Workers’ Compensation Carrier Entitled to Reimbursement from Third Party Action Net of Legal Fees

New Jersey’s Appellate Division clarified the longstanding right of a workers’ compensation carrier to recover monies paid for medical, lost time and permanent disability benefits form the proceeds of any third-party settlement obtained by the workers’ compensation petitioner in another action. In Liberty Mutual Insurance v. Rodriguez the Court ruled that the workers’ compensation is entitled to reimbursement net of actual legal fees paid and the statutory $750 in court costs (as per N.J.S.A. 34:15-40). In this case, where the claimant was awarded $1.2M in a civil action, pursuing the full recovery for the carrier resulted in excess of the “normal” 66% reimbursement because the plaintiff in the civil action has a “sliding scale” fee agreement with his civil attorneys.

The Sliding Scale Legal Fee

Rodriguez entered into an Agreement to Provide Legal Services in 2002 that provided the law firm would receive a fee, under the 2012 version of Rule 1:21-7(c), as follows:

  1. 33.33% of the first $500,000 recovered;
  2. 30% on the next $500,000 recovered;
  3. 25% on the next $500,000 recovered;
  4. 20% on the next $500,000 recovered; and
  5. on all amounts recovered in excess of the above by application for a reasonable fee in accordance with the provisions of paragraph (f) hereof.

A settlement was achieved on behalf of Rodriguez with the tortfeasor for $1.2 million dollars. The parties stipulated that Rodriguez’s workers’ compensation benefits totaled $148,590.40.2

The Right of the Carrier to Recovery.

The workers’ compensation carrier asserted its rights to reimbursement of its lien under N.J.S.A. 34:15-40(b) (Section 40) from the third-party settlement. Section 40 makes clear that the remedies provided the employee by the workers’ compensation laws do not preclude an employee from pursuing damages from a tortfeasor, referred to in Section 40 as the “third person”:

In the event that the employee or his dependents shall recover and be paid from the said third person or his insurance carrier, any sum in release or in judgment on account of his or its liability to the injured employee or his dependents, the liability of the employer under this statute thereupon shall be only such as is hereinafter in this section provided.

So, What Was the Fee Actually paid?

All parties admitted that the plaintiff in the civil (third-party) action agreed to a “sliding scale” fee. It was indisputable that the fee actually earned by the plaintiff’s attorney was less than 33.33% of the total amount recovered. To calculate the fee, the court was presented with he following calculation: in the third-party action, the law firm was entitled to 33.33% of the first $500,000 recovered, or $166,666.67; 30% of the next $500,000 recovered, or $150,000; and 25% of the remaining $200,000 recovered, or $50,000, for a total fee of $366,666.67.

The third-party counsel fee equaled 30.56% of Rodriguez’s $1.2 million settlement.

The Takeaway: Get the Civil Attorneys’ Fee Agreement!

In a decision issued April 2, 2019, the Appellate Court ruled that the claimant was entitled to keep 69.44% of his $1.2M award and had to remit 69.44% to the workers’ compensation carrier. This demonstrates that the workers’ compensation carrier can recover MORE than 66% of a third party settlement where a fee agreement or actual fees are less than the “normal” one-third (1/3rd) attorneys’ fee. Kudos to the workers’ compensation carrier for requesting the actual fee calculation used by the plaintiffs in the civil action and demanding that they be reimbursed for all amounts due to the carrier.

Defending Employers in New York, New Jersey, and Longshore.