Geaney: Third-Party Liens Not Always Due Right Away

Tuesday, March 26, 2024 | 0

The unreported case of New Jersey Transit Corp. v. Joseph has thrown a wrench into the common understanding of when to resolve third-party liens in New Jersey.

John H. Geaney

The facts that are supplied in the case are not detailed.

Darshelle Joseph was injured on Oct. 23, 2019, during the course of his employment with New Jersey Transit. The opinion notes that NJ Transit’s carrier notified Joseph on Nov. 11, 2019, of its lien rights as to any third-party recovery. The letter also advised Joseph to contact the carrier if he should retain an attorney in a third-party case. 

The Appellate Division observed that there was no indication in the record whether Joseph notified either NJ Transit or its carrier of the third-party action, nor does the opinion discuss what, if anything, the third-party attorney knew about NJ Transit’s lien when the third-party case settled.

NJ Transit paid $7,112.90 in workers’ compensation medical and temporary disability benefits to Joseph. The workers’ compensation case had not yet been resolved. Joseph sued the tortfeasor and recovered $14,000 in settlement with his uninsured motorist insurance policy in December 2021. His attorney disbursed the full $14,000 settlement amount less counsel fees and costs of $15.10 to Joseph. No repayment was made to NJ Transit for its medical and temporary disability benefits lien as of the date of the settlement. 

NJ Transit filed a verified complaint in civil court seeking reimbursement of its statutory lien. It is noted in the decision that the trial court did not hear oral arguments but ruled on the briefs submitted, denying NJ Transit’s application for lien reimbursement as “premature.”

The trial court and Appellate Division disagreed with NJ Transit’s argument that the employer’s statutory lien must be satisfied immediately upon resolution of the third-party settlement. The Appellate Division said, “Thus, the statute makes no mention of when the employer’s lien must be satisfied, but it makes clear the specific amount of the lien cannot be determined until the employer’s liability is finalized.”

The court was referring to NJSA 34:15-40(b), which states:

b) If the sum recovered by the employee … from the third person … is equivalent to or greater than the liability of the employer … under this statute, the employer … shall be released from such liability and shall be entitled to be reimbursed … for the medical expenses incurred and compensation payments theretofore paid to the injured employee … less employee’s expenses of suit and attorney’s fee as hereinafter defined.

The court read the above paragraph as directly applicable to this case because the $14,000 civil recovery was higher than the $7,112.90 paid in medical and temporary disability benefits. But the court also noted that the workers’ compensation case had not yet concluded. It said, “Thus, there is no requirement the employer’s lien must be paid following recovery from a third-party tortfeasor. Indeed, it cannot be fully satisfied until any associated workers’ compensation action is finalized and the employer’s liability under the act is determined. Thus, an employer’s unperfected statutory lien is not required to be satisfied immediately upon the injured employee’s recovery from a third-party tortfeasor.”

The comment that the court made about an “unperfected lien” is important to understand for all workers’ compensation practitioners. The court was referring to NJSA 34:15-40(d), which provides that the employer or its carrier may serve notice on the third-party defendant or its insurance carrier of its lien rights as to any third-party recovery arising from the work injury. When that notice is provided, the third-party defendant or its insurance carrier may not make settlement payments to the injured employee in the civil action until the workers’ compensation lien is satisfied. This notice provision is what the court meant by “perfection” of lien rights. The court said that in this case, there was no proof of any perfection of lien rights.

Current practice in New Jersey is contrary to this decision. When a third-party settlement occurs — even if the workers’ compensation case is ongoing — the lien is resolved as to the amount of the third-party recovery. In a case like this, the third-party attorney would repay two-thirds of $7,112.90 minus statutory costs, and then the employee would continue to pay one-third of future benefits until the amount of the workers’ compensation benefits would reach $14,000 (which was the amount of the UM settlement). Thereafter, the employer would pay dollar for dollar on any future benefits. The employer is not actually paying workers’ compensation benefits up to the amount of the $14,000 settlement. Rather, the employer is making its contribution to plaintiff’s counsel fee in the third-party case. 

The court acknowledged that the underlying principle behind NJSA 34:15-40 was to prevent double recoveries. In this case, the plaintiff made a double recovery because he received his $7,112.90 and kept two-thirds of the $14,000 UM settlement. 

The court seemed to be suggesting that this problem of double recovery could be addressed at the end of the workers’ compensation case depending on how much more money NJ Transit has to pay to resolve the workers’ compensation claim. The flaw in that argument is that if NJ Transit should close the file with only a few thousand more dollars in payments, a double recovery will occur and NJ Transit will not receive repayment of its lien. 

The Appellate Division was concerned about the fact that NJ Transit’s lien was not protected because the entire $14,000 settlement was disbursed without holding funds in escrow to satisfy the lien. It said, “As long as the funds to pay the lien are protected — either deposited into court or deposited in an attorney trust account — there is no prejudice to NJ Transit.” 

The court remanded the case to the trial court to take steps to protect NJ Transit’s lien.  None of this would have been necessary had the lien been taken care of at the time of the third-party settlement.

This case is focused on an important issue: namely, the timing of lien repayments when a third-party settlement occurs during an unresolved and ongoing workers’ compensation case. The general principles discussed in this case are far more important to focus on than the outcome in this Appellate Division case because the record here is so sparse. The opinion does not mention what contact there was, if any, among plaintiff, his lawyer and NJ Transit before the third-party settlement funds were disbursed.

We all know that third-party settlements occur all the time during ongoing workers’ compensation cases. The court correctly observed that “perfected” liens must be repaid to the employer at the time of the third-party settlement if notice has been given to the third-party defendant or its carrier of the employer’s lien rights. In that situation, there can be no attempt to delay repayment until the end of the workers’ compensation case. 

Now let’s consider so-called unperfected liens where the third-party defendant and its carrier are not notified of lien rights before they disburse payments. If both plaintiff’s attorney and the plaintiff have actual notice of the employer’s lien rights at the time of settlement of the third-party case, why would the result be different? Why would there be an opportunity to delay repayment until the workers’ compensation case ends, which might be several more years? 

It is the actual notice that should matter. It would be inconsistent to read the statute to mean that a lawyer and plaintiff with actual notice of the current lien amount should be held to a different legal standard than a third-party defendant or its carrier with respect to the timing of reimbursement.

John H. Geaney is an attorney, shareholder and co-chair of Capehart Scatchard's Workers' Compensation Group in New Jersey. This post appears with permission from Geaney's New Jersey Workers' Comp Blog.