New Jersey has a powerful subrogation provision under N.J.S.A. 34:15-40. Respondent is entitled to two thirds of its payment if the recovery exceeds the total workers’ compensation expenses. The employer must properly reserve lien rights.
The case of Errickson v. Supermarkets General Corp., 246 N.J. Super. 457 (App. Div. 1991) points out how failure to follow the rules can cause the loss of lien rights.
In Errickson, the accident happened on July 14, 1986. Cigna, the compensation carrier, paid compensation benefits and filed a suit in the name of Errickson on July 24, 1987. Cigna settled with the attorney for the third-party defendant and sent the release to Errickson, who refused to sign it. Errickson successfully argued that Cigna had not provided a written demand letter to him, and therefore the settlement Cigna had effected was invalidated. The court reviewed the proper procedure as follows:
- The compensation carrier or employer must wait one year;
- Then the carrier must make a written 10-day demand on employee to either effect settlement or institute a proceeding against the third-party defendant;
- The carrier must then wait the 10 days and can file suit if the employee fails to settle or institute proceedings.
It is important to bear in mind that if a carrier or employer files suit in the name of the injured worker against a third-party defendant, the rights of the carrier derive from the worker. Therefore, any money recovered in excess of the amount respondent has paid in compensation payments goes to the injured employee.
