New Jersey Supreme Court Once Again Affirms Employers’ Subrogation Rights

In New Jersey, the Supreme Court has once again affirmed an employer’s right to subrogation for economic losses related to a workers’ compensation claim. Further, the right to subrogation exists even when the injured worker is precluded from pursuing damages for pain and suffering under the New Jersey Automobile Insurance Cost Reduction Act (AICRA). New Jersey Transit Corporation, a/s/o David Mercogliano v. Sandra Sanchez and Chad Smith, 229 A.3d 1271 (N.J.  2020).

David Mercogliano was involved in a motor vehicle collision during the course of his employment with New Jersey Transit. The vehicle driven by Mercogliano was owned by New Jersey Transit and driven by Sandra Sanchez. Chad Smith was the owner of the other vehicle involved. Following the accident, New Jersey Transit’s workers’ compensation carrier paid Mercogliano $33,625.70 in workers’ compensation benefits under the Workers’ Compensation Act. Mercogliano did not pursue a negligence action.

At that point, New Jersey Transit initiated a Section 40 subrogation action, which gives the employer the right to pursue the third-party tortfeasors for recovery of damages paid to injured employees. During the litigation of the subrogation claim, it was stipulated that Mercogliano was not permanently injured under AICRA—a/k/a the verbal threshold—and, therefore, was barred from pursuing non-economic damages for pain and suffering. Sanchez and Smith then filed for summary judgment, arguing that since Mercogliano was barred from filing a third-party claim for non-economic damages because of the verbal threshold, New Jersey Transit’s subrogation claim for economic damages must also be barred.

The motion judge held that AICRA trumped the Workers’ Compensation Act. Hence, since New Jersey Transit, as subrogee, stands in the shoes of the injured employee and has no rights superior to the injured employee under AICRA, Mercogliano was fully compensated by the workers’ compensation carrier for his medical expenses and wage loss, and he suffered no uncompensated economic loss. Finally, the judge dismissed the subrogation action since Mercogliano was fully compensated for economic damages, concluding the workers’ compensation carrier does not have an independent right to subrogate against a tortfeasor when the injured employee is unable to establish a cause of action against the tortfeasor.

At the Appellate Division level, the court analyzed the conflict between the Workers’ Compensation Act and AICRA on the issue of subrogation. The court noted that the Workers’ Compensation Act is the exclusive remedy for an employee who suffers a work-related injury. As long as the employee’s injuries were caused by a third-party and not the employer, the Act gives the workers’ compensation carrier an absolute right to seek reimbursement from the tortfeasor for the benefits it has paid to the injured employee. Under Section 40, the workers’ compensation carrier is entitled to reimbursement whether or not the employee is fully compensated. Utica Mut. Ins. Co. v. Maran & Maran, 667 A.2d 680, 682 (N.J. 1995). Moreover, under AICRA, the workers’ compensation benefits are the primary source of recovery for injuries suffered by employees in a work-related automobile accident and PIP insurers are relieved from the obligation to pay medical expenses. Accordingly, the Appellate Division reversed the dismissal of the subrogation action and granted partial summary judgment in favor of New Jersey Transit for its lien.

On further appeal to the Supreme Court, the analysis focused on what was the legislative intent behind the relevant provisions of the Workers’ Compensation Act and the AICRA. The court spent a fair amount of time on analyzing Section 40 of the Workers’ Compensation Act and its focus on barring double recoveries by a petitioner in obtaining both workers’ compensation benefits and damages from a negligent party arising out of the same accident. Further, the court noted that under the AICRA, the employer remains the primary payer for medical and disability benefits from a work-related motor vehicle accident versus the “automobile-owing public.” Further, the Workers’ Compensation Act was designed to pay those benefits promptly. What was very significant to the court was that when AICRA was enacted by the Legislature, it chose not to touch the Section 40 subrogation provisions of the Workers’ Compensation Act. After analyzing the legislative intent of each Act, was well as several unsuccessful appellate challenges to an employer’s right of subrogation, the Supreme Court affirmed the right of subrogation for the employer:

We concur with the Appellate Division that the Workers’ Compensation Act reflects the Legislature’s clear intent to allow employers and carriers that have paid workers’ compensation benefits to assert subrogation rights against third-party tortfeasors… . The Legislature’s objective is clear: protected by their statutory subrogation rights, employers and workers’ compensation carriers will promptly pay benefits for medical expenses and other economic loss to employees injured in the course of their employment.

In affirming the appellate court’s rationale, the Supreme Court finished its analysis by stating that any changes to the Workers’ Compensation Act and the Section 40 subrogation provision are for the Legislature to amend.

Like the appellate decision before it, the Supreme Court’s affirmation once more confirms that an employer’s Section 40 subrogation rights are relatively absolute. Again, from the beginning of their investigation of claims, employers should note when a potential third-party recovery exists so that they can fulfill the statutory notice requirements to preserve their subrogation rights. Taking advantage of your subrogation rights whenever possible is a crucial tool in reducing your exposure. If you have a questions on whether you can pursue a third-party recovery or how to preserve your subrogation rights, contact your defense counsel immediately.

*Bob is a shareholder and works in our Mount Laurel, New Jersey office. He can be reached at 856.414.6009 and rjfitzgerald@mdwcg.com.

_{Defense Digest, Vol. 26, No. 3, October 2020 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2020 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}