Appellete Division Holds That Costs of Suit Under Subrogation Provision in New Jersey are Limited to $750

From time to time, plaintiff’s counsel takes the position that respondent’s lien is applied to the net proceeds after deduction for plaintiff’s total costs of suit. In Greater New York Mutual Insurance Company v. Calcagno & Associates, A-0900-11T4 (App. Div. September 20, 2012), that very issue was decided.

John Phillips was injured arising from work, and the workers’ compensation carrier paid benefits in the gross amount of $29,733.84. Phillips also sued a third party and recovered $35,000. Greater New York (hereinafter GNY) asserted its full lien. In response, counsel forPhillips requested a lien compromise. GNY refused to compromise its lien and insisted that it was due two thirds of $29,733.84 minus $750 for costs of suit for a balance of $19,073.55.

Calcagno & Associates, counsel for Phillips, did not pay $19,073.55. Instead the law firm sent a check to GNY for $14,821.85 after deducting $12,767.23 for “disbursements of suit.” GNY then sued for the balance of $4,251.70.

The trial judge ruled that the New Jersey subrogation statute (N.J.S.A. 34:15-40) is clear on its face in stating that costs of suit are limited to $750. Counsel for Phillips appealed and argued that N.J.S.A. 2A:13-5 governing attorney’s liens had priority over a workers’ compensation lien. Counsel also argued that the carrier’s lien only attached to the net settlement proceeds in the third party action.

The Court rejected these arguments. “N.J.S.A. 2A:13-5 is irrelevant to this matter, and defendants cite no authority for the proposition that this statute has priority over a workers’ compensation lien pursuant to N.J.S.A. 34:15-40.” The Court further held, “Here, the third party tortfeasor or his insurance carrier paid Phillips $35,000 to settle the negligence lawsuit. The employer’s liability, therefore, was based on that sum, not the net sum.”

The Court said that GNY was entitled to its full two thirds minus $750 or $19,073.55. It said that Phillips’ lawyer could seek reimbursement of the litigation costs in excess of $750 from Phillips pursuant to their retainer agreement.

Carriers and third party administrators encounter this issue fairly often, so this decision is a useful one. While the workers’ compensation statute may provide an unrealistically low allowance for costs in a third party action, this is a statutory matter that the Legislature alone can change.

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