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DOCKET NO. A-1015-09T1

















February 15, 2011


Argued September 22, 2010 - Decided


Before Judges R. B. Coleman and Lihotz.


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-6-05.


Laurel A. Wedinger argued the cause for appellant (Barry, McTiernan & Wedinger, attorneys; Ms. Wedinger, on the brief).


William L. Gold argued the cause for respondent (Bendit Weinstock, attorneys; Mr. Gold, on the brief).


Defendant American Style Construction, Inc. (American Style) appeals from the September 8, 2009 order declaring its asserted workers' compensation lien void. At issue is whether an employer that paid a lump sum settlement pursuant to a negotiated settlement agreement that purported to reserve its lien, pursuant to N.J.S.A. 34:15-40 (Section 40) of the Workers' Compensation Act, should be reimbursed from the disbursements of a third-party tort recovery in favor of the claim petitioner. Under the facts presented, which are not in dispute, we answer in the affirmative.

Plaintiff Daniel Aquilino Calva Calle, as Administrator Ad Prosequendum of the Estate of Christian Daniel Calva Siguenza and individually (Calle), filed a complaint in the Law Division against Hitachi Power Tools, Hitachi Koki, U.S.A., Ltd., Hitachi Koki Co., Ltd. (collectively Hitachi) alleging that manufacturing and design defects in a Hitachi nail gun caused the death of decedent Christian Daniel Calva Siguenza, at a jobsite in Yonkers, New York. The complaint also alleged that decedent's employer, American Style, was liable in tort as a result of its alteration of the nail gun. While the Law Division matter was pending, Calle filed a claim petition with the Division of Workers' Compensation seeking workers' compensation benefits.

On July 25, 2006, Judge Sue Pai Yang of the Workers' Compensation Division entered an order approving a settlement for $100,000 negotiated between American Style and Calle. The order approving settlement, entered pursuant to N.J.S.A. 34:15-20 (Section 20), expressly provided that "Respondent [American Style] retains Section 40 rights on $50,000" of the amount paid, should Calle recover in the third-party action in Superior Court. The transcript of the hearing on July 25, 2006 reflects that the following agreement was placed on the record before Judge Yang:

[Respondent's Attorney]: As your Honor said, this matter is coming before you as a proposed settlement pursuant to Section 20 of the statute. The reason for the lump sum settlement is there are serious issues regarding dependency. The proposed settlement is for $100,000; however, respondent reserves its Section 40 lien rights up to $50,000 and respondent will also pay the $3,500 funeral expenses, which the carrier had not done[.]


[Appellant's Attorney]: I concur, your Honor.


Under oath, Calle acknowledged that he understood the implications of the settlement:

Q. I did advise you if you were to accept this offer this would be a one time lump sum payment and you would forever [sic] barred from seeking more money from your son's former employer and that would be either death or dependency towards brothers, sisters and your family. Do you understand that?


A. Yes.


. . . .


Q. [W]e just have to put it on the record so it's clear that you voluntarily accept this settlement and that there are no other promises made other than what I advised you today; a one time lump sum of $100,000.


Out of that amount there are certain deductions


. . . .


There is also what they call a Section 40 lien amount of $50,000 of the money to be reservable by the insurance company as pay back for authorized treatment. This money will come from the part of the case that was handled by Bendit Weinstock should they have a financial recovery.


A. Yes.


Q. And you understand that?


A. Yes.


After finding the settlement to be fair and just, Judge Yang entered the order approving the settlement.

Thereafter, the Hitachi defendants and American Style separately filed motions for summary judgment in the Law Division, and both motions were granted. On plaintiff's appeal, we affirmed the summary judgment order in favor of American Style, but we reversed the summary judgment order in favor of Hitachi. Calle and Hitachi eventually settled for an undisclosed amount.

After the settlement between Calle and Hitachi, American Style demanded reimbursement of the $50,000 lien it had preserved pursuant to Section 40 under the lump sum settlement agreement in the workers' compensation proceeding. In response to that demand, Calle filed a motion in the Law Division1 seeking to declare American Style's workers' compensation lien void; and, on September 8, 2009, that motion was granted. The order does not specify the basis for the decision, other than to refer to the reported Law Division case, Aetna Life & Casualty v. Estate of Engard, 218 N.J. Super. 239 (Law Div. 1986). American Style has filed this appeal challenging the September 8 order.

It is well established that an employer or its insurance carrier that has paid workers' compensation benefits is entitled to reimbursement from a recovery obtained from a third-party tortfeasor. Danesi v. Am. Mfrs. Mut. Ins. Co., 189 N.J. Super. 160, 162-63 (App. Div.), certif. denied, 94 N.J. 544 (1983). Thus, N.J.S.A. 34:15-40 provides for an action by the employee or his dependents against a third-party liable for the same injuries and losses covered by the workers' compensation award. The statute "(1) proportionately extinguished the employer's obligation to pay further compensation upon payment by the third-party tortfeasor, (2) created a right of reimbursement for workers' compensation paid and (3) created a lien, when perfected, to secure reimbursement to the employer." Danesi, supra, 189 N.J. Super.at 163. More fully, Section 40 provides in pertinent part:

In the event that the employee or his dependents shall recover and be paid from the said third person or his insurance carrier, any sum in release or in judgment on account of his or its liability to the injured employee or his dependents, the liability of the employer under this statute thereupon shall be only such as is hereinafter in this section provided.

. . . .

(b) If the sum recovered by the employee or his dependents from the third person or his insurance carrier is equivalent to or greater than the liability of the employer or his insurance carrier under this statute, the employer or his insurance carrier shall be released from such liability and shall be entitled to be reimbursed, as hereinafter provided, for the medical expenses incurred and compensation payments theretofore paid to the injured employee or his dependents less employee's expenses of suit and attorney's fee . . . .


In the present matter, American Style contends that pursuant to a fair and just settlement negotiated between the parties, it retained its workers' compensation lien on $50,000 of the lump sum it paid. Calle submits that the retention of American Style's Section 40 lien is statutorily precluded as interpreted in Aetna, supra, 218 N.J. Super. at 239. We reject the motion judge's determination in favor of Calle based upon his interpretation of Aetna, as we conclude Aetna is factually distinguishable from this case. Accordingly, we reverse the September 8, 2009 order declaring American Style's lien void.

In Aetna, the Law Division held that a workers' compensation insurancecarrier, who had paid medical expenses in a lifetime claim (ultimately involving death), was not entitled to subrogation as to the $5, 000 Section 20 settlement amount it had paid to the putative widow. Id.at 241-42, 248-51. There,the alleged common-law wife of a deceased employee filed a claim for workers' compensation benefits against the employer and filed a civil action against a third-party manufacturer for negligence in the death of the employee. Id.at 242. The employer's carrier denied dependency but eventually settled the workers' compensation claim with a lump sum payment to the claimant. Ibid. The claimant subsequently settled the third-party action for an amount exceeding the compensation payment but tendered reimbursement of only the medical expenses. Id.at 242-43.

The Law Division interpreted Section 20 to mean that the putative widow need not reimburse the carrier except for the medical expenses. Id.at 249. The court noted that provisions of Section 40 were to the effect that the carrier should be reimbursed for any and all compensation payments it had made, yet the language of Section 20 indicates that a judge may approve a lump sum payment in any controversy between the employer and the employee (or survivors) recognized as compensation for insurance rating purposes only. Id.at 249. In such an event, the claimant shall be deemed to have surrendered any further payment and such payment shall be considered workers' compensation benefits for purposes of insurance rating only. Id.at 250. The court assumed that the statute was intended by the legislature to alter the usual reimbursement rules and as such, the claimant was not required to reimburse the carrier. Ibid.

In Aetna, supra, 218 N.J. Super. at 250, the court specifically noted that the carrier did not reserve on the record their Section 40 rights as to the dependency benefits. In contrast, American Style expressly reserved on the record its lien on a stated portion of the lump sum payment. This factual distinction is significant.

To settle Calle's claim for benefits, American Style made the Section 20 payment expressly conditioned on the retention of its lien right as to $50,000. We disagree with Calle's contention that American Style's lien covered only compensation payments and did not attach to dependency benefits. A Section 40 lien includes "liability to the injured employee or his dependents," N.J.S.A. 34:15-40, encompassing dependency benefits.

The resolution of plaintiff's claims, including retention of the Section 40 lien, was negotiated as a material part of the settlement. A settlement agreement between parties in litigation is a contract. Nolan v. Lee Ho, 120 N.J. 465, 472 (1990) (citing Pascarella v. Bruck, 190 N.J. Super. 118, 124-25 (App. Div.), certif. denied, 94 N.J. 600 (1983)). Accordingly, American Style's right of reimbursement on the $50,000 is contractual rather than statutory.

Significantly, Calle acknowledged under oath his understanding that

a Section 40 lien amount of $50,000 of the money . . . [was] reservable by the insurance company as pay back for authorized treatment. This money will come from the part of the case that was handled by [the Law Firm in the Superior Court action] should they have a financial recovery.


The parties relied upon that understanding when they entered into the settlement agreement. It would be inconsistent with the agreement and unjust to permit Calle to repudiate that understanding after the fact. See Knorr v. Smeal, 178 N.J. 169, 178 (2003) (observing that estoppel "is designed to prevent injustice by not permitting a party to repudiate a course of action on which another party has relied to his detriment").



1 Although N.J.S.A. 34:15-49 provides that "[t]he Division of Workers' Compensation shall have the exclusive original jurisdiction of all claims for workers' compensation benefits under this chapter," since the issue in this matter deals with the contractual settlement, the judge in the Law Division was not precluded from considering whether the workers' compensation lien was enforceable. See Handleman v. Marwen Stores Corp., 53 N.J. 404, 412 (1969) ("We interpret 'exclusive original jurisdiction' as used in N.J.S.A. 34:15-49 to mean only that workmens' compensation cases must arise in the first instance in the Workmens' Compensation Division.").