N.J.S.A. 34:15-40 (“Section 40”) grants a right of reimbursement to workers’ compensation carriers. This reimbursement is to the extent of benefits paid to an injured worker should that injured worker file a third-party civil suit against the responsible tortfeasor. See N.J.S.A. 34:15-40. The limitations on this recovery are set forth in subsections (b) and (c) of Section 40, which both provide that any third-party recovery is reduced by the employee’s “expenses of suit” and the attorney’s fee. Subsection (e) goes on to define “expenses of suit” as an amount not to exceed $750.00 and the attorney’s fee as an amount not to exceed 1/3rd of the ultimate settlement proceeds.
While the language of the statute is plain on its face, there is confusion regarding the precise application of the aforementioned reductions. For instance, it is common knowledge that, in a typical civil suit settlement, disbursements come “off the top” of the settlement proceeds. Disbursements are, by their very nature, not part of the amount to be divided amongst the intended recipients. By way of illustration, assume a civil case settles for $100,000.00 and there are exactly $10,000.00 in disbursements. Under such a structure, the plaintiff’s attorney would receive $30,000.00 as their fee and the plaintiff would receive the remaining $60,000.00.
In the context of workers’ compensation, however, the $750.00 “expenses of suit” are not treated in the same fashion as an ordinary civil suit. Rather, New Jersey courts have continually upheld the proposition that the $750.00 “expenses of suit” is intended to be a separate statutory contribution by the workers’ compensation carrier: “The statute is clear that this charge is in addition to the fee required to be paid. Thus, the lienor in addition to the fee will be required to pay $200 toward litigation costs.” See McMullen v. Maryland Cas. Co., 127 N.J. Super. 231, 235-37 (N.J. App. Div. 1974) [citing Dante v. William T. Gotelli, Inc., 17 N.J. 254 (N.J. 1955)]. Though Section 40 was amended in 2007 to reflect $750.00 as the “expenses of suit” allotment instead of $200.00, the principle of an intended separate contribution by the workers’ compensation carrier remains the same.
Assume for the purposes of this discussion that the workers’ compensation carrier has paid $100,000.00 in medical, temporary and permanency benefits to the injured worker, and the injured worker has in turn recovered $200,000.00 from a third-party tortfeasor in a civil suit. The first $100,000.00 of that third-party settlement is precisely the type of “double recovery” Section 40 seeks to prevent. Under these facts, the Section 40 lien (assuming no compromise by the carrier) would be reimbursed as follows:
Total Workers’ Compensation Benefits Paid (Section 40 Lien): $100,000.00
Less Maximum 1/3rd Attorney’s Fee: -$33,333.33
Less $750 Maximum “Expenses of Suit”: -$750.00
Section 40 Reimbursement: $65,916.67
See Geaney’s New Jersey Workers’ Compensation Manual for Practitioners, Adjusters and Employers, Ch. 14 (2017)
It bears reiteration that the $750.00 “expenses of suit” and one-third attorney’s fee are statutory maximums under Section 40. For practical purposes, however, the “expenses of suit” seldom ever total less than $750.00, and a one-third attorney’s fee is the typical industry standard fee arrangement.