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Defense Digest

Waiting on a Workers' Compensation Lien Reimbursement in New Jersey? You May Have to Wait a Little Longer. Section 40 and the Timeline for Satisfaction

Defense Digest, Vol. 30, No. 2, June 2024

June 1, 2024

Key Points:

  • The New Jersey workers’ compensation statute and applicable case law protects employers’ worker’s compensation lien rights against an injured worker’s third-party recovery. 
  • An employer can perfect its lien by providing notice to the third party that there is a worker’s compensation action; Perfecting the lien obligates the third party to inquire about and satisfy the statutory portion of the employer’s lien prior to paying the third-party proceeds to the injured party. 
  • The statute does not require either the third party or the injured worker to make payment on its lien immediately following payment of third-party proceeds, rather, this obligation waits until the lien amount is set. 

In New Jersey Transit Corp. v. Darshelle Joseph, 2024 WL 1172784 (NJ Super. App. Div. Mar 19, 2024), the New Jersey Appellate Division addressed a court order denying an employer’s application for satisfaction of a workers’ compensation lien. The Division found that an employer cannot recover on its workers’ compensation lien until that amount is set. The Appellate Division’s decision impacts an employer’s timely right to compensation of their lien under Section 40 of the New Jersey workers’ compensation statute.

Darshelle Joseph was involved in a compensable work injury on October 23, 2019. Mr. Joseph later filed a workers’ compensation, claim alleging permanent disability. Mr. Joseph also filed a third-party action against the alleged responsible party in the underlying incident. 

New Jersey Transit’s carrier sent a letter to Mr. Joseph dated November 11, 2019, informing him of its right to recover on money paid as a result his workers’ compensation claim. The carrier also requested that Mr. Joseph notify them whether he retained counsel to represent him in his third-party action.

The carrier ultimately paid a total of $7,112.90 in workers’ compensation benefits as a result of Mr. Joseph’s work injury. Mr. Joseph resolved his third-party claim in December 2021 for $14,000. Mr. Joseph’s attorney in the third-party action disbursed the settlement minus the attorney fee of $4,661.63 and $15.10 for costs. Mr. Joseph’s net was $4,676.73. The workers’ compensation case remains unresolved.

Following the third-party resolution, New Jersey Transit filed a verified complaint and order to show cause seeking reimbursement of its worker’s compensation lien. The parties argued their respective points, and the court subsequently denied New Jersey Transit’s request as premature. New Jersey Transit appealed that decision, and the Appellate Division took the appeal. 

The Appellate Division recited the relevant parts of Section 40 of the New Jersey workers’ compensation statute. It noted that in the event of an injured worker’s third-party recovery, the employer shall be entitled to recover if the amount the injured worker obtains from the third-party action is equivalent to or greater than the workers’ compensation lien and on the amount that exceeds the attorney fee on the third-party action and the costs associated with that action. The Division also noted that the statute provided that, if the employer provides notice of its workers’ compensation lien to the third party prior to third-party payment on a suit, the third party then has the duty to inquire prior to making any payment of the amount of the workers’ compensation lien and the obligation for payment. 

New Jersey Transit argued that it was entitled to reimbursement on its statutory workers’ compensation lien immediately upon the third-party action being resolved. It further argued that this is required regardless of the status of the workers’ compensation action in question. 

The Division noted that Section 40 of the statute, which covers third-party recovery, was enacted to guard against double-recovery. Section 40 provides a statutory lien in favor of an employer that attaches against an injured worker’s third-party recovery. This right to reimbursement depends on an injured worker realizing recovery on a third-party action. The Division also noted that while the statute outlines when and under what conditions an employer can recover on its lien, the statute does not provide a specific timeline on when this recovery takes place. However, it notes that the amount of the employer’s lien cannot be determined until the workers’ compensation benefits paid is finalized. 

The Division went on to discuss that, if the employer perfected its lien and notified the third party regarding the workers’ compensation lien, then the third party, as outlined above, would be obligated to satisfy this portion of the lien prior to making payment on the third-party action. The Division reinforced the section of the statute wherein workers’ compensation liens attach the third-party recovery. However, the Division cited case law supporting that notice of and perfection of the lien is not required in order to attach Section 40 lien rights to a injured worker’s third-party recovery. Perfecting the lien obligates the third party to consider the employer’s lien and make payment on that lien prior to making third-party payment to the injured party. 

However, none of this requires either the third party or the injured worker to satisfy the employer’s Section 40 lien rights immediately following recovery on its third-party action. In fact, the parties are unable to know the extent of the employer’s lien amount until that amount is finalized. Regardless, the Division reinforced that the employer’s right to third-party recovery enjoys great protection. The Division, therefore, remanded the case back the trial court so steps could be taken to reinforce the employer’s lien rights either via a third-party fund being held by the court or deposited into an attorney trust account until such time that the workers’ compensation action is resolved. 

This case reinforces the employer’s right to recovery on its workers’ compensation lien against an injured worker’s third-party recovery if that recovery is equal to or greater than the workers’ compensation lien. This decision also provides guidance to an employer regarding its right to recovery in the event the lien is perfected or not. 

 

Defense Digest, Vol. 30, No. 2, June 2024, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2024 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

Firm Highlights

Thought Leadership

Supreme Court of Pennsylvania Holds That Public Policy Does Not Prevent Insurance Coverage for Sex Trafficking Claims

On July 21, 2026, the Supreme Court of Pennsylvania issued an opinion emphasizing the limited circumstances in which courts may invoke public policy to bar insurance coverage, holding in Samsung Fire & Marine Insurance Co., Ltd. (U.S. Branch) v. RI Settlement Trust that Pennsylvania public policy does not preclude coverage for claims alleging that insureds enabled or profited from human sex trafficking. The decision rejects a line of federal district court decisions predicting otherwise and reinforces that Pennsylvania courts will invoke the public policy doctrine only in the clearest of circumstances. RI Settlement is particularly significant because it arose on certified questions from the United States Court of Appeals for the Third Circuit, giving the Supreme Court the opportunity to resolve an issue on which federal courts had predicted Pennsylvania law differently. RI Settlement arose out of four separate civil complaints in which the underlying plaintiffs alleged that, as minors, they were the victims of human sex trafficking at various hotels in Philadelphia. The plaintiffs claimed that the hotel owners were negligent in failing to stop the sex trafficking from happening at their hotels. After the filing of the lawsuits, the hotel owners sought coverage under their Commercial General Liability policies. The insurers initially defended the hotels under Reservation of Rights letters, though the carriers later filed Declaratory Judgment actions seeking declarations that they did not owe a duty to defend or indemnify. In short, the insurers argued in the alternative that they did not owe any obligation to provide coverage based upon Pennsylvania public policy (because the claims violated the Human Trafficking Law – 18 Pa.C.S. § 3011) and the terms and conditions of the policy. On motions for judgment on the pleadings, the District Court found for the insurers on the basis of public policy: There is no duty to defend or indemnify against actions arising out of an insured's criminal conduct related to the sex trafficking of minors. The Court appreciates that it may make public policy the basis of a judicial decision only in “the clearest of cases.” See Minnesota Fire & Cas. Co. v. Greenfield, 589 A.2d 854, 868 (Pa. 2004) (quoting Hall v. Amica Mut. Ins. Co., 648 A.2d 755, 760 (Pa. 1994)). Yet, the Court strains to imagine a clearer case than the one presented here in which the facts alleged indicate that Policyholders engaged in criminal conduct in violation of Pennsylvania's Human Trafficking Law. The hotel owners appealed the matter to the Third Circuit, which petitioned the Supreme Court of Pennsylvania to grant review of two certified questions of law: (1) whether Pennsylvania law had an “overriding public policy” against sex trafficking, such that an insurer’s duty to defend and/or indemnify is abrogated when an insured is alleged to have enabled or profited from such trafficking; and (2) if yes, is that duty abrogated whenever the insured’s alleged conduct would constitute a violation of the Pennsylvania Human Trafficking statute. Importantly, the certified questions did not ask the Supreme Court to determine whether the policies afforded coverage under their terms. Rather, the court was asked only whether Pennsylvania public policy independently barred coverage. As a result, the court assumed for purposes of answering the certified questions that the insurers otherwise owed a duty to defend and addressed only the public policy issue, leaving all policy-based coverage defenses for further proceedings. Because the court concluded that the answer to the first certified question was “no”, it did not reach the second issue. In reaching its determination that Pennsylvania public policy does not prohibit insurance coverage for sex trafficking claims, the court limited the impact of its decision in Minnesota Fire & Cas. Co. v. Greenfield, 855 A. 2d 854, 855 (Pa. 2004), which the RI Settlement opinion emphasized as having been an “Opinion Announcing Judgment of the Court” – or a plurality opinion. In Greenfield, the insured homeowner was sued by the estate of his houseguest who overdosed from heroin that he sold to her. The matter wound its way to the Supreme Court, which determined that the insurer did not owe a duty to defend or indemnify based upon Pennsylvania public policy, which criminalized the sale and use of heroin as a Schedule I narcotic. In RI Settlement, the court “decline[d] the invitation” to extend the rationale of the three-justice plurality in Greenfield beyond cases involving Schedule I controlled substances. In so holding, the justices in RI Settlement refused to “divine an overriding public policy pronouncement by the General Assembly by virtue of its enactment of the Human Trafficking Law.” The opinion further states that it is not “within the purview of this Court to rank the magnitude of the public policy underlying the various crimes defined in the Crimes Code. It is sufficient for the work of the courts to know that the General Assembly has identified conduct it deems harmful and dangerous to the maintenance of an orderly society and criminalized it.” While the court declined to declare that Pennsylvania public policy prohibits coverage for sex trafficking claims, the opinion in RI Settlement expressly states that insurers are free to include appropriate exclusionary language for such causes of actions in their policies if they desire to do so. It will certainly be interesting to see whether the insurance industry accepts the court’s invitation, or perhaps whether the Pennsylvania legislature steps in to clarify that sex trafficking claims are indeed of the type or magnitude that they should not be covered by insurance. In any event, we will, of course, continue to monitor this and other insurance coverage issues that arise before courts in Pennsylvania, New Jersey and throughout our firm’s geographic footprint and around the country.

blue facade of a hospital sign against blue sky

Result

Defense Verdict in Complex Medical Malpractice Trial

Result

Summary Judgment Secured, Preserving $750,000 in Coverage for Insured in Major Trucking Liability Dispute

Ray Freudiger and Michael A. Roberts (both of Cincinnati) successfully obtained summary judgment on behalf of their client in a coverage dispute arising from a May 19, 2022, motor vehicle accident. A permissive driver operated a box truck for an interstate trucking company and caused severe injuries to two tort victims. Prior to the accident, the insured had procured a commercial auto policy for the trucking company with stated limits of $1,000,000. Following the accident, the insurer initiated a declaratory judgment action asserting that only reduced bodily injury limits of $25,000/$50,000 applied and later counterclaimed, alleging it would not have insured the driver had he been properly submitted for approval under the policy. After extensive discovery, briefing, and oral argument, the court rejected the insurer’s attempt to shift responsibility for the $750,000 in coverage it was legally required to provide for permissive drivers under Ohio law, granting summary judgment in favor of the insured and preserving $750,000 in liability exposure.

Portrait of Carolyn Schweizer, with text below: Philadelphia Office Managing Attorney

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Thought Leadership

New Jersey Appellate Division Affirms Exclusion of Legal Malpractice Expert as Impermissible Net Opinion

Jack Slimm and Jeremy Zacharias obtained a favorable decision on behalf of their client in a case centering on the admissibility of expert testimony in legal malpractice actions. In Martin v. Loury, the New Jersey Appellate Division affirmed the exclusion of a plaintiff's legal malpractice expert, holding that the expert's opinions on causation and damages were too speculative to support the malpractice claim. The legal malpractice action arose from an underlying employment dispute involving claims for damages stemming from the breach of an employment agreement. The plaintiff alleged that defense counsel committed malpractice during a second trial by failing to recall the plaintiff as a rebuttal witness after the employer's CEO testified. According to the plaintiff's expert, additional rebuttal testimony would have bolstered the plaintiff's damages claims and led to a more favorable result. Both the trial court and the Appellate Division rejected that theory. The courts found that the expert could not explain how the proposed rebuttal testimony would have altered the outcome of the underlying case or resulted in any additional recoverable damages. Notably, the trial judge in the underlying employment matter had already rejected the CEO's testimony as not credible and had accepted the damages analysis advanced by the plaintiff. The court had also determined that the amount of damages was not genuinely disputed. As a result, the expert's opinion that additional rebuttal testimony would have produced a better outcome was unsupported by the record and based on speculation rather than evidence. The Appellate Division agreed that neither the plaintiff nor the expert could identify any actual damages attributable to the alleged malpractice or demonstrate the required element of proximate causation. The court further upheld the trial court's application of New Jersey's net opinion doctrine, finding that the expert failed to provide the necessary "why and wherefore" supporting his conclusion that the attorney's conduct caused a compensable loss. Because the opinions rested on unquantified possibilities rather than demonstrable facts, they were inadmissible. Key Takeaway for Legal Malpractice Defendants For attorneys and firms defending legal malpractice claims, Martin v. Loury underscores the importance of closely scrutinizing an opponent's expert report on the critical elements of proximate causation and damages. The decision demonstrates that a malpractice claim cannot survive where an expert merely speculates that different litigation tactics might have produced a better result. Instead, the plaintiff must present admissible expert testimony grounded in the record that explains how the alleged attorney error probably changed the outcome of the underlying matter and resulted in measurable damages.

Thought Leadership

Court Allows Recklessness and Punitive Damages Claims to Proceed After Work‑Zone Crash

In a case where a defendant filed preliminary objections against allegations of recklessness and punitive damages, the Susquehanna County Court of Common Pleas denied these preliminary objections. This case stems from a motor vehicle accident, where the defendants car struck the plaintiffs car after the defendant allegedly fell asleep at the wheel, going at a high rate of speed, through a construction work zone. Defendant first objected to the general allegations throughout the plaintiff’s complaint pertaining to “reckless” conduct contending that there were insufficient factual allegations to support the claim of reckless conduct. Defendant next objected to the plaintiffs claim for punitive damages, as punitive damages may only be assessed against a motorist for falling asleep while driving if there is further evidence to prove driver was aware of their drowsiness and risk of falling asleep. Lastly, defendant objected to plaintiffs complaint, claiming it lacked specificity. The court here found that the plaintiff had included in the complaint specific allegations related to the defendant’s alleged recklessness, including allegations regarding speeding in a work zone, almost striking the flagger, falling asleep at the wheel, and striking the plaintiffs vehicle which was stopped. Additionally, the court noted that falling asleep does not come without warning. The court found that these allegations were sufficient to support an allegation of recklessness at the pleadings stage.

empty courtroom photo

Result

Summary Judgment Secured for Life Insurance Agent

Result

No-Cause Jury Verdict Secured in Wrongful Death Trial

We successfully obtained a no-cause jury verdict in a 13-day wrongful death trial. The decedent, a 59-year-old man, was admitted to the emergency room on February 15, 2019, with complaints of abdominal pain, decreased appetite, and constipation, despite the use of laxatives. The patient did not complain of any nausea, vomiting, or diarrhea. He had a significant medical history including diabetes, hypertension, prior coronary artery stenting, morbid obesity (with past gastric bypass surgery), longstanding ventral hernia, and back pain. A CT scan revealed multiple hernias and a potential closed-loop bowel obstruction, leading to a surgery consultation. Our client, an emergency general surgeon, interpreted that the patient did not have a closed loop or any significant obstruction and recommended non-surgical management. The patient was approved to have clear liquids, and had a vomiting incident shortly after, but our client was not notified. The patient was returned to NPO status, and after improving overnight, he was returned to “clears” and additional medical and renal consults were ordered. Our client did not receive any communications from the residents/nurses of any changes in the patient’s condition. On February 18, 2019, two rapid responses were called due to increased heart rate and vomiting. It is believed that the vomiting resulted in aspiration, causing sepsis, ultimately leading to the patient’s death. During the trial, the plaintiff’s sole medical expert highlighted imaging on the wrong hernia, which called into question all of his opinions in the case. We made key objections related to the expert testimony, limiting what the allegations were, and preventing new allegations from being made. After approximately two and a half hours of deliberating, the jury returned a no-cause verdict.