On appeal from Superior Court of New Jersey, Law Division, Union County.
Michels, Baime and Wallace. The opinion of the court was delivered by Baime, J.A.D.
The novel issue presented is whether a workers' compensation lien attaches to the proceeds of underinsured motorist coverage (UIM) paid by an injured worker's personal automobile insurance carrier. We hold that the lien applies if and to the extent those proceeds, together with the compensation benefits and the tortfeasor's insurance payment, exceed the full amount of the worker's damages.
While engaged in work-related activity, plaintiff Anthony M. Stabile sustained injuries when the automobile he was driving was struck by a vehicle operated by Gina Menta. As a result of the accident, plaintiff was hospitalized for one week and missed work for approximately four months. Defendant New Jersey Manufacturers Insurance Company (NJM) settled plaintiff's workers' compensation claim in the amount of $25,464.07.
Plaintiff and the two occupants of his vehicle who were also injured in the accident instituted separate third-party actions against Menta. These suits were later consolidated and Menta's $30,000 liability policy was deposited into court. This amount was ultimately divided equally between the three claimants. Pursuant to N.J.S.A. 34:15-40, plaintiff's $10,000 share was forwarded to NJM.
Plaintiff then sought additional recovery from his personal automobile insurer, State Farm Insurance Company (State Farm), based upon his UIM coverage. Pursuant to the terms of the insurance contract, the UIM claim was submitted to arbitration. After all of the evidence was presented, a question arose as to the necessity or appropriateness of the arbitrators entering an award in excess of the UIM policy limit, $100,000. At plaintiff's request, the panel decided to determine the actual amount of damages sustained. The arbitrators found that Menta was at fault and that the true amount of damages was $125,000. Menta's $10,000 payment was deducted from the $100,000 UIM policy limit and plaintiff ultimately received $90,000 from State Farm.
NJM, who had been notified of the UIM arbitration, claimed that its workers' compensation lien applied to the UIM recovery. The parties agreed that the amount in dispute would be placed in an interest bearing escrow account. Plaintiff then instituted a declaratory judgment action in the Law Division, contending that a compensation lien does not attach to the proceeds of a UIM provision. Alternatively, plaintiff asserted that his actual damages exceeded the amount paid to him on account of the accident and thus he had no duty to reimburse NJM for the amount of the compensation benefits received. NJM claimed that the UIM award served as a substitute for a third party recovery and was thus subject to the compensation lien provided by N.J.S.A. 34:15-40. The Law Division Judge issued a letter opinion in which he essentially adopted NJM's position. He also found that the "combined compensation, third party and UIM recoveries" fully indemnified plaintiff for his
loss and that he was therefore bound to satisfy NJM's compensation lien.
We first address whether a compensation lien attaches to the proceeds of a UIM provision. Although we have found no reported New Jersey opinion dealing with this precise issue, we do not write on a blank slate. In Midland Ins. Co. v. Colatrella, 102 N.J. 612, 510 A.2d 30 (1986), our Supreme Court concluded that a workers' compensation lien applied to proceeds paid by an injured employee's uninsured motorist coverage (UM). Id. at 618, 510 A.2d 30. In reaching this result, the Court characterized a UM provision as essentially "a contractual substitute for a tort action against [the] uninsured motorist." Id. at 617, 510 A.2d 30. Under the workers' compensation law, when an injured employee has received compensation benefits and later recovers a greater sum from a third person liable for those injuries, the employee must reimburse the employer or its compensation carrier to the extent of the benefits paid. N.J.S.A. 34:15-40(b). The Court reasoned that "[b]ecause recovery under uninsured motorist insurance is premised on the tortious conduct of another, the proceeds of that recovery, like the proceeds of an injured employee's third-party action, should be subject to a compensation lien." Midland Ins. Co. v. Colatrella, 102 N.J. at 617, 510 A.2d 30. The Court based its decision not on the express wording of N.J.S.A. 34:15-40, see Midland Ins. Co. v. Colatrella, 200 N.J. Super. 101, 106, 490 ...