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Newsletter -
Summer 2010
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Section 40 lien rights have been defined by N.J.S.A. 34:15-40 of the Workers’ Compensation Act. The Act states that an employer and its insurer have the right to seek reimbursement for medical and temporary benefits paid to an injured employee if a third person is liable for the employee’s work related injury.
An employer and its carrier can obtain reimbursement by asserting a lien on a claim filed by the injured employee against a third-party that either settles or results in a judgment from a lawsuit. In such a case, the employer is barred from commencing a separate action on its own. However, if the injured employee fails to effectuate settlement or commence a lawsuit against the third person within one year of the accident, the employer or its carrier can reach settlement with the third person or its carrier, or file suit after 10 days written notice has been provided to the injured employee.
In Lepera v. Chagnon, 2010 WL 669247 (N.J. Super. A.D.), decided on February 25, 2010, the New Jersey Appellate Division held that it was appropriate for the employer to seek reimbursement of its full lien under the specific facts of that case. In Lepera, the plaintiff was a police officer of the Borough of Paramus. He sustained injuries when the motorcycle he was riding collided with a motorcycle being ridden by Chagnon while escorting other motorcycles in a charity event sponsored by the Hackensack University Medical Center (HUMC). Lepera filed a claim with the Borough seeking workers’ compensation benefits. Lepera also filed suit against Chagnon and HUMC almost two years after the accident, seeking damages for the injuries he sustained. Bergen Risk Managers, the workers’ compensation administrator for the Borough, filed suit against Chagnon, as plaintiff’s subrogee, after plaintiff filed his lawsuit.
The third-party case was submitted to arbitration. At the arbitration, the arbitrator reduced the amount that Bergen Risk was entitled to be reimbursed for its worker’s compensation lien. All parties were present and signed the award. The arbitration award was rejected and the case was listed for Trial. A settlement conference was held prior to Trial. All parties, including the attorney for Bergen Risk, were present at the conference. A settlement was reached after the attorney for the Borough had left the conference.
Pursuant to the settlement, it was agreed that Lepera would reimburse Bergen Risk from the settlement proceeds in accordance with the amount noted on the arbitration award. The terms of the settlement were not placed on the record nor was there a written agreement memorializing the terms of the settlement. Both prior to the arbitration and subsequent to the settlement conference, the attorney for Bergen Risk had demanded reimbursement of the full amount of the lien in letters sent to Lepera’s attorney. Counsel had also refused to compromise the full lien owed to Bergen Risk at the settlement conference. The case was dismissed by way of stipulation filed with the court. Thereafter, Lepera’s attorney refused to pay the full lien asserted by Bergen Risk. A motion was filed by Bergen Risk to compel payment of the full amount of the lien. The trial court considered the motion and although it concluded that Bergen Risk improperly filed its lawsuit against Chagnon, as subrogee for Lepera, it found that Bergen Risk was entitled to reimbursement of its full lien.
On Appeal, the Appellate Division agreed with the trial court. The Court found that Bergen Risk was not statutorily authorized to bring its lawsuit because a Complaint had already been filed by Lepera prior to the action brought by Bergen. Additionally, Bergen had not served a 10 day written demand on Lepera prior to filing suit as a result of Lepera’s failure to effectuate settlement or file suit within one year of the accident. Despite this failure, Bergen Risk was not precluded from seeking reimbursement because it was entitled to reimbursement of its lien by Statute. Additionally, Lepera never sought dismissal of Bergen Risk’s Complaint prior to settlement on the grounds that it was barred. Finally, the settlement was reached with the understanding that the workers’ compensation lien would be satisfied from the settlement proceeds.
Although Bergen Risk was entitled to reimbursement, the amount of the lien still remained at issue. The court concluded that Bergen Risk was entitled to full recovery because the arbitrator’s award was rejected by all parties. Additionally, Bergen Risk had at all times maintained the position that it was unwilling to compromise its full lien. Finally, there was no written agreement or record made of the terms of the settlement stating otherwise.
Employers, their insurance carriers, and their attorneys must take proper steps to protect their Section 40 lien rights. They must determine if a claim or suit has been filed by the injured employee against the third-party and they must inform the attorney handling the third-party claim for the injured employee, in writing, of the exact amount of their workers’ compensation lien. Although not mentioned herein, they can also send a lien letter by registered mail to the attorney defending the claim against the injured employee in the third- party action. Any compromise by the workers’ compensation carrier of its lien at any time can jeopardize full recovery. Finally, the carrier must file a civil action for its subrogation claim if there has not been a settlement reached or a lawsuit filed by the injured employee within one year of the accident, after 10 days written notice to the injured employee has been provided. Once a lawsuit is filed by the injured employee, the employer and its carrier are barred from filing a separate lawsuit.
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