Workers' Compensation: NJ Supreme Court Holds Subrogation Conflict Does Not Exist Between Workers’ Compensation and the Auto Insurance Statute

In a PER CURIAM opinion, the NJ Supreme Court held that there is no conflict between the Workers’ Compensation Act and Automobile Insurance Laws. Subrogation was permitted.

New Jersey Transit Corporation (New Jersey Transit) sought to recover workers’ compensation benefits paid to an employee, David Mercogliano, who sustained injuries in a work-related motor vehicle accident. It sued the individuals allegedly at fault in the accident, defendants Sandra Sanchez and Chad Smith, pursuant to N.J.S.A. 34:15-40, a provision of the Workers’ Compensation Act that authorizes employers and workers’ compensation carriers that have paid workers’ compensation benefits to injured employees to assert subrogation claims. The Court considers whether that subrogation action was barred by the Auto Insurance Cost Recovery Act (AICRA).

Mercogliano was acting in the course of his employment when the New Jersey Transit vehicle he was driving was struck from the rear by a vehicle driven by defendant Sanchez and owned by defendant Smith. At the time of his accident, Mercogliano was insured under a standard automobile policy, under which he was entitled to personal injury protection (PIP) and other benefits. New Jersey Transit’s workers’ compensation carrier paid Mercogliano workers’ compensation benefits. Mercogliano neither sought nor received PIP benefits under his automobile insurance policy in connection with his accident.

New Jersey Transit filed a complaint seeking to “recoup workers’ compensation benefits pursuant to N.J.S.A. 34:15-40(f).” Defendants pled as an affirmative defense that New Jersey’s no-fault insurance statutory scheme barred New Jersey Transit’s subrogation claim and moved for summary judgment. The trial court granted defendants’ motion, ruling that New Jersey Transit could not assert a claim based on economic loss.

It noted that N.J.S.A. 39:6A-2(k) defines economic loss for purposes of AICRA to mean “uncompensated loss of income or property, or other uncompensated expenses, including, but not limited to, medical expenses.” In the trial court’s view, because New Jersey Transit’s workers’ compensation carrier paid benefits for all of Mercogliano’s medical expenses and lost income, he had no “uncompensated loss of income or property,” and thus sustained no economic loss for purposes of AICRA. The trial court relied on Continental Insurance Co. v. McClelland, 288 N.J. Super. 185 (App. Div. 1996), and policy considerations in reaching its decision.

The Appellate Division reversed that judgment. 457 N.J. Super. 98, 113 (App. Div. 2018). The Appellate Division agreed with New Jersey Transit that its subrogation action arose entirely from “economic loss comprised of medical expenses and wage loss, not noneconomic loss.” Id. at 112. However, it rejected the trial court’s view that an employer’s or workers’ compensation carrier’s subrogation claim based on benefits paid for economic loss contravenes AICRA’s legislative intent. Id. at 107-12. The Appellate Division noted that in the Workers’ Compensation Act, the Legislature imposed on an employer the obligation to pay workers’ compensation benefits for an accident arising from an injured workers’ employment, and that N.J.S.A. 34:15-40 “gives the workers’ compensation carrier an absolute right to seek reimbursement from the tortfeasor for the benefits it has paid to the injured employee.” Id. at 107.

The Appellate Division acknowledged that N.J.S.A. 39:6A-6’s collateral source rule places the primary burden on the employer’s workers’ compensation carrier to compensate an employee injured in the course of employment, in the event that only workers’ compensation benefits and PIP benefits are available sources of reimbursement. Id. at 110-11. It noted, however, that “where both workers’ compensation benefits and the proceeds of a tort action have been recovered, the tort recovery is primary” under N.J.S.A. 34:15-40. Id. at 111. The Appellate Division therefore concluded that the collateral source rule posed no obstacle to New Jersey Transit’s claim. Id. at 111, 113.

The Appellate Division viewed Continental to have been rejected by subsequent Appellate Division jurisprudence, and declined to follow it. Id. at 109-10. The court instead invoked Lambert v. Travelers Indemnity Co. of America, 447 N.J. Super. 61, 67, 75 (App. Div. 2016), which identified the Workers’ Compensation Act -- not AICRA -- as the governing law for subrogation claims based on workers’ compensation benefits paid to workers injured in motor vehicle accidents in the course of their employment. Id. at 111-12. The Appellate Division therefore reversed and remanded the matter for the entry of partial summary judgment in favor of New Jersey Transit. Id. at 113.

The Court granted defendants’ petition for certification. 237 N.J. 317 (2019). HELD: The judgment of the Appellate Division is affirmed by an equally divided Court.

JUSTICE PATTERSON, CONCURRING, joined by CHIEF JUSTICE RABNER and JUSTICES FERNANDEZ-VINA, notes that the Workers’ Compensation Act provides employers or carriers with a mechanism through which to recover benefits paid when the injuries that necessitated those benefits were caused by a third party, N.J.S.A. 34:15-40, which limits the employer’s or carrier’s right of recovery to the same “action that the injured employee . . . would have had against the third person,” in accordance with traditional principles of subrogation. Justice Patterson next traces the history of AICRA and observes that, under N.J.S.A. 39:6A-6, when an employee injured in a work- related accident is entitled to benefits under the Workers’ Compensation Act, that statute-- not AICRA -- provides his or her primary source of recovery for medical expenses and lost wages. Justice Patterson stresses that, when it enacted AICRA, the Legislature did not amend the Workers’ Compensation Act to eliminate or circumscribe the statutory right of subrogation in cases involving injuries to employees in motor vehicle accidents. Justice Patterson reviews relevant case law and notes that Continental was not followed in later Appellate Division decisions. Noting that the trial court will have the discretion upon remand to expand the record and resolve any factual dispute about whether all payments were economic loss, Justice Patterson confines analysis to workers’ compensation subrogation based on payments made for economic loss. Justice Patterson explains that, to the trial court, the act that gave rise to New Jersey Transit’s subrogation claim -- its payment of benefits to Mercogliano under N.J.S.A. 34:15-15 and N.J.S.A. 34:15-12(a), (c) -- simultaneously defeated that claim, because it left Mercogliano with no “uncompensated” loss. Justice Patterson discerns no evidence that the Legislature intended to bar a workers’ compensation subrogation claim by virtue of the very benefits that created that claim in the first place and instead concludes, like the Appellate Division, that Mercogliano suffered an economic loss in the form of medical expenses and lost wages, and that New Jersey Transit paid him benefits for that economic loss. Finally, Justice Patterson explains why Lambert and two other Appellate Division cases are more persuasive than Continental as applied to this case.

JUSTICE ALBIN, DISSENTING, joined by JUSTICES LaVECCHIA and SOLOMON, expresses the view that, when a driver is involved in a work-related automobile accident and his economic costs are recoverable under either his private automobile insurance carrier’s personal injury protection (PIP) policy or under his employer’s workers’ compensation scheme, New Jersey’s no-fault automobile insurance system makes the workers’ compensation carrier primarily responsible for reimbursing those costs. When an injured driver’s economic losses are “collectible” under his PIP policy but paid by his employer’s workers’ compensation carrier, Justice Albin explains, the no-fault system prohibits a workers’ compensation subrogation action against the tortfeasor or the tortfeasor’s automobile liability insurance carrier. See N.J.S.A. 39:6A-6, -12. In Justice Albin’s view, allowing the workers’ compensation carrier here to sue the tortfeasors or their automobile insurance carrier in a subrogation action permits the very outcome the Legislature intended to foreclose through adoption of no-fault insurance -- more litigation and greater financial burdens on the automobile insurance system.

The members of the Court being equally divided, the judgment of the Appellate Division is AFFIRMED.

JUSTICE PATTERSON filed a concurrence, in which CHIEF JUSTICE RABNER and JUSTICE FERNANDEZ-VINA join. JUSTICE ALBIN filed a dissent, in which JUSTICES LaVECCHIA and SOLOMON join. JUSTICE TIMPONE did not participate.

New Jersey Transit Corporation v. Sandra Sanchez (A-68-18) (082292) Argued September 24, 2019 -- Decided May 12, 2020.,2020 WL 2374054.

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Wednesday, May 13, 2020

NJ Supreme Court Holds Subrogation Conflict Does Not Exist Between Workers’ Compensation and the Auto Insurance Statute

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