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On May 12, 2020, the Supreme Court of New Jersey addressed whether an employer can maintain a subrogation action to recoup workers’ compensation benefits paid for economic loss where (1) its employee is barred from maintaining an action against the tortfeasors due to his election of the limitation-on-lawsuit option in his personal automobile policy; (2) the employee’s losses were covered by workers’ compensation benefits; and (3) the employee neither sought nor received personal injury protection (“PIP”) benefits.  In N.J. Transit Corp. v. Sanchez, 2020 N.J. LEXIS 520 (N.J. May 12, 2020), an equally divided Court answered that question in the affirmative.

On December 2, 2014, David Mercogliano, while acting in the course of his employment, was driving a vehicle owned by his employer, New Jersey Transit (“NJT”), when he was rear-ended by a vehicle being driven by Sandra Sanchez and owned by Chad Smith.  Mercogliano sustained minor injuries for which he received treatment, and was medically cleared to return to work without restriction two months after the accident.

At the time of the accident, Mercogliano was insured under an automobile policy for which he had elected the limitation-on-lawsuit option provided for under the Auto Insurance Cost Reduction Act (“AICRA”).  Under AICRA, when the limitation-on-lawsuit option has been selected, a person injured in a car accident cannot recover noneconomic damages against the person legally responsible for the accident, unless his injury falls into one of the categories specifically enumerated in AICRA.  Here, there was no dispute that Mercogliano’s injury did not fall within any of the specified categories, and that he thus could not recover for noneconomic injury against Sanchez or Smith.

NJT’s workers’ compensation carrier paid Mercogliano $33,625.70 in workers’ compensation benefits, including medical benefits, temporary indemnity benefits, and permanent indemnity benefits.  With his losses covered by workers’ compensation benefits, Mercogliano neither sought nor received PIP benefits under his personal automobile insurance policy.

In its capacity as Mercogliano’s employer and subrogee, NJT filed a complaint against Sanchez and Smith seeking to recoup the workers’ compensation benefits it paid to Mercogliano.  NJT relied on N.J.S.A. 34:15-40(f), a provision of the Workers’ Compensation Act which authorizes employers who have paid workers’ compensation benefits to injured employees to assert subrogation claims against the persons legally responsible for those injuries.  Here, NJT alleged Mercogliano’s injuries resulted from the negligence of Sanchez in causing the accident, and also asserted a vicarious liability claim against Smith as the owner of the vehicle and as Sanchez’s employer.

Sanchez and Smith moved for summary judgment dismissing NJT’s complaint. They claimed that NJT could not assert a subrogation claim because AICRA prevented Mercogliano from pursuing a third-party action against them, given his election of the limitation-on-lawsuit option in his personal insurance policy.  Sanchez and Smith further argued that because Mercogliano would have been eligible for PIP benefits had he not qualified for workers’ compensation benefits, AICRA barred NJT’s claim for reimbursement. 

In response, NJT argued that because its subrogation claim was based entirely on workers’ compensation benefits paid for economic losses (medical expenses and lost wages), and because Mercogliano received no PIP benefits, AICRA did not bar its suit against Sanchez and Smith.

Analyzing the legislative history of AICRA, along with the collateral source rule set forth therein, the Court found that the Legislature intended to allocate the burden for injuries incurred during the course of employment to employers and their workers’ compensation carriers.  As such, where an injury is compensable under both the Workers’ Compensation Act and AICRA (via PIP benefits), the Workers’ Compensation Act provides the primary source of recovery of medical expenses and lost wages.  In this scenario, the PIP carrier is relieved of the obligation to pay those benefits, such that PIP benefits are neither collectible nor paid.

Here, NJT paid workers’ compensation benefits for Mercogliano’s economic losses.  As a result, Mercogliano neither pursued nor received PIP benefits.  Under these circumstances, AICRA’s prohibition on the admission of evidence of PIP benefits “collectible or paid” was not implicated, as PIP benefits were neither collectible nor paid.

The Supreme Court found that the Workers’ Compensation Act reflects the Legislature’s clear intent to allow employers and carriers that have paid workers’ compensation benefits to assert subrogation rights against third-party tortfeasors.  The Court found no evidence that when the Legislature enacted AICRA, it intended to bar employers and insurers that have paid workers’ compensation benefits for economic loss from seeking reimbursement from third-party tortfeasors where the employee’s losses were covered by workers’ compensation benefits and he neither sought nor received PIP benefits.  An equally divided Court thus affirmed the Appellate Division’s decision to allow NJT to pursue its subrogation claim against Sanchez and Smith.