A-3368-93T3 is on appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County. A-5087-93T3 is on appeal from the Division of Workers' Compensation, Department of Labor and Industry.
Before Judges Shebell, Skillman and Wallace.
The opinion of the court was delivered by
In this case we revisit the issue of whether a workers' compensation lien attaches to the proceeds of a legal malpractice action brought to recover damages from the attorney who failed to properly prosecute a third party action against the tortfeasor responsible for the worker's injury. Notwithstanding the earlier decision of this court in Wausau Ins. Cos. v. Fuentes, 215 N.J. Super. 476, 522 A.2d 440 (App. Div. 1986), we hold that the legal malpractice recovery in question is subject to the workers' compensation lien of N.J.S.A. 34:15-40.
On March 4, 1987, Christopher Frazier was injured at work while employed by Autotron Electric, Inc. ("Autotron"). On July 11, 1987, Frazier's then attorney filed a workers' compensation claim on Frazier's behalf against New Jersey Manufacturers Insurance Company ("NJM"), the workers' compensation insurer of Autotron.
In January 1992, Frazier, through new counsel, asserted a legal malpractice claim against his former attorney for failure to file suit against a general contractor, as an alleged third-party tortfeasor, within the period of the statute of limitations. On June 3, 1992, NJM's attorney gave notice to Frazier's attorney in the malpractice action that NJM would assert a compensation lien against the proceeds of any recovery. On September 5, 1992, Frazier settled the malpractice claim for $675,000, an amount less than the policy limit of the malpractice insurance.
On February 18, 1993, Frazier filed a complaint for declaratory judgment in the Chancery Division, Middlesex County, asserting that NJM did not hold a valid workers' compensation lien against the proceeds of the malpractice settlement. NJM counterclaimed for judgment enforcing a workers' compensation lien against the malpractice settlement proceeds and seeking to assert the lien against future payments.
NJM and Frazier each moved for summary judgment. Frazier also moved to amend his complaint to seek damages and an accounting, alleging that NJM breached a "duty to review, compromise when appropriate, or otherwise manage the payment of medical bills charged directly to Plaintiff," and failed to "properly administer plaintiff's benefits under the Workers' Compensation laws."
On January 7, 1994, after oral argument, the Chancery Division Judge granted summary judgment in Frazier's favor on the lien issue, relying on this court's opinion in Wausau Ins. Cos. v. Fuentes, supra. The Judge also granted Frazier's motion to amend the complaint, noting that "the issues of what's raised by the proposed complaint [are not] ripe for a court to evaluate until they're put into issue." Frazier filed his amended complaint on January 21, 1994. We thereafter granted NJM's motion for leave to file an interlocutory appeal of the Chancery Division order.
On March 24, 1994, a Workers' Compensation Judge entered a judgment declaring Frazier totally and permanently disabled. The Judge also held that ...