal threshold contained in so many drivers’ automobile policies does not apply to economic loss.  Rather, it applies to non-economic loss.  The Court said that an “injured worker may recover medical expenses from the third-party tortfeasor and N.J.S.A. 39:6A-12 does not apply,” citing Lambert v. Travelers Indemnity Co. of America, 447 N.J. Super. 61 (App. Div. 2016).  Since Mercogliano could have sued the tortfeasor to recover medical expenses, the Court reasoned that it follows under Section F of the workers’ compensation subrogation statute that the workers’ compensation employer could sue after the one-year waiting period.

The Court flatly disagreed with the reasoning of another published Appellate Division case, namely Continental Insurance Co. v. McClelland, 288 N.J. Super. 185 (App. Div. 1996).  The Court noted that the Continental case has not been followed by other court decisions in recent years.  The Court highlighted the fact that NJ Transit was seeking to recover benefits paid to Mercogliano for economic loss (medical expenses and wage loss), not noneconomic loss.  The Court said:

To be clear, Mercogliano’s automotive insurer paid him no benefits and incurred no costs, and the workers’ compensation carrier does not seek reimbursement from Mercogliano’s automotive insurer.  On the contrary, NJ Transit seeks reimbursement from the negligent third-party tortfeasors pursuant to Section 40.  If successful, NJ Transit’s workers’ compensation carrier would be reimbursed by the tortfeasors, subject to their right to indemnification from their own automotive insurers.  Therefore, allowing NJ Transit to pursue reimbursement does not conflict with AICRA’s collateral source rule, N.J.S.A. 39:6A-6.

This case provides a road map for employers to pursue tortfeasors for reimbursement of medical and temporary disability benefits paid in workers’ compensation arising from car accidents where the injured worker cannot sue due to a verbal threshold policy.

One key question is whether this decision is limited to payments of medical and temporary disability benefits as opposed to permanency benefits.  William T. Freeman, Esq. of Brown & Connery, whose colleague Shawn C. Huber, Esq. argued the case successfully for NJ Transit, notes that the Court cited language in Lambert that is very broad:  “As long as the employee’s injuries were caused by a third-party and not the employer, the WCA gives the workers’ compensation carrier an absolute right to seek reimbursement from the tortfeasor for the benefits it has paid to the injured employee.”  This language certainly supports the view that permanency benefits may be sought.

On the other hand, the NJ Transit opinion did not really focus on permanency benefits.  The Court initially framed the issue to be decided as follows: “In this appeal, we consider whether a workers’ compensation carrier can obtain reimbursement of medical expenses and wage loss benefits it paid from tortfeasors who negligently caused injuries to an employee in a work-related motor vehicle accident, if the employee would be barred from recovering non-economic damages from the tortfeasors because he did not suffer a permanent injury.”  Future cases will no doubt settle the question whether this important decision includes the right to sue for permanency benefits.

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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.