On appeal from the Superior Court, Law Division, Camden County.
Pressler, O'Brien and Scalera. The opinion of the court was delivered by Pressler, P.J.A.D.
[232 NJSuper Page 307] The New Jersey Property-Liability Insurance Guaranty Association (Guaranty Association) was created by N.J.S.A. 17:30A-1, et seq., to protect policyholders and claimants of policyholders whose insurers have become insolvent. This protection is afforded by the Guaranty Association's assumption of the insolvent carrier's direct and indemnification obligations within the terms, conditions and limitations prescribed by the
Act. The primary issue posed by this appeal is whether the statutory workers' compensation lien for benefits paid to an injured employee by his employer's compensation insurer is enforceable against the Guaranty Association when it undertakes the defense and indemnification of the tortfeasor whose negligence caused the employee's injury and whose own liability carrier has become insolvent. We hold that it is not.
The facts giving rise to this question are essentially simple and undisputed. Plaintiff Stanley Sussman, a New Jersey resident, was employed as an air-conditioning mechanic by Engineering and Refrigeration, a Pennsylvania company, insured for workers' compensation benefits by The PMA Group (Pennsylvania Manufacturers' Association). In May of 1985 Sussman was sent by his employer to do an air-conditioner repair at premises in Bridgeton, New Jersey, owned by Morton and Shirley Ostroff in which a supermarket business was conducted. He was injured while climbing a fixed ladder to the second story mechanical room. Ultimately, PMA, as his employer's compensation carrier, paid him some $65,000 in benefits.
In September 1985, joined by his wife who sued per quod, Sussman instituted an action in the Law Division against the Ostroffs, claiming that his injury was caused by their negligent maintenance of the premises. The suit was initially defended by Mission Insurance Company, the Ostroffs' liability carrier, which, however, was declared insolvent in 1986. The defense of the action and the obligation to indemnify was then taken over by Guaranty Association which, by letter to PMA dated October 7, 1987, advised it that pursuant to the Guaranty Association Act, N.J.S.A. 17:30A-1, et seq., the compensation lien did not constitute a "covered claim" within its responsibility and hence would not be honored by it. PMA did not respond to Guaranty Association's further request that PMA's lawyer communicate with it. In February of 1988, plaintiffs' attorney also wrote to PMA, advising it that it agreed with Guaranty Association's legal position that "there can be no recovery for your Workers'
Compensation payments from the funds under the guaranteed fund" and that PMA's sole recourse for satisfaction of its lien claim was against Mission Insurance Company's receiver. Insofar as the record indicates, PMA did not respond to this letter either.
The trial of plaintiffs' cause against defendants Ostroff commenced in April 1988. After five days of trial, it was settled for $125,000. PMA then wrote to plaintiffs' attorney demanding payment of its lien out of the settlement funds. Plaintiffs moved the trial court, on notice both to defendants and PMA, for an order directing distribution to them by Guaranty Association of the settlement funds "free and clear of a claim of The PMA Group for Workers' Compensation Lien." The Ostroffs, by Guaranty Association's attorney, responded to the motion by a letter explaining that
[t]he position of the defendants was that the Workers' Compensation Lien would not be considered. On more than one occasion, counsel for plaintiff and defendant in discussing this matter with Judges Supnick and Little indicated that the Workers' Compensation Carrier's only recourse in this matter was to file a Notice of Claim with Mission Insurance. It was the understanding and agreement of all parties concerned that neither plaintiff nor the New Jersey Property-Liability Insurance Guaranty Association would reimburse the workers' compensation carrier. As such, it was the understanding of all parties involved in this case that the PMA lien, if any, was to be satisfied by Mission Insurance and not by plaintiff and not by the New Jersey Property-Liability Insurance Guaranty Association.
In any event, in light of the Statement of Facts and Statement of Law submitted on behalf of plaintiff, defendants join in plaintiff's Motion to prohibit PMA from asserting any Workers' Compensation Lien directly or indirectly against any party to this action and/or the New Jersey Property-Liability Insurance Guaranty Association.
Following oral argument, however, the trial judge concluded that the $125,000 settlement fund was subject to PMA's lien claim despite the plaintiffs' assertion that the settlement was predicated upon its exemption from that lien. An order was entered denying the motion, and plaintiffs appealed. Only PMA responded.
Our analysis of the competing claims here involved starts with N.J.S.A. 34:15-40, which begins with ...