According to the New Jersey Appellate Division, the answer is simple: the lien is gone. In Tomaselli v. Petco Animal Supplies, Inc., the court held that a third-party administrator's act of accepting and cashing a check marked 'full and final payment of any outstanding worker's compensation lien' constituted a clear, unequivocal waiver of the employer's statutory lien rights under N.J.S.A. 34:15-40 — even though the workers' compensation case was still ongoing and future benefits remained unpaid.
The decision serves as a powerful warning to employers, insurers, and claims administrators: how you respond to a settlement check and the language accompanying it can permanently extinguish your right to recover hundreds of thousands of dollars in reimbursement.
Background: The Injury and the Claims
On December 23, 2017, Joseph J. Tomaselli, a manager employed by Petco Animal Supplies, Inc., was collecting shopping carts in the store's parking lot when a car backed into him, pinning his left foot under the tire. He sustained serious injuries to his back, mid-stomach, and hip — injuries that ultimately required surgery and exacerbated a pre-existing back condition.
Tomaselli filed a workers' compensation claim petition on February 28, 2018. Petco admitted the accident was compensable and answered the petition, asserting its rights under N.J.S.A. 34:15-40 (known as 'Section 40') to pursue a lien against any third-party recovery Tomaselli might obtain. Petco's third-party administrator, Sedgwick Claims Management Services, Inc. (Sedgwick), administered the claim on Petco's behalf.
While his workers' compensation matter was pending, Tomaselli pursued separate civil claims against responsible third parties and obtained two settlements: an $85,000 underinsured motorist (UIM) settlement and a $15,000 third-party settlement — a total third-party recovery of $100,000.
Workers' Compensation and Third-Party Liens: Section 40 Explained
New Jersey's Workers' Compensation Act, N.J.S.A. 34:15-1 to -147, governs the rights and obligations of injured employees, employers, and third-party tortfeasors. One of its central features is the employer's right — codified in Section 40 — to recoup workers' compensation benefits it has paid, from any recovery the injured employee obtains against a responsible third party.
The statutory scheme operates as a lien in favor of the employer that attaches to the employee's third-party recovery. The purpose is to prevent a 'double recovery' — the employee should not be able to collect both workers' compensation benefits from the employer and full tort damages from a third-party tortfeasor. Section 40 ensures that, if the employer has already paid medical expenses and wage replacement benefits, those outlays are reimbursed to the extent the employee recovers from a tortfeasor.
The amount the employer can recover under Section 40 depends on the relationship between the employee's third-party recovery and the total workers' compensation liability. Where the third-party recovery is less than the total workers' compensation benefits paid and payable, a proportional formula applies. Critically, the lien cannot be fully calculated until the workers' compensation case has been fully adjudicated and the total compensation liability is determined.
"[T]he employer's right to reimbursement is conditioned on, and triggered by, the employee's recovery of any sum from a third-party tortfeasor." — Tomaselli v. Petco, quoting N.J.S.A. 34:15-40
Importantly, the court reaffirmed that there is no legal requirement to immediately satisfy the Section 40 lien upon the employee's third-party recovery. The lien can remain open and unperfected until the workers' compensation case concludes. An employer may choose to wait for the full resolution of the workers' compensation matter before pressing for reimbursement.
The Third-Party Lien Negotiation: 'A Third, A Third, A Third'
By June 2021, Sedgwick had paid out $177,084.30 in workers' compensation benefits on Tomaselli's behalf — $90,351.50 in medical benefits and $86,732.80 in indemnity benefits. The workers' compensation claim was still active. Tomaselli's third-party recoveries of $100,000 fell far short of the benefits already paid.
On June 28, 2021, Sedgwick sent Tomaselli's counsel a letter asserting its Section 40 lien and noting that it had agreed to accept $33,333.33 — representing one-third of the combined third-party recovery of $100,000. This arrangement reflects a widely recognized practice in workers' compensation: the 'third, a third, a third' formula, under which the third-party recovery is divided equally among the injured worker, his or her attorney, and the workers' compensation lienholder.The 'third, third, third' formula is a standard compromise mechanism when the third-party recovery is less than the total Section 40 lien. It reflects a practical acknowledgment that the full lien cannot be recovered, and each interested party accepts one-third as a fair resolution.
On August 19, 2021, Tomaselli's counsel forwarded a check for $33,333.33 to Sedgwick along with a cover letter expressly stating that the payment 'represents full and final payment of any outstanding workers' compensation lien, in connection with the above-referenced claim.' Sedgwick accepted and cashed the check — without objection, without reservation of rights, and without any notation preserving its right to future lien recovery.
Procedural History: The Workers' Compensation Trial
The workers' compensation matter proceeded to trial in the Division of Workers' Compensation. On February 27, 2025 — more than three years after Sedgwick cashed the settlement check — the Judge of Workers' Compensation (JWC) issued a written decision. The JWC found that Tomaselli had sustained a compensable injury that exacerbated his pre-existing back condition, awarding him fifty-five percent permanent partial total disability, with Petco receiving a credit of twenty percent for pre-existing disability.
The JWC further ruled that the $33,333.33 payment constituted full satisfaction of Petco's Section 40 lien, and that any future lien had been waived by the parties' agreement. Petco appealed, arguing that neither it nor Sedgwick had clearly and unambiguously waived its Section 40 rights — and that its acceptance of the payment covered only the accrued lien as of that date, reserving its right to seek additional reimbursement for future workers' compensation payments.
The Court's Rationale: Waiver by Conduct
The Appellate Division affirmed the JWC's decision, applying well-settled New Jersey principles of waiver. The court noted that its review of workers' compensation decisions is 'decidedly deferential,' but that it reviews legal conclusions — including contract construction and statutory interpretation — de novo.
The pivotal legal standard: waiver requires 'a clear, unequivocal and decisive act from which an intention to relinquish the right can be based,' and 'an effective waiver requires a party to have full knowledge of his legal rights and intent to surrender those rights.' Critically, however, the court emphasized that no particular form of words is required, and intent to waive need not be expressly stated — as long as the circumstances clearly show the party knew of the right and abandoned it.
Applying these principles, the court reached three key conclusions:
1. Knowledge of Rights: Sedgwick, as Petco's workers' compensation lien administrator, unquestionably knew of Petco's Section 40 rights. It would be 'unreasonable to assert' that a professional lien administrator was unaware of the statutory right to recover the full amount of any third-party recovery.
2. Unequivocal Act: By accepting and endorsing the check accompanied by a cover letter stating it was 'full and final payment of any outstanding worker's compensation lien,' Sedgwick 'clearly and unequivocally conveyed its intent to accept $33,333.33 as full and final payment.' The act of cashing a check tendered in full satisfaction of a disputed claim binds the creditor — a principle firmly established in New Jersey case law.
3. No Reservation of Rights: Neither Petco nor Sedgwick made any reservation of future lien rights in any communication. If the payment was unacceptable, Sedgwick could have objected or returned the check. It did neither.
The court also rejected Petco's argument that the language 'any outstanding workers' compensation lien' was ambiguous because it did not explicitly reference 'Section 40.' The court found no ambiguity: Petco's only possible entitlement to the third-party proceeds was its Section 40 lien, and 'any outstanding worker's [workers'] compensation lien' plainly encompassed those rights.
Waiving a Lien During Pendency vs. At Conclusion of the Claim
One of the most important distinctions highlighted by this case is the difference between waiving a Section 40 lien during the pendency of the workers' compensation claim versus at the conclusion of the claim.
During the Pendency of the Claim
When a third-party case settles while the workers' compensation claim is still open, the full extent of the employer's Section 40 lien cannot yet be determined — because future benefits may still be paid. At this juncture, employers and carriers face a critical choice:
Choice A — Wait: The employer may choose not to accept any payment and simply wait for the workers' compensation case to conclude. The Section 40 lien attaches to the third-party recovery, and the employer can assert its reimbursement rights at the conclusion. This preserves the full lien.
Choice B — Negotiate a Partial Compromise: If the employer agrees to accept less than the full recovery (e.g., one-third), it must be crystal clear in all communications whether the agreement covers only accrued benefits to date or all future benefits as well. As Geaney's NJ Workers' Comp. Manual cautions: 'Many a company has lost reimbursement rights by signing a release of lien rights when the compensation case is only half over.'
At the Conclusion of the Claim
Once the workers' compensation case has been fully adjudicated and all benefits determined, the employer's total Section 40 entitlement can be calculated with precision. At that stage, a lien settlement is more straightforward because the full liability exposure is known. If an employer wishes to waive or compromise the lien at this stage, it should do so by executing a written release that is specific, signed by authorized representatives, and, if appropriate, approved or memorialized in the Division's order.
In contrast to a mid-case lien compromise, a post-judgment lien waiver or compromise is less risky because there are no future unknowns. However, the same documentation discipline applies: any agreement should be clear about what rights are being released, and should be reflected in a formal written document — not left to be inferred from the act of cashing a check.
Key Takeaways
Know your rights — and act on them: A workers' compensation carrier's lien administrator is presumed to know Section 40 rights. Ignorance is not a defense.
Words matter — and so does silence: If you cash a check tendered as 'full and final payment,' you have waived your lien. Object in writing before depositing.
Reserve rights explicitly: When compromising a lien during a pending claim, your agreement must clearly state that future benefits are NOT included in the compromise, or courts will infer a full waiver.
Document everything: Any lien compromise — whether at mid-case or at conclusion — should be memorialized in a written agreement signed by all parties, ideally filed with the Division.
The 'third, third, third' formula is risky without proper documentation: While a practical solution, accepting one-third of a third-party recovery can extinguish all future lien rights if not properly limited in writing.
Conclusion
Tomaselli v. Petco is a cautionary tale about the consequences of imprecise lien administration. Sedgwick had paid out over $177,000 in workers' compensation benefits — and agreed to accept a mere $33,333.33 on its lien during the pendency of the claim, then cashed a check explicitly marked as full and final payment. The Appellate Division found no ambiguity. The lien was gone.
For employers, insurers, and third-party administrators handling New Jersey workers' compensation claims, the lesson is clear: lien negotiations require the same precision and care as any other contract. Before accepting any check in connection with a Section 40 lien, review the accompanying correspondence carefully, respond in writing if you dispute the characterization, and consult with counsel if there is any doubt about the scope of what is being released.Tomaselli v. Petco Animal Supplies, Inc., Docket No. A-2252-24 (App. Div. Mar. 3, 2026) (per curiam).
UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This opinion shall not “constitute precedent or be binding upon any court.” Although it is posted on the internet, this opinion is binding only on the parties in the case, and its use in other cases is limited. R. 1:36-3. Superior Court of New Jersey, Appellate Division.
The decision serves as a powerful warning to employers, insurers, and claims administrators: how you respond to a settlement check and the language accompanying it can permanently extinguish your right to recover hundreds of thousands of dollars in reimbursement.
Background: The Injury and the Claims
On December 23, 2017, Joseph J. Tomaselli, a manager employed by Petco Animal Supplies, Inc., was collecting shopping carts in the store's parking lot when a car backed into him, pinning his left foot under the tire. He sustained serious injuries to his back, mid-stomach, and hip — injuries that ultimately required surgery and exacerbated a pre-existing back condition.
Tomaselli filed a workers' compensation claim petition on February 28, 2018. Petco admitted the accident was compensable and answered the petition, asserting its rights under N.J.S.A. 34:15-40 (known as 'Section 40') to pursue a lien against any third-party recovery Tomaselli might obtain. Petco's third-party administrator, Sedgwick Claims Management Services, Inc. (Sedgwick), administered the claim on Petco's behalf.
While his workers' compensation matter was pending, Tomaselli pursued separate civil claims against responsible third parties and obtained two settlements: an $85,000 underinsured motorist (UIM) settlement and a $15,000 third-party settlement — a total third-party recovery of $100,000.
Workers' Compensation and Third-Party Liens: Section 40 Explained
New Jersey's Workers' Compensation Act, N.J.S.A. 34:15-1 to -147, governs the rights and obligations of injured employees, employers, and third-party tortfeasors. One of its central features is the employer's right — codified in Section 40 — to recoup workers' compensation benefits it has paid, from any recovery the injured employee obtains against a responsible third party.
The statutory scheme operates as a lien in favor of the employer that attaches to the employee's third-party recovery. The purpose is to prevent a 'double recovery' — the employee should not be able to collect both workers' compensation benefits from the employer and full tort damages from a third-party tortfeasor. Section 40 ensures that, if the employer has already paid medical expenses and wage replacement benefits, those outlays are reimbursed to the extent the employee recovers from a tortfeasor.
The amount the employer can recover under Section 40 depends on the relationship between the employee's third-party recovery and the total workers' compensation liability. Where the third-party recovery is less than the total workers' compensation benefits paid and payable, a proportional formula applies. Critically, the lien cannot be fully calculated until the workers' compensation case has been fully adjudicated and the total compensation liability is determined.
"[T]he employer's right to reimbursement is conditioned on, and triggered by, the employee's recovery of any sum from a third-party tortfeasor." — Tomaselli v. Petco, quoting N.J.S.A. 34:15-40
Importantly, the court reaffirmed that there is no legal requirement to immediately satisfy the Section 40 lien upon the employee's third-party recovery. The lien can remain open and unperfected until the workers' compensation case concludes. An employer may choose to wait for the full resolution of the workers' compensation matter before pressing for reimbursement.
The Third-Party Lien Negotiation: 'A Third, A Third, A Third'
By June 2021, Sedgwick had paid out $177,084.30 in workers' compensation benefits on Tomaselli's behalf — $90,351.50 in medical benefits and $86,732.80 in indemnity benefits. The workers' compensation claim was still active. Tomaselli's third-party recoveries of $100,000 fell far short of the benefits already paid.
On June 28, 2021, Sedgwick sent Tomaselli's counsel a letter asserting its Section 40 lien and noting that it had agreed to accept $33,333.33 — representing one-third of the combined third-party recovery of $100,000. This arrangement reflects a widely recognized practice in workers' compensation: the 'third, a third, a third' formula, under which the third-party recovery is divided equally among the injured worker, his or her attorney, and the workers' compensation lienholder.The 'third, third, third' formula is a standard compromise mechanism when the third-party recovery is less than the total Section 40 lien. It reflects a practical acknowledgment that the full lien cannot be recovered, and each interested party accepts one-third as a fair resolution.
On August 19, 2021, Tomaselli's counsel forwarded a check for $33,333.33 to Sedgwick along with a cover letter expressly stating that the payment 'represents full and final payment of any outstanding workers' compensation lien, in connection with the above-referenced claim.' Sedgwick accepted and cashed the check — without objection, without reservation of rights, and without any notation preserving its right to future lien recovery.
Procedural History: The Workers' Compensation Trial
The workers' compensation matter proceeded to trial in the Division of Workers' Compensation. On February 27, 2025 — more than three years after Sedgwick cashed the settlement check — the Judge of Workers' Compensation (JWC) issued a written decision. The JWC found that Tomaselli had sustained a compensable injury that exacerbated his pre-existing back condition, awarding him fifty-five percent permanent partial total disability, with Petco receiving a credit of twenty percent for pre-existing disability.
The JWC further ruled that the $33,333.33 payment constituted full satisfaction of Petco's Section 40 lien, and that any future lien had been waived by the parties' agreement. Petco appealed, arguing that neither it nor Sedgwick had clearly and unambiguously waived its Section 40 rights — and that its acceptance of the payment covered only the accrued lien as of that date, reserving its right to seek additional reimbursement for future workers' compensation payments.
The Court's Rationale: Waiver by Conduct
The Appellate Division affirmed the JWC's decision, applying well-settled New Jersey principles of waiver. The court noted that its review of workers' compensation decisions is 'decidedly deferential,' but that it reviews legal conclusions — including contract construction and statutory interpretation — de novo.
The pivotal legal standard: waiver requires 'a clear, unequivocal and decisive act from which an intention to relinquish the right can be based,' and 'an effective waiver requires a party to have full knowledge of his legal rights and intent to surrender those rights.' Critically, however, the court emphasized that no particular form of words is required, and intent to waive need not be expressly stated — as long as the circumstances clearly show the party knew of the right and abandoned it.
Applying these principles, the court reached three key conclusions:
1. Knowledge of Rights: Sedgwick, as Petco's workers' compensation lien administrator, unquestionably knew of Petco's Section 40 rights. It would be 'unreasonable to assert' that a professional lien administrator was unaware of the statutory right to recover the full amount of any third-party recovery.
2. Unequivocal Act: By accepting and endorsing the check accompanied by a cover letter stating it was 'full and final payment of any outstanding worker's compensation lien,' Sedgwick 'clearly and unequivocally conveyed its intent to accept $33,333.33 as full and final payment.' The act of cashing a check tendered in full satisfaction of a disputed claim binds the creditor — a principle firmly established in New Jersey case law.
3. No Reservation of Rights: Neither Petco nor Sedgwick made any reservation of future lien rights in any communication. If the payment was unacceptable, Sedgwick could have objected or returned the check. It did neither.
The court also rejected Petco's argument that the language 'any outstanding workers' compensation lien' was ambiguous because it did not explicitly reference 'Section 40.' The court found no ambiguity: Petco's only possible entitlement to the third-party proceeds was its Section 40 lien, and 'any outstanding worker's [workers'] compensation lien' plainly encompassed those rights.
Waiving a Lien During Pendency vs. At Conclusion of the Claim
One of the most important distinctions highlighted by this case is the difference between waiving a Section 40 lien during the pendency of the workers' compensation claim versus at the conclusion of the claim.
During the Pendency of the Claim
When a third-party case settles while the workers' compensation claim is still open, the full extent of the employer's Section 40 lien cannot yet be determined — because future benefits may still be paid. At this juncture, employers and carriers face a critical choice:
Choice A — Wait: The employer may choose not to accept any payment and simply wait for the workers' compensation case to conclude. The Section 40 lien attaches to the third-party recovery, and the employer can assert its reimbursement rights at the conclusion. This preserves the full lien.
Choice B — Negotiate a Partial Compromise: If the employer agrees to accept less than the full recovery (e.g., one-third), it must be crystal clear in all communications whether the agreement covers only accrued benefits to date or all future benefits as well. As Geaney's NJ Workers' Comp. Manual cautions: 'Many a company has lost reimbursement rights by signing a release of lien rights when the compensation case is only half over.'
At the Conclusion of the Claim
Once the workers' compensation case has been fully adjudicated and all benefits determined, the employer's total Section 40 entitlement can be calculated with precision. At that stage, a lien settlement is more straightforward because the full liability exposure is known. If an employer wishes to waive or compromise the lien at this stage, it should do so by executing a written release that is specific, signed by authorized representatives, and, if appropriate, approved or memorialized in the Division's order.
In contrast to a mid-case lien compromise, a post-judgment lien waiver or compromise is less risky because there are no future unknowns. However, the same documentation discipline applies: any agreement should be clear about what rights are being released, and should be reflected in a formal written document — not left to be inferred from the act of cashing a check.
Key Takeaways
Know your rights — and act on them: A workers' compensation carrier's lien administrator is presumed to know Section 40 rights. Ignorance is not a defense.
Words matter — and so does silence: If you cash a check tendered as 'full and final payment,' you have waived your lien. Object in writing before depositing.
Reserve rights explicitly: When compromising a lien during a pending claim, your agreement must clearly state that future benefits are NOT included in the compromise, or courts will infer a full waiver.
Document everything: Any lien compromise — whether at mid-case or at conclusion — should be memorialized in a written agreement signed by all parties, ideally filed with the Division.
The 'third, third, third' formula is risky without proper documentation: While a practical solution, accepting one-third of a third-party recovery can extinguish all future lien rights if not properly limited in writing.
Conclusion
Tomaselli v. Petco is a cautionary tale about the consequences of imprecise lien administration. Sedgwick had paid out over $177,000 in workers' compensation benefits — and agreed to accept a mere $33,333.33 on its lien during the pendency of the claim, then cashed a check explicitly marked as full and final payment. The Appellate Division found no ambiguity. The lien was gone.
For employers, insurers, and third-party administrators handling New Jersey workers' compensation claims, the lesson is clear: lien negotiations require the same precision and care as any other contract. Before accepting any check in connection with a Section 40 lien, review the accompanying correspondence carefully, respond in writing if you dispute the characterization, and consult with counsel if there is any doubt about the scope of what is being released.Tomaselli v. Petco Animal Supplies, Inc., Docket No. A-2252-24 (App. Div. Mar. 3, 2026) (per curiam).
UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
This opinion shall not “constitute precedent or be binding upon any court.” Although it is posted on the internet, this opinion is binding only on the parties in the case, and its use in other cases is limited. R. 1:36-3. Superior Court of New Jersey, Appellate Division.
*Jon L. Gelman of Wayne, NJ, is the author of NJ Workers' Compensation Law (West-Thomson-Reuters) and co-author of the national treatise Modern Workers' Compensation Law (West-Thomson-Reuters).
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