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Geaney: Court Upholds Right of Employer to Pursue Subrogation

  • State: New Jersey

One of the most significant cases for employers in many years is N.J. Transit Corp. v. Sanchez. This decision is really a game-changer for employers, carriers and third-party administrators.

John H. Geaney

John H. Geaney

The conventional wisdom has always been that if an injured worker cannot sue for personal injuries in a motor vehicle accident on account of having the limitation-on-lawsuit option (aka “verbal threshold”), then the employer cannot pursue subrogation rights. The argument has always been that the employer stands in the shoes of the worker. But the Appellate Division and state Supreme Court opinions in Sanchez have upended conventional wisdom.

The key facts were that David Mercogliano was driving a vehicle during the course of his employment when he was rear-ended by a vehicle driven by Sandra Sanchez and owned by Chad Smith. N.J. Transit owned the vehicle Mercogliano was driving and paid $33,625.70 in workers’ compensation benefits. Mercogliano never sought or received personal injury protection benefits under his personal automobile policy. He also never sued Sanchez because he could not meet any of the exceptions under the limitation-on-lawsuit option.

N.J. Transit filed a complaint against Sanchez and Smith to recoup its payments under N.J.S.A. 34:15-40 relying on Section (f), which allows employers that have paid workers’ compensation benefits to pursue subrogation rights after a one-year period. Sanchez and Smith argued, in part, that N.J. Transit was barred from recovery because Mercogliano could not bring his own suit.

The Appellate Division disagreed with Sanchez and Smith, allowing N.J. Transit to recover its payments in the civil suit because Mercogliano had not received PIP benefits, and N.J. Transit was trying to recover its own economic losses. 

The Supreme Court took certification and came down equally divided in its decision.  When that occurs, it represents an affirmance of the Appellate Division decision.

Why is this a game-changer? Because most New Jersey drivers opt for the limitation-on-lawsuit option, since it lowers car insurance premiums. So the precise situation in this case happens all the time. The verbal threshold policy means that injured workers in car accidents cannot bring a civil suit against a negligent third party unless they can show one of six exceptions, the main one being a permanent injury. 

Unlike workers’ compensation law, permanent injury is defined very strictly under the Auto Insurance Cost Reduction Act. Sometimes even a herniated disk may not suffice to prove a permanent injury under AICRA.

The Supreme Court found no evidence that when the Legislature enacted AICRA, it intended to bar employers and insurers that have paid workers’ compensation benefits from seeking reimbursement from third-party tortfeasors where the injured worker did not seek or receive PIP benefits. Normally injured workers who receive medical benefits and temporary disability benefits in workers’ compensation would not also seek or receive PIP benefits.

Another key fact for employers to consider is the percentage of recovery. An employer’s lien is typically limited to two thirds (the other third represents the contribution to the plaintiff’s counsel fee). But there is no plaintiff bringing suit here, so the employer can recover the entire amount of its payments, reduced only by whatever contractual arrangement the employer has with its own subrogation counsel. 

This decision has generated both interest and surprise among employers, carriers and third-party administrators. Frankly, the scope of the decision is just beginning to be fully appreciated in the employer community, and the case has not gotten all the attention it deserves. Kudos to N.J. Transit and its counsel for taking a creative position that has essentially carved out new law for the benefit of employers.

For large employers, carriers and third-party administrators, the decision is huge: It will literally mean over time millions of dollars in recovery for economic payments made under workers’ compensation.

John H. Geaney is an attorney, executive committee member and shareholder with Capehart Scatchard, a defense law firm in New Jersey. This post appears with permission from Geaney's New Jersey Workers' Comp Blog.

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