By: Samantha E. Hahn [1] and Yi Zhu [2]
Two bills are currently pending in the New Jersey State Legislature that would significantly alter employers’/carriers’ subrogation rights under Section 40 of the Workers’ Compensation Act. The first bill, S2721/A1014, seeks to remove limitations on suit expenses and attorney’s fees from third party liability claims in workers’ compensation cases. The bill was introduced into the General Assembly by Joanne Downey on January 14, 2020 and into the New Jersey State Senate by Nicholas Scutari on July 28, 2020. The second bill, S2866/A4472, would prohibit employers from filing subrogation claims against third parties for employee injuries arising out of motor vehicle accidents. The bill was introduced into the General Assembly on July 30, 2020 by Assemblywoman Downey and into the into the State Senate by Senator Scutari on September 14, 2020. Both bills are currently being reviewed by the Assembly and Senate Labor Committees.
Section 40 of the New Jersey Workers’ Compensation Act permits an employer, or its workers’ compensation carrier, to seek reimbursement of benefits paid to an injured worker if the worker also collects from a negligent third party tortfeasor for the same injury. N.J.S.A. § 34:15-40. The underlying policy is to prevent an injured worker from receiving a double recovery. Under sections 40(b) and 40(c) of the statute, the lien is reduced by the employee’s litigation costs and attorney’s fee. Currently, litigation costs are capped at $750.00, and attorney’s fees are capped at 33 1/3% of the sum recovered in the third party action.
Bill S2721/A1014 would modify Section 40(e) to remove the caps on litigation costs and attorney’s fees. If passed, the potential lien would be reduced by all “reasonable expenses, including but not limited to, the expenses of discovery, document reproduction and expert testimony.” Thus, if an injured worker paid his expert $7,500.00 to testify, that cost would now be absorbed by the workers’ compensation carrier. The bill would also remove the 33 1/3% cap on attorney’s fees. Should this bill pass, workers’ compensation carriers can expect a substantial reduction in their lien recovery.
Bill S2866/A4472 goes one step further. It would amend Section 40 to include a new subsection (h), that prohibits employers/carriers from filing subrogation actions against third parties for employee injuries arising out of motor vehicle accidents. Over the past several years, multiple cases have been litigated involving the interplay between the Automobile Cost Reduction Act (AICRA) and the Workers’ Compensation Act. These cases inevitably made their way up to the New Jersey Supreme Court. In May of this year, the Supreme Court held that a workers’ compensation carrier could pursue a subrogation action against a negligent tortfeasor even though the injured worker could not overcome AICRA’s verbal threshold. New Jersey Transit Corporation v. Sanchez, 237 NJ 423 (2019). In upholding the carrier’s Section 40 lien rights, the Supreme Court noted that if the Legislature intended to substantively change the rights of workers’ compensation carriers when it passed AICRA, it would have done so unambiguously. Now, members of the New Jersey State Legislature are seeking to do just that.
As noted above, both versions of the bills are currently being reviewed by both the Assembly and Senate Labor Committees, and it is unknown if either will ever make its way to Governor Murphy’s desk. While the goal of bill S2866/A4472 is purportedly to avoid any increase in automobile premiums to consumers as a result of the Sanchez decision, bill S2866/A4472 does little more than shift the costs of third party actions from the plaintiff/injured worker to the workers’ compensation carrier. The carrier would not just assume a portion of the litigation costs; it would assume all of them. This would most certainly contravene the Section 40 goal of preventing a double recovery. GRSLBG&B will continue to monitor these bills and advise on their progression.
Please click here to read a copy of S2721/A1014.
Please click here to read a copy of S2866/A4472.
[1] Samantha E. Hahn, Esq. is a Shareholder in GRSLBG&B’s Workers’ Compensation Department. She defends employers, insurers, and third party administrators against workers’ compensation claims in New Jersey and New York. Samantha can be reached at SHahn@grsl.com.
[2] Yi Zhu, Esq. is an Associate in GRSLBG&B’s Workers’ Compensation Department. He represents insurance companies and self-insured employers in the defense of Workers’ Compensation claims in New Jersey and New York. Yi can be reached at YZhu@grsl.com.
