Unpublished Decision Calls into Question Comp Carrier's Subrogation Rights

Friday, August 29, 2014 | 0

A recent unpublished and quite puzzling decision from the New Jersey Superior Court, Appellate Division, threw decades of established New Jersey subrogation law into question when it announced that a workers’ compensation carrier has no subrogation/reimbursement rights on the medical portion of a third-party claim against an uninsured/underinsured motorist (UM/UIM) carrier. The Court in Dever v. New Jersey Manufacturers Ins. Co., 2013 WL 5730033 (N.J. App. 2013) will surely be used as ammunition by trial lawyers so it is important that subrogation professionals know how to counter the questionable opinion.

A quick history of New Jersey law on the ability of a workers’ compensation carrier to subrogate against UM/UIM benefits is helpful here. The first decisions on this issue determined that a workers’ compensation lien did not attach to the proceeds of the employee’s UM coverage. Pullen v. Travelers Ins. Co., 502 A.2d 70 (N.J. Super. 1985). In 1986, however, the New Jersey Supreme Court held that the primary concern of the legislature is to “integrate” the sources of recovery, and the Court allowed a workers’ compensation carrier to subrogate against benefits paid by a UM/UIM carrier. Midland Ins. Co. v. Colatrella, 510 A.2d 30 (N.J. 1986). It confirmed what we all know – that a UM/UIM recovery is the “functional equivalent” of a recovery from an actual third party. Frazier v. N.J. Mfrs. Ins. Co., 667 A.2d 670 (N.J. 1995). Therefore, it held that a workers’ compensation carrier can initiate and prosecute a subrogation suit against a UM/UIM carrier and the benefits it pays. Hartman v. Allstate Ins. Co., 783 A.2d 745 (N.J. Super. 2001).

The right to subrogate against UM/UIM benefits is not without limits. In order to do so, an employee’s combined compensation benefits and UM benefits must make the employee whole. Schaser v. State Farm Ins. Co., 604 A.2d 687 (N.J. Super. 1992) aff’d, 631 A.2d 1283 (N.J. 1993); Midland Ins. Co. v. Colatrella, supra.; Stabile v. New Jersey Mfrs. Ins. Co., 623 A.2d 252 (N.J. App. Div. 1993); Rosales v. State Dept. of Judiciary, 860 A.2d 929 (N.J. Super. A.D. 2004); Charnecky v. American Reliance Ins. Co., 592 A.2d 17 (N.J. App. 1991). This is because the New Jersey Act prohibits a double recovery by a worker, and New Jersey courts see no reason why a worker injured by an uninsured driver should fare better than a worker injured by an insured driver. Midland Ins. Co. v. Colatrella, 490 A.2d 366 (N.J. Super. 1985); Frazier v. New Jersey Mfrs. Ins. Co., 647 A.2d 472 (N.J. App. Div. 1994). However, subsequent decisions indicate that the ability to subrogate against a UM/UIM policy do not depend on the claimant being made whole. Frazier v. New Jersey Mfrs. Ins. Co., 667 A.2d 670 (N.J. 1995). Any provision in the UM policy which purports to reduce benefits payable by the amount of any workers’ compensation benefits paid has been held to be void and against public policy. Walkowitz v. Royal Globe Ins. Co., 374 A.2d 40 (N.J. App. 1977).

In Dever, the Court held that since the employee’s medical bills could have been paid by New Jersey PIP (but for the fact that workers’ compensation was primary and paid them) and the tortfeasor had an auto policy with New Jersey PIP, there could not be a workers’ compensation lien for the medical bills which would have been recoverable in tort by the injured employee. Since Dever is an unpublished case, it is not binding law. The case is only considered “persuasive” and can be rejected or followed by any other judge or court to the extent that judge or court finds the reasoning of the case “persuasive.” Nonetheless, expect to see this case cited in every New Jersey workers’ compensation lien auto accident case going forward when both the plaintiff and defendant have New Jersey PIP coverage. See also Continental Ins. Co. v. McClelland, 672 A.2d 194 (N.J. App. 1996).

Dever was severely injured in an auto accident while working and settled his third-party claim for the tortfeasor’s $25,000 policy limits and then filed a claim under his UIM policy. His worker’s compensation carrier paid all of his medical benefits. At trial, the jury determined that he had not proven a permanent injury and awarded only $275,000 in economic damages – no pain and suffering damages. On appeal, the UIM carrier challenged the reimbursement of plaintiff’s medical expenses to the worker’s compensation carrier. The Appellate Division reversed. On appeal, the Court noted that every auto policy must provide no-fault PIP benefits for the payment of medical expenses to the insured and that a recipient of no-fault benefits could not recover from the tortfeasor the medical, hospital, and other losses paid by the PIP carrier. Section 39:6A-12 precludes introduction of “evidence of the amounts collectible or paid under a standard automobile insurance policy” of PIP benefits. N.J.S.A. § 39:6A-12. Workers’ compensation is the primary source of satisfaction of an injured employee’s medical bills under § 39:6A-6.

UIM payments are the functional equivalent of a recovery from the actual third-party tortfeasor and are recoverable by a workers’ compensation carrier under § 40 – New Jersey’s workers’ compensation subrogation statute. However, the Court in Dever held that medical expenses incurred in a work-related accident are not payable from a UIM carrier, because an insured’s recovery against his or her UIM carrier represents the contractual substitute for a tort action against an uninsured motorist and because a New Jersey PIP recipient cannot recover medical expenses provided for under the PIP provisions from a tortfeasor’s New Jersey no-fault policy. The Court also noted that the New Jersey Legislature has decreed workers’ compensation insurance must be the primary source of payment for work-related automobile injuries, and the cost of the employee’s medical expenses is borne by the workers’ compensation carrier rather than the PIP insurance carrier. In fact, where a PIP carrier pays medical bills, it has a right to recover those payments directly from the workers’ compensation carrier. Therefore, a § 40 lien, which attaches only to permitted tortfeasor recoveries, cannot include medical expenses from a New Jersey no-fault insured. The Court then concluded that allowing a § 40 reimbursement from an employee’s UIM carrier is counter to the legislative intent of this express statutory reimbursement scheme and said a workers’ compensation carrier is not entitled to subrogate against benefits paid by the employee’s UM/UIM carrier. The Court’s reasoning is hard to follow since it does not focus on the concept of double recovery so much as it does the concept of permitted recoveries, and it clearly contravenes established, reported case law.

The unpublished opinion in Dever has its limitations which we should all become familiar with. No workers’ compensation carrier was involved in this case. The compensation carrier’s identity is not even disclosed, and there is no evidence that any party appeared or made any argument on behalf of the unidentified workers’ compensation carrier. The UIM carrier was arguing that the UIM carrier did not owe plaintiff the sum of $8,482.11.

The issue has to do with the common practice of putting medical bills into evidence in civil cases for purposes of maximizing damages. Because § 40 requires plaintiffs to repay a workers’ compensation carrier, these medical expenses are not a “collateral source” and can be entered into evidence and a jury is not told that the bills have been paid by the workers’ compensation carrier.

In Dever, the Court went beyond merely saying that the UIM carrier did not have to repay the sum of $8,482.11, but it went on to address the subrogation rights of the workers’ compensation carrier, which was not even involved in the case and constitutes “dicta” – which may be why the case is unreported. Trial lawyers will undoubtedly argue that a workers’ compensation carrier has no right to recover medical expenses in third-party cases involving auto accidents covered by no-fault. We must be prepared to take the appropriate case on appeal to clarify the issue and to argue the shortcomings and limitations of this questionable decision, which is making cameo appearances in trial lawyer list-serves and continuing education conferences.

Gary Wickert is a partner with the Matthiesen, Wickert and Leher law firm in Hartford, Wisconsin. This column was reprinted with his permission from the firm's blog.