Lynch, Allcorn and Furman. The opinion of the court was delivered by Lynch, J.A.D.
The ultimate issue in these consolidated appeals is whether attorneys' fees are deductible from the lien asserted by a disability insurance carrier against a covered employee's recovery in a third-party action. As will be seen below, our resolution of that issue turns on the resolution of a conflict between New York and New Jersey law.
The trial judge, whose thoughtful opinion is reported at 125 N.J. Super. 320 (Law Div. 1973), succinctly set forth the relevant facts and legal contentions of the parties:
In each instance a New Jersey resident, employed in New York, was injured in an automobile accident in New Jersey. Disability benefits were paid to the employees by their respective New York employers' insurance carriers. Actions were commenced in New Jersey by the employees against third parties for injuries received in the accidents and resulted in the recovery of amounts in excess of the disability benefits received by the employees from the carriers, plus attorneys' fees and costs (computed on the whole sum recovered). The carriers in these actions assert subrogation rights under New York law to the full extent of the benefits paid, without allowance for costs or attorneys' fees incurred by the employees in effecting a recovery.
On their part the employees assert that (1) the enforcement of the New York statutory subrogation claims should be denied in their entirety because the claims conflict with the statutory law and public policy of New Jersey, or (2) at the very least and for similar reasons, the amounts claimed by the carriers are subject to an offset for the pro rata share of costs and attorneys' fees incurred in effecting the recovery against which the right of subrogation is being claimed. [at 323-324]
The trial judge held that New York law governed the existence vel non of the subrogation rights, but that the insurers' liens were nevertheless subject, under New Jersey law, to payment of a pro rata share of the attorneys' fees and expenses incurred by the employees in the third-party actions. The insurers appeal, urging a reversal of the trial judge's holding solely with regard to attorneys' fees. Plaintiffs, apparently abandoning their contention below that no subrogation rights are cognizable, argued for an affirmance.
According to the New York disability statute, as interpreted by the courts of that state, the insurer is entitled to recover its full lien without deduction for attorneys' fees and expenses, provided that the employee's total third-party recovery, less attorneys' fees, exceeds the amount of disability benefits paid. McKinney's Consol. Laws, c. 67, N.Y. Workmen's Comp. Law, § 227 (1965); Cianciosi v. Merchant's Mut. Ins. Co., 61 Misc. 2d 867, 307 N.Y.S. 2d 136 (Sup. Ct. 1970).
In contrast, as noted by the trial judge, New Jersey's temporary disability statute contains no specific provision
granting subrogation rights to an insurance carrier in the present context. N.J.S.A. 43:21-25 et seq. Consequently, the issue of an attorney's lien superimposed on the insurer's lien has not arisen in any disability insurance cases in New Jersey. In closely analogous situations, however, our law subjects the subrogation rights of carriers to payment of some share of the attorneys' fees. Under the New Jersey Workmen's Compensation Act, for example, the carrier's statutory right of subrogation is subject to payment of attorneys' fees and expenses in accordance with certain statutory maxima. N.J.S.A. 34:15-40(b) and (e); Caputo v. Best Foods, 17 N.J. 259, 267 (1955).
And, in the absence of a statute, this court has held that where an insurer's subrogation rights arise by contract, but the contract is silent as to attorneys' fees, equitable principles dictate that the insurer pay a proportional share of attorneys' fees and expenses incurred by the insured in a ...