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Johnson v. State


November 20, 2009


On appeal from the Division of Workers' Compensation, Department of Labor and Workforce Development, Claim Petition No. 2004-29233.

Per curiam.


Submitted: November 5, 2009

Before Judges Axelrad, Fisher and Espinosa.

This appeal presents a conflict of laws issue regarding whether petitioner's recovery of uninsured motorist (UM) benefits from his personal Pennsylvania automobile insurance policy for injuries sustained in a motor vehicle accident in the course of his employment with the State of New Jersey (State) should be subject to a workers' compensation lien pursuant to New Jersey law. The workers' compensation judge ruled that New Jersey law should apply, giving petitioner's employer a right of subrogation against the proceeds. We reverse and remand for further proceedings.

On August 30, 2004, petitioner Terrence Johnson, a New Jersey Department of Corrections' employee, was injured in the course of his employment in Ewing Township, New Jersey. Petitioner, who was driving a state-owned work vehicle, was struck by an uninsured motorist. At the time, petitioner was a Pennsylvania resident and owned a personal vehicle covered by a Pennsylvania automobile policy with State Farm Insurance Company.

The State provided petitioner with workers' compensation benefits for his injuries but advised it would not respond to his UM claim because the State is exempt from the provisions of the Security and Responsibility Act of Title 39. Petitioner then filed a claim with State Farm seeking UM benefits for the accident. By letter of October 28, 2005, the State wrote to petitioner's attorney, stating, "We are advised that your office is handling a THIRD PARTY action" for petitioner, and asserting a workers' compensation lien of $26,769.99 for temporary compensation and medicals. See Midland Ins. Co. v. Colatrella, 102 N.J. 612 (1986) (holding that UM proceeds constitute a third party recovery under N.J.S.A. 34:15-40, upon which a workers' compensation lien attaches). Petitioner's attorney responded that there was no third-party claim, just the UM claim against petitioner's own policy, and under the State Farm policy and Pennsylvania law, there is no right to assert a workers' compensation lien in a UM claim.*fn1

On February 8, 2007, State Farm's representative sent a letter to petitioner's attorney regarding petitioner's UM claim, stating in pertinent part:

Your correspondence also indicates a workers' compensation lien of $12,628.20. As I'm sure you are aware, the carrier has no right to assert a lien in a UM claim; however, you should also be aware that your client has a right to prove, plead and recover the amount of their payment. In this case, my file reflects a total WC payment of approximately $27,000, which has already been factored into my evaluation of the claim. . . .

With regard to your demand for the policy limits, at present I do not think the information in my file warrants that type of value; however, I am certainly willing to consider any new information that is available. . . .

Incidentally, since it appears we will not be able to settle the claim for my initial offer amount of $52,000, I will be forwarding that amount to you under separate cover in the near future. It is State Farm's procedure to do this as we believe that is the minimum amount your client will be entitled to receive. The claim will of course remain open and we are not asking Mr. Johnson to sign any sort of Release. [Emphasis added.]

Petitioner's counsel forwarded this letter to the State representative, further advising that State Farm had forwarded the amount of $52,000 to petitioner to avoid any claim of bad faith under the policy and that the matter would proceed to arbitration.

Petitioner's attorney and the State continued to dispute whether the State was entitled to subrogation of its workers' compensation lien. In September 2007, the State filed a motion in the New Jersey workers' compensation court to set the lien, arguing that petitioner was bound by New Jersey workers' compensation law. Petitioner opposed the motion on the basis that under a conflicts of law analysis, Pennsylvania law should control. By order of January 29, 2008, the judge of compensation set the amount of the lien at $17,646.67 pursuant to N.J.S.A. 34:15-40. The parties thereafter reached a settlement as to petitioner's permanency, which was confirmed by court order of August 7, 2008.*fn2

By written opinion of November 25, 2008, the judge found that petitioner was required to reimburse the State for the lien, finding that once petitioner elected to receive compensation benefits from New Jersey pursuant to its compensation laws, he triggered the statutory subrogation rights of the compensation carrier. The judge found Midland, supra, to be decisive, concluding that denying the State's right to subrogation would result in petitioner's double recovery, contrary to the legislative intent of N.J.S.A. 34:15-40. Petitioner appealed.

On appeal, petitioner asserts error by the judge of compensation in failing to conduct a choice-of-law analysis and failing to conclude that the law of Pennsylvania governing recovery of workers' compensation benefits applies. In particular, petitioner argues that Pennsylvania's interest in assuring full and fair compensation for its domiciliaries who are involved in motor vehicle accidents in accordance with the statutory scheme established by its Legislature is more significant than New Jersey's interest in avoiding a double recovery. Petitioner emphasizes that he contracted with State Farm Insurance for UM benefits under Pennsylvania law. Thus, consistent with Pennsylvania law and the express terms of petitioner's insurance contract, which specifically exclude UM proceeds from an employee's private policy of insurance from an employer's subrogation interest, he submits he is entitled to the full amount of the accident benefits provided under his policy.

New Jersey's choice-of-law rule applies a "flexible 'governmental-interest' standard, which requires application of the law of the state with the greatest interest in resolving the particular issue that is raised in the underlying litigation." Gantes v. Kason Corp., 145 N.J. 478, 484 (1996). See also Lieberman v. Port Authority, 132 N.J. 76, 84 (1993); Veazey v. Doremus, 103 N.J. 244, 247-49 (1986); State Farm Mut. Auto. Ins. Co. v. Estate of Simmons, 84 N.J. 28, 36-37 (1980); O'Keeffe v. Snyder, 83 N.J. 478, 490 (1980). Choice-of-law questions are to be determined "on an issue-by-issue basis." Veazey, supra, l03 N.J. at 248.

The first prong of the governmental-interest analysis considers whether there is an actual conflict between the laws of the respective states. Ibid.; Gantes, supra, 145 N.J. at 484. There is no doubt there is a conflict between the laws of New Jersey and Pennsylvania on this issue as only New Jersey recognizes that UM proceeds constitute a third party recovery upon which an employer's compensation lien would attach.

The second prong determines "the interest that each state has in resolving the specific issue in dispute." Id. at 485. The court must identify the governmental policies behind each state's law and how the policies are affected by each state's contacts with the litigation and the parties. Veazey, supra, 103 N.J. at 248. The final step is to compare each state's interest. Gantes, supra, 145 N.J. at 493. Clearly, New Jersey has a significant interest in protecting the State's compensation lien in this instance where petitioner was employed in New Jersey, was injured here while driving a State-registered vehicle, and voluntarily availed himself of the New Jersey workers' compensation scheme. So, too, does Pennsylvania have an interest in its injured resident motorists reaping the benefits of their insurance policies issued in accordance with Pennsylvania law.

In this case the judge of compensation did not perform a conflict of laws analysis. Rather, he summarily concluded that because petitioner elected to receive compensation benefits under the New Jersey statute, he cannot disregard the statutory provisions requiring subrogation. See Breslin v. Liberty Mut. Ins. Co., 134 N.J. Super. 357 (App. Div. l975), aff'd, 69 N.J. 435 (1976). He also held that "[c]learly in this matter, to deny [the State's] motion would, in fact permit such a double recovery" by petitioner in contravention of the legislative intent of N.J.S.A. 34:15-40 as articulated by our Supreme Court in Midland.

The record in this case suggests that petitioner may not, in fact, receive a "double recovery" if Pennsylvania law were applied and the State was not permitted to assert a compensation lien against petitioner's UM proceeds. According to State Farm's letter of February 8, 2007, the claim representative "factored" the workers' compensation payment "into [his] evaluation of the claim." Whether or not petitioner received a double recovery is an important factor to consider in evaluating the governmental-interest standard in this case. The record is unclear as to the extent to which it was "factored in" and whether petitioner ultimately resolved his UM claim for more than the initial offer of $52,000. Accordingly, we remand to the workers' compensation court for a choice-of-law analysis as to the specific issue and public policy considerations presented in this case. The judge may take further testimony or conduct such further proceedings as he deems appropriate.

Reversed and remanded. We do not retain jurisdiction.

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