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N.J. employer may pursue subrogation claims in car accident

Posted On: May. 13, 2020 1:50 PM CST

New Jersey

An employer may pursue its subrogation claims against individuals who rear-ended one of its employees who was on the clock, the New Jersey Supreme Court held Tuesday.

In New Jersey Transit Corp. v. Sanchez, the court affirmed in a 4-3 decision an appellate court ruling that found that the state’s no-fault auto insurance scheme did not bar an employer from suing to recoup workers compensation costs it paid out for a worker’s injuries.

On Dec. 2, 2014, David Mercogliano was struck from behind while driving a company car in the course of his employment and sustained cervical injuries and strained his right trapezius. He was treated for the injuries and medically cleared to return to work about two months later.

Mr. Mercogliano was insured under a standard auto policy with a limitation-on-lawsuit provision, and his employer paid out $33,500 in workers comp benefits, with about $6,500 in medical benefits, $4,000 in temporary indemnity and $23,000 in lost wages.

New Jersey Transit Corp. sought to recover the workers comp benefits it paid to Mr. Mercogliano by suing those allegedly at fault for the accident, Sandra Sanchez and Chad Smith.

Ms. Sanchez and Mr. Smith argued that the subrogation act was barred by the state’s Auto Insurance Cost Reduction Act because Mr. Mercogliano sustained no permanent injuries and agreed to the limitation-on-lawsuit under his auto policy.

A trial court held that New Jersey Transit was barred from asserting a subrogation action under the AICRA, but an appellate court reversed the decision, holding that because the economic loss was covered under workers comp — not personal injury protection benefits — that the subrogation action did not violate the AICRA.

The New Jersey Supreme Court agreed to hear the case and upheld the appellate court’s decision.

The state Supreme Court agreed with the appellate court’s decision that the subrogation action arose from  "economic loss comprised of medical expenses and wage loss, not noneconomic loss” and rejected the trial court’s view that a subrogation claim based on benefits paid for economic loss contravenes AICRA’s intent.

The court said it found no evidence that the legislature, in enacting the AICRA, intended to bar employers and insurers that have paid workers compensation benefits from seeking reimbursement in cases such as this.

“Thus, the legislature made clear that when an employee injured in a work-related accident is entitled to benefits under the Workers' Compensation Act, that statute — not AICRA — provides his or her primary source of recovery for medical expenses and lost wages,” the court said.

The dissenting justices contended the majority misread the applicable statutes and that the state’s no-fault legislation prevents a workers comp insurer from seeking reimbursement in a subrogation action.

The conclusion of the majority will “ultimately lead to increased automobile insurance premiums and increased litigation over economic damages incurred in work-related automobile accidents — an outcome in conflict with a series of legislative enactments aimed at making automobile insurance more affordable in this state.”