The Appellate Division holds that an employer may retain its section 40 lien rights as part of a section 20 resolution.

The decedent, who was an employee of co-defendant A, was fatally injured during the course of his employment while operating a nail gun manufactured by co-defendant B. The administrator of the decedent's estate filed a complaint against co-defendant B in the Law Division, alleging that manufacturing and design defects in the nail gun caused the decedent's death. The complaint also alleged that co-defendant A was liable in tort for alteration of the nail gun's safety mechanism. In addition to these tort actions, the plaintiff's administrator filed a simultaneous claim for dependency benefits with the Division of Workers' Compensation. On July 25, 2006, the judge of compensation entered an order approving a settlement of the workers' compensation claim in the amount of $100,000 pursuant to N.J.S.A. 34:15-20. The order expressly provided that co-defendant A would retain lien rights of up to $50,000 of the amount paid against any third party recovery that the estate might recognize as a result of its third party actions pending in the Law Division. The transcript of this hearing indicates that the parties made the following stipulations: "[Counsel for co-defendant A]: As your Honor said, this matter is coming before you as a proposed settlement pursuant to Section 20 of the statute. The reason for the lump sum settlement is there are serious issues regarding dependency. The proposed settlement is for $100,000; however, [co-defendant A] reserves its Section 40 lien rights up to $50,000[.] [Counsel for decedent]: I concur, your Honor." Under oath, and following questioning from his own counsel as to co-defendant A's retention of its lien rights, the estate acknowledged that he understood the implications of the settlement. Thereafter, co-defendant A filed a motion for summary judgment in the Law Division, which was granted. The estate and co-defendant B eventually settled for an undisclosed amount. Co-defendant A subsequently sought reimbursement of the $50,000 lien it had reserved pursuant to the terms of its July 25, 2006, order disposing of the workers' compensation claim. In response thereto, the estate filed a motion in the Law Division seeking to declare co-defendant A's lien null and void. The Law Division granted the estate's motion, citing Aetna Life & Casualty v. Estate of Engard, 218 N.J. Super. 239 (Law Div., 1986). Co-defendant A appealed. In reversing the lower court's ruling, the Appellate Division found that the entitlement of an employer or its insurance carrier to reimbursement for workers' compensation benefits paid from a recovery obtained from a third-party tortfeasor was well established. As the basis for this proposition, the Appellate Division cited Danesi v. Am. Mfrs. Mut. Ins. Co., 189 N.J. Super. 160 (App. Div., 1983). In Danesi, the court examined the provisions of N.J.S.A. 34:15-40, which provides for an action by the employee or his dependents against a third-party liable for the same injuries covered by the workers' compensation award. The Danesi court held that: "The statute proportionately extinguished the employer's obligation to pay further compensation upon payment by the third-party tortfeasor; created a right of reimbursement for workers' compensation paid; and created a lien, when perfected, to secure reimbursement to the employer." Based on this analysis, the Appellate Division concluded that co-defendant A had a statutory entitlement to reimbursement from the proceeds of the estate's third-party recovery. The Appellate Division also found that the Law Division's reliance on Aetna in granting the estate's motion was flawed and that Aetna was factually distinguishable from the case at hand. Whereas the carrier in Aetna made no efforts to retain its lien rights as to dependency benefits, co-defendant A expressly reserved on the record its lien on a stated portion of the monies to be paid to the estate. The Appellate Division found this factual distinction to be of significance, as retention of co-defendant A's lien rights was negotiated as a material part of the settlement. As the Appellate Division reasoned: "A settlement agreement between parties in litigation is a contract. Significantly, the administrator acknowledged under oath his understanding of the terms of the settlement. The parties relied upon that understanding when they entered into that agreement[, and] it would be unjust to permit the administrator to repudiate that understanding after the fact."

Case Law Alert - 3rd Qtr 2011