On appeal from the Superior Court, Law Division, Bergen County.
Judges Gaulkin, Havey and Skillman. The opinion of the court was delivered by Gaulkin, P.J.A.D.
The issue raised by this appeal is whether a workers' compensation lien attaches to the proceeds of an uninsured motorist (UM) recovery where the UM proceeds, together with the compensation payments, are assertedly less than the full amount of plaintiff's loss. In Midland Ins. Co. v. Colatrella, 102 N.J. 612, 617 (1986), the Supreme Court held that the lien attached where the UM claim was settled under the policy limits. However, the Court left unresolved "the more difficult question whether the workers' compensation lien should attach when the uninsured motorist coverage is less than the full amount of plaintiff's damages." Id. at 619.
In the present case, plaintiff obtained a compensation award and settled his UM claim for the policy limit, but contends that he has still not been paid the full amount of his damages. The Law Division found that the compensation carrier nevertheless
is entitled to be repaid from the UM recovery. We find that result neither necessary nor fair and accordingly reverse.
The facts are uncomplicated. During the course of his employment, plaintiff was involved in a motor vehicle accident with a hit and run driver. As a result of his injuries, which included a fracture of the left femur shaft and both feet, as well as cartilage injury to the left knee, plaintiff recovered $158,819.59 in workers' compensation benefits from defendant, his employer's workers' compensation carrier. Plaintiff also made a claim for UM coverage under his own automobile insurance policy which, coincidentally, was also issued by defendant. Defendant tendered the policy limit, $100,000, and by stipulation the net proceeds (after deduction of counsel fees and costs) were placed in escrow pending a determination as to whether they were subject to a compensation lien. Plaintiff thereupon instituted the present declaratory judgment action for a determination as to whether the lien attaches. Relying on Midland, the Law Division judge held that defendant was entitled to retain the net UM proceeds as partial reimbursement of its compensation payments.
In Midland, Colatrella had settled his UM claim for $27,500, which was $2,500 less than the $30,000 policy limit. The Supreme Court permitted Midland, the compensation carrier, to recapture from the UM settlement the $9,270.52 it had paid in compensation benefits, finding in N.J.S.A. 34:15-40 a legislative intent "that a compensation lien should attach to the recovery from a third-party tortfeasor." Id. at 618; see also Christy v. City of Newark, 102 N.J. 598, 609-610 (1986). But the Court specifically declined to characterize an uninsured motorist or its carrier as a "third person" within the meaning of the statute and instead relied "on the belief that the primary concern of the Legislature here, as in other work-related injuries caused by third-party tortfeasors, is to integrate the sources of recovery." Midland, 102 N.J. at 618. Indeed, if the insured motorist or its carrier were a "third person" within the meaning of N.J.S.A. 34:15-40, there would
appear no need or basis for the Court to reserve "the more difficult question whether the workers' compensation lien should attach when the uninsured motorist coverage is less than the full amount of plaintiff's damages." Id. at 619.
The Supreme Court in Midland thus found no statutory lien, but rather imposed a lien as a judicial remedy to assure that "in the present case, the Workers' Compensation Act and the uninsured motorist statute worked as the Legislature intended." Ibid. That remedy "worked", the Court explained, because
Colatrella promptly received benefits under the Workers' Compensation Act and later settled his uninsured motorist claim under the policy limits. [Emphasis suppied.]
Ibid. It was "because of that settlement" that the Court found it unnecessary to decide "the more difficult question" whether the lien should attach when the UM coverage is less than the full amount of plaintiff's damages. Ibid.
The significance of the UM settlement under the policy limits was that it established that Colatrella had obtained duplicate recoveries for the same expenses.*fn1 Where an injured party's combined compensation and UM recoveries do not indemnify him in full for his loss, the remedy fashioned in Midland to forestall a double recovery is inappropriate and unjust. The relevant equitable principle is that "the right of subrogation does not arise until the injured party has been made whole." ...