Asserting a lien against a third-party settlement in New Jersey

New Jersey Statute 34:15-40 governs the credit due a respondent for any third-party recovery by the petitioner and provides in part:

. . . out of that part of any amount about to be paid in release or in judgment by such third person or his insurance carrier on account of his or its liability to the injured employee or his dependents, the employer or his insurance carrier shall be entitled to receive from such third person or his insurance carrier so much thereof as may be due the employer or insurance carrier pursuant to subparagraph (b) or (c) of this section. Such sum shall be deducted by such third person or his insurance carrier from the sum to be paid in release or in judgment to the injured employee or his dependents and shall be paid by such third person or his insurance carrier to the employer or his insurance carrier. Service of notice, hereinbefore required to be made by the employer or his insurance carrier upon such third person or his insurance carrier, shall be by registered mail, return receipt and in cases other than an individual shall be mailed to the registered office of such other third person or his insurance carrier.

The Appellate Division has recently held that where an individual settles an intentional tort suit against an employer, the workers’ compensation carrier is entitled to assert its N.J.S.A. 34:15-40 lien with respect to the settlement amount. Specifically, the court found that the tort litigation is equivalent to a third party action and that without the lien the petitioner might receive a double recovery for the injuries. Calalpa v. Dae Ryung Co., Inc., 357 N.J. Super. 220 (App. Div. 2003).

  1. How to assert a workers’ compensation lien under N.J.S.A. 34:15-40.
    Serve notice upon the liable third person or that person’s insurance carrier, that compensation has been applied for by the injured employee (or his dependents). As a practical matter, it is a good idea to serve a notice letter upon the plaintiff/worker, as well as the plaintiff’s attorney, usually the same attorney representing the worker in the compensation matter.

    How- by registered mail, return receipt requested upon the third person or his insurance carrier or (when not an individual) upon the registered office of such third person or his insurance carrier.

  2. Effect of notice.
    When notice is given, as above, to the liable third party or their insurance carrier, it then becomes the duty of the third person or their carrier to inquire, from the employer or the employer’s insurance carrier, the amount of medical expenses incurred and compensation paid to the injured worker or their dependents. It also becomes the duty of the third person (or carrier) to inquire from the injured worker the amount of attorney’s fees and expenses of suit in the action or settlement against the third person (or carrier) before the third party makes any payment to the injured worker.

    Then, out of any amount to be paid by the third person (or carrier) in release or in judgment of the claim, the employer (or carrier) is paid the amount they are entitled to. That amount is deducted from the monies to be paid to the injured worker (or dependents) and paid directly to the employer or carrier.

    Failure to strictly comply with notice requirements could preclude your right to reimbursement.

  3. Amount of Employer’s (or Carrier’s) Recovery.
    If the amount recovered by the worker (or their dependents) from the third person is equal to or greater than the employer’s (or carriers) obligation under the Workers’ Compensation Act, then the employer is entitled to be reimbursed for the medical expenses incurred and compensation payments made to the worker or his family less the workers’ expenses of suit and attorney’s fees in pursuing the action against the third person. Usually, this yields a two-thirds recovery, but the recovery can be greater depending on the contingency fee arrangement.

    If the amount recovered by the worker from the third person is less than the employer’s obligation, the employer is liable for the difference plus the worker’s attorney’s fees and costs of suit. The employer or carrier is entitled to the recovery from the third person, leaving their obligation to the worker as the difference between the compensation and the medicals paid out and the third person recovery, plus attorney’s fees and expenses of suit in pursuing the third person.

    “Expenses of suit” is limited to $750.00, and “attorney’s fee” cannot exceed 1/3rd on the part of the recovery to which the employer is entitled to. The 1/3rd cap does not apply to sums in excess of the employer’s entitlement.

  4. How to assert a lien when the workers does not settle with or file suit against the liable third person.
    If the injured worker does not settle with or file suit against the liable third person within one year of the accident, the employer or carrier must make a written demand that the worker or dependent do so.
    After 10 days of the written notice to the worker (or dependents), the employer (or carrier) can either effect a settlement with, or file suit against, the third person (or the carrier). Any such action can only be for such rights as the injured worker would have had against that third person (Thereafter, the worker is barred from filing a claim on their own behalf).

    If the amount obtained from the third person (or carrier) is more than the amount of the employer’s lien and expenses of suit, such excess is then paid to the injured worker (or their dependents).
    Where the worker has instituted an action against the liable third person, but the action is procedurally dismissed, the employer (or carrier) is entitled to have the dismissal set aside and continue the prosecution of the action upon motion or application to the Court within 90 days of the dismissal.

  5. Time to file suit.
    In New Jersey you must file suit against the adverse party within two years from the date of accident, no later, or be forever barred. N.J.S.A. 2A:14-2.

Greg Lois is the managing partner of LOIS LLC, a 19-attorney law firm dedicated to defending employers and carriers in New York and New Jersey workers' compensation claims. Greg is the author of a popular series of "Handbooks" on workers' compensation, and is the co-author of the 2016 Lexis-Nexis New Jersey Workers' Compensation Practice Guide. Greg can be reached at 201-880-7213 or glois@lois-llc.com