Defense Digest

A "HOLD HARMLESS" AGREEMENT IN NEW JERSEY WORKERS' COMPENSATION CLAIMS MAY RESULT IN UNANTICIPATED LIABILITY

An agreement to hold a petitioner harmless for medical expenses may arise in a New Jersey workers' compensation claim when medical bills remain outstanding or have been paid by sources other than the compensation carrier, or if the parties agree at the time of settlement that the carrier will be responsible for the medical expenses if payment is subsequently sought from the petitioner.

In University of Massachusetts Memorial Hospital v. Christodoulou, 2003 N.J. Super. Lexis 240 (App. Div. 2003), the New Jersey Appellate Court addressed the relative rights of the parties in a hold harmless agreement. In this matter, an employee of Auto Auction Land died as a result of injuries sustained in a motor vehicle accident. He received medical services valued in excess of $700,000 at University of Massachusetts Medical Center prior to his death. The decedent's father filed claims for injuries sustained during his life, as well as for dependency benefits. The hospital received timely notice of the compensation actions, but did not intervene or file their own Claim Petition. The lifetime and dependency claims were resolved under N.J.S.A. 34:15-20, and the settlement Order contained a provision holding the petitioner harmless for the medial expenses. Approximately one year after resolution of the claims, the hospital sought to vacate the compensation settlement and obtain payment of their bills. The compensation court denied relief and the hospital filed a second action in the Superior Court. A Motion for Summary Judgment brought by the petitioner was denied at the trial level.

On appeal, the court addressed whether the hospital could prosecute an action in the New Jersey Superior Court and the scope of the hold harmless agreement. The Appellate Court held that the second Superior Court action was barred because the hospital failed to exercise its rights in the compensation proceeding. The decision, which appears fact specific, relied heavily on the hospital's timely notice of the pending compensation proceedings, and that matters resolved under Section 20 of the Act are closed with finality.

It reasoned that allowing a subsequent action at common law would create a situation inconsistent with their strong policy favoring settlement of litigation. Equally significant, the court interpreted the hold harmless agreement in accordance with customary rules relating to contracts. Although the exact language of the hold harmless agreement indemnified the petitioner only for medical bills, the court held that it also implicitly obligated the carrier to provide a defense in subsequent proceeding brought by medical providers.

In light of University of Massachusetts Memorial Hospital v. Christodoulou, caution is advised when contemplating incorporation of a hold harmless agreement into the terms of a New Jersey workers' compensation settlement. Unless the hold harmless agreement is unequivocally limited in scope, the carrier may be responsible for the costs of defending the petitioner in a multitude of claims for payments subsequently brought by various medical providers. As a result, the carrier may be subject to substantially greater litigation expenses because ultimate responsibility for the medical bills will be determined on a case-by-case basis by the actions of the treating providers after notification of a pending compensation proceeding.

* Shaun is an associate in our Roseland, NJ office. He can be reached at (973) 618-4121 or smcginn@mdwcg.com.