Subrogation under the New Jersey Act

Section 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. See Calalpa v. Dae Ryung Co., Inc., 357 N.J. Super. 220 (App. Div. 2003).

When an employee does not file a civil suit or obtain a settlement (against a third-party) within one year from the date of accident the employer has the right to file such a suit on behalf of the claimant to assert its right to recovery. In order to exercise this right, the employer must provide ‘notice’ in written form to the employee of the intention to institute an action or proceeding on behalf of the employee.

In a recent cases (decided February 25, 2010) the New Jersey Appellate Division explored what happens when the employer fails to serve the written notice required by the Act. In the case of Lepera v. Chagnon, A-2730-08T3 (App. Div. decided February 25, 2010) the employer filed a suit against a third-party tortfeasor while the employee’s suit was pending, and after failing to provide notice that a suit was going to be filed on behalf of the employee tot he injured employee. The employee was aware of the suit filed under Section 40, and did nothing to have the suit dismissed (and it seems clear that the employee or the target tortfeasor could have had the suit dismissed by citing N.J.S.A. 34:15-40(g)).

After much legal wrangling, the parties reached settlement, with the compensation lien to be satisfied from the proceeds of the suit (from the claimant’s settlement). The employee refused to reimburse the compensation carrier, and the trial court allowed the employer to enforce the terms of the settlement (in which the employer was reimbursed under Section 40) despite the fact that the employer’s right to file the suit was precluded by the failure of the employer to file the required Section 40 notice that suit would be instituted.

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