In a decision helpful to New Jersey’s workers’ compensation insurers, on May 12, 2020 the New Jersey Supreme Court found that a workers’ compensation carrier seeking risk transfer actually has greater rights as subrogee than the petitioner-subrogor possesses in motor-vehicle accident cases.
Facts from the Supreme Court Decision
A New Jersey Transit Corporation employee, David Mercogliano, sustained injuries in a motor vehicle accident while in the course of his employment. As a result, New Jersey Transit became obligated to pay workers’ compensation benefits. The petitioner was covered under standard automobile insurance policy, which included coverage for PIP benefits. Pursuant to the right of subrogation afforded to workers’ compensation carriers under NJSA 34:15-40 (“Section 40”), New Jersey Transit filed a complaint against the defendants seeking to recoup amounts paid in workers’ compensation benefits. The defendants raised the affirmative defense of the claim being barred pursuant to New Jersey’s Automobile Insurance Cost Reduction Act (“AICRA”).
The Defenses Raised
The affirmative defense invoked by the defendants arises from something called the “verbal threshold” in New Jersey. The verbal threshold is also known as the “limitation on lawsuit” option for automobile insurance policies. In an effort to reduce insurance premiums and to provide some docket relief for trivial motor vehicle accident cases, New Jersey adopted AICRA. Essentially, the plaintiff’s own automobile insurance policy affects the plaintiff’s right to sue the defendants in exchange for lower premiums. The defendants can invoke the verbal threshold affirmative defense based on what coverage the plaintiff possesses. The verbal threshold bars suits for noneconomic damages (i.e., pain and suffering) unless the plaintiff has one or more of six qualifying injuries/conditions:
- Significant disfigurement or scarring
- Displaced fractures
- Loss of a fetus
- Permanent injury other than scarring or disfigurement (this is the “catch-all” and the most litigated)
The permanent injury (#6 above) must be within a reasonable degree of medical probability. In the statute, it is defined as when a body part or organ, or both, has not healed to function normally and will not heal to function normally with further medical treatment. This is where most cases, particular those involving soft tissue injuries, are won and lost. The plaintiff must within 60 days of the defendant’s answer provide a certification from a physician under penalty of perjury based on, and referring to, objective clinical evidence. New Jersey Model Jury Charge 5.33 provides that there must be a preponderance of the evidence and a permanent injury via objective, credible medical evidence. The verbal threshold can be invoked by the defendants as an affirmative defense and can form the basis for a motion for summary judgment.
In New Jersey Transit Corp. a/s/o Mercogliano, the defendants made the argument that the petitioner’s suit was barred by the verbal threshold, and they prevailed on this argument at the trial level. However, the Appellate Division ultimately reversed the decision on the basis that New Jersey Transit’s pursuit of reimbursement was not for noneconomic loss, but rather for economic damages in the form of lost wages and medical expenses. New Jersey Tr. Corp. v Sanchez, 457 NJ Super 98, 197 A3d 1158 (App. Div. 2018). Citing to Lambert v. Travelers Indemnity Co. of America, 447 N.J. Super. 61 (App. Div. 2016), the Appellate Division held that the carrier’s right of subrogation arises under the Workers’ Compensation Law, which is separate and distinct from the policies of AICRA. Therefore, New Jersey Transit, as the employer, was permitted to pursue the claim even though the petitioner’s own suit would be barred, in theory. The carrier is evidently entitled to reimbursement from the tortfeasors even though the employee would not be able to recover medical expenses and wage loss from their own automobile insurer or noneconomic damages from tortfeasors. This would seem to be contrary to the concept of subrogation in that the carrier is being afforded a cause of action that the worker themselves could not bring. Unsurprisingly, appeal was taken to the New Jersey Supreme Court by the defendants and the Supreme Court granted certification.
The Supreme Court Ruling
In a decision reached on May 12, 2020, split 3-3 between the New Jersey Justices of the Supreme Court, the Appellate Division decision was affirmed. A copy of the decision can be found here.
The Supreme Court found no conflict between AICRA and the New Jersey Workers’ Compensation Law, noting that the pursuit of lost wages and medical benefits in a workers’ compensation claim arises under the Workers’ Compensation Law, not AICRA, as the primary source of recovery. The Supreme Court concluded that the petitioner had suffered economic damages in the form of lost wages and medical treatment, and that New Jersey Transit Corp., as the employer, was permitted to seek reimbursement via subrogation pursuant to Section 40, notwithstanding AICRA and the verbal threshold.
Why This Is Helpful to Workers’ Compensation Carriers
Practically, this decision represents an uncommon boon for workers’ compensation carriers. This is a rare instance where the carrier actually has greater rights as subrogee than the petitioner-subrogor possesses. Whereas the petitioner’s claim would have been barred by the verbal threshold based on his election for the limitation on lawsuit option in his automobile insurance policy, the employer’s action as subrogee survived summary judgment and, in the view of the New Jersey Supreme Court, should be allowed to continue. The practical implication of this ruling is that the carrier should liberally pursue reimbursement via subrogation pursuant to Section 40 in New Jersey motor vehicle accident cases. One of the most powerful defenses afforded to defendants in such actions does not hamper the carrier’s ability to prosecute the claim, even where the petitioner would have no cause of action. Therefore, there is little harm, and potentially substantial upside, in filing a subrogated civil complaint on behalf of the carrier in a New Jersey Superior Court in cases where liability of the defendants (and the adverse carrier thereby) seems clear. This should permit recovery via subrogation in cases where, previously, there was no opportunity for reimbursement because the petitioner’s own action would be barred by the verbal threshold based on their injuries.
Continue reading Risk Transfer: New Jersey Supreme Court Affirms Carrier-Friendly Subrogation Decision