Section 40 Lien Rights on Section 20 Settlements
Written by: Daniel Martin & Samuel Gidaro
Where an injured worker has the ability to bring a third-party action arising from the circumstances surrounding a work injury, the employer may be entitled to reimbursement for compensation benefits paid. N.J.S.A. 35:15-40. Specifically, Section 40 details that where the sum recovered by the injured worker in the third-party case is equivalent or greater than the liability of the employer, the employer is released from its liability and entitled to reimbursement for the medical expenses incurred and compensation payments paid to the injured worker. N.J.S.A. 35:15-40. This reimbursement, however, does not apply to settlements accomplished via Section 20. See N.J.S.A. 35:15-20. Section 20 permits the parties, where there are issues concerning the question of jurisdiction, liability, causal relation, or dependency, to enter into a lump sum agreement that acts as a full and final dismissal of the claim. N.J.S.A. 35:15-20. The question frequently arises when settling workers’ compensation claims: why does Section 40 reimbursement not apply to all settlements? The rationale behind the demarcation lies within statutory construction.
Indeed, the application of the statutory construction of Section 40 memorializes an employer’s ability to assert a lien for medical expenses and compensation payments made to the injured worker. Section 20, however, was enacted well after Section 40 was established. The Morris County Superior Court has held that the statutory construction effectuates the legislative intent which shines through the remainder of Section 20. Aetna Life & Cas. v. Estate of Engard, 527 A. 2d 497 (N.J. Super. Ct. Law Div. 1986). The statute expressly articulates a policy of finality and conclusiveness, "notwithstanding any other provisions of this chapter." Id. (quoting N.J.S.A. 34:15-20). From a petitioner's perspective, a Section 20 settlement means dismissal of the claim petition and a surrender of any rights to future compensation benefits. From the perspective of the employer, or its insurance carrier, all payments are deemed to be compensation payments for insurance purposes only. Id. In holding that a carrier cannot recover any such payments, the Court believed it is furthering the principle of finality espoused in the statute. Aetna Life & Cas. v. Estate of Engard, 527 A. 2d at 502.
Essentially, the rationale is derived from the Superior Court with the justification being that a payment made pursuant to Section 20 is not considered a medical expense or a compensation payment made to the injured worker. Therefore, a Section 20 payment would not be subject to Section 40 lien rights.
Nevertheless, the Superior Court of New Jersey, Appellate Division in Calle v. Hitachi Power Tools, held that a Section 20 settlement could be included in the Section 40 lien by agreement of the parties. See Calle v. Hitachi Power Tools, 2011 N.J. Super. Unpup. LEXIS 341 (N.J. Super Ct. App. Div. 2011). Accordingly, it does appear that the parties can include language in the Section 20 Order memorializing the employer’s right to add the Section 20 proceeds into the Section 40 lien.
If you have any questions about the effect a Section 20 settlement has on your Section 40 lien rights, the lawyers at Bennett Bricklin & Saltzburg LLC are available to answer any questions and talk through your options.