Breslin v. Liberty Mut. Ins. Co.

• Decision Date: 18 March 1976
• Citation: 69 N.J. 435,354 A.2d 635
• Parties: Michael J. BRESLIN, Jr. and Breslin & Breslin, ESQS., Plaintiffs-Appellants, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 435

69 N.J. 435

354 A.2d 635

Michael J. BRESLIN, Jr. and Breslin & Breslin, ESQS Plaintiffs-Appellants, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Jan. 27, 1976.

Decided March 18, 1976.

Paul A. Dykstra, Hackensack, for plaintiffs-appellants (Breslin & Breslin, Hackensack, attorneys).

Joan B. Sherman, East Orange, for defendant-respondent.

PER CURIAM.

The judgment of the Appellate Division is affirmed essentially for the reasons set forth in the well-reasoned opinion of Judge Lynch.

The plaintiffs relied substantially on Koutrakos v. Long Island College Hospital, 78 N.Y.Misc.2d 39, 355 N.Y.S.2d 718 (Sup.Ct.1974) which held, Inter alia, that the provision of the New York Workmen's Compensation Law which provided that in a third party action brought by the injured employee reimbursement was to be made to the workmen's compensation carrier at no expense (including attorney's fees) to it, violated the due process and equal protection guarantees of the Federal and New York Constitutions. It should be noted that the Appellate Division reversed that part of the decision. 47 A.D.2d 500, 368 N.Y.S.2d 528 (1975).

In Klacik v. Kovaca, 111 N.J.Super. 307, 311--312, 268 A.2d 305, 307 (App.Div.1970), certif. den. 57 N.J. 237, 271 A.2d 428 (1970), Judge Matthews wrote: 'In the absence of statute, rule of court or contract, the mere accrual of benefits to a third party does not entitle an attorney to recover any compensation from those benefited.' He pointed out that there was a diversity of opinion among the states on whether reimbursement of an insurer should be made after deduction of reasonable attorney's fees incurred in effecting the recovery. He added that '(p)ublic policy here, however, is in equipoise', but concluded the more equitable rule is to provide for such deduction. This is a far cry from holding that the contrary view is so offensive to our public policy that the foreign law should not apply.

Affirmed.

For affirmance: Chief Justice HUGHES, Justices MOUNTAIN, CLIFFORD and SCHREIBER and Judge CONFORD--5.

For reversal: Justices SULLIVAN and PASHMAN--2.

PASHMAN, J. (dissenting).

In January 1971, Noreen Geelan, a New Jersey resident employed in New York, was injured in an automobile accident in New Jersey. Because of her injuries, said employee received temporary disability benefits from her employer's insurance carrier. Ms. Geelan then retained the services of counsel (plaintiffs herein) and commenced action against a third party for injuries received in the accident. From this action she received an amount in excess of the disability benefits, and attorneys' fees and costs. The insurance carrier, relying on New York law, asserted subrogation rights to this recovery for the full amount of the benefits paid without any deduction for costs or attorneys' fees. Counsel for the employee sought an adjudication of these rights.

The trial court held that New York law governs the existence Vel non of the carrier's right of subrogation, but ruled that the insurer's lien is subject, under New Jersey law, to payment of a pro rata share of the attorneys' fees and costs incurred by the employee in recovering from the third party. 125 N.J.Super. 320, 310 A.2d 527 (Law Div.1973). The Appellate Division reversed on the issue of attorneys' fees, and noted that 'New York law precludes such deductions for attorneys' fees and costs from the liens of disability insurers.' In conjunction with this observation, the court held:

. . . New York's interests are such that choice-of-law principles dictate recognition of all aspects of the insurers' liens--the nature, extent of recovery and the condition thereof, and, more particularly, their recovery without deduction for attorneys' fees and costs in this context. (134 N.J.Super. 357, 367, 341 A.2d 342, 347 (App.Div.1975)).

Since plaintiffs have abandoned their contention below that no subrogation rights are cognizable, the sole issue now before this Court is whether attorneys' fees are deductible from a disability insurer's lien against the recovery received by an insured employee in a third-party action.

I would reverse the Appellate Division with respect to this issue and reinstate the judgment of the trial court substantially for the reasons set forth in the opinion of that court and to which I append the following additional comments.

In holding that New York law controls as to the deductibility of attorneys' fees, the Appellate Division relied primarily on three cases, Wilson v. Faull, 27 N.J. 105, 141 A.2d 768 (1958), Privetera v. Hillcrest Homes, Inc., 29 N.J.Super. 591, 103 A.2d 55 (Law Div.1954) and Liberty Mutual Ins. Co. v. Borsari Tank Corp., 248 F.2d 277 (2 Cir. 1957). I find all of these cases to be distinguishable from the instant case on the ground that they arose from fact situations in which the injured employee consciously invoked the compensation law of a foreign state despite the existence of comparable benefits under New Jersey law. This distinction is most clearly recognized in Privetera, where the injured worker chose to receive disability benefits pursuant to provisions of the Workmen's Compensation Law of New York and then, simultaneously, sought to recover a pro rata share of costs and attorneys' fees from the insurer under N.J.S.A. 34:15--40(b), (e). This latter provision applies only to payments made by an insurance carrier 'under this act,' referring to the New Jersey Workmen's Compensation Act. In that context, the court in Privetera held that because plaintiff chose to proceed under the New York law,

. . . he (was), accordingly, bound by all of the provisions of that law--he cannot take advantage of the portion he likes and disregard those portions of which he disapproves. (29 N.J.Super. at 593, 103 A.2d at 57).

In the instant case, however, the disabled employee had no such election available to her and her attorney (plaintiff herein) did not expressly rely on the New Jersey Workmen's Compensation Law, N.J.S.A. 34:15--40(b), (e), as did the plaintiff in Privetera. Moreover, while it may well be true, as was stated in Privetera, Liberty Mutual and Wilson, that fundamental compensation policy dictates that the law of the state under which benefits are paid should govern cases relating to the payment of such benefits, nothing in those cases precludes the possibility of applying the law of the forum state where its public policy so requires.

I submit that it is offensive to the public policy of New Jersey that a liability insurer should receive the full benefit of an attorney's work without incurring any portion of its costs. It is well settled that New Jersey favors contribution by the insurer to the costs of a suit, including a pro rata share of attorneys' fees, where the insurer has benefited from the third-party recovery. Klacik v. Kovacs, 111 N.J.Super. 307, 268 A.2d 305 (App.Div.1970), certif. den. 57 N.J. 237, 271 A.2d 428 (1970); Hedgebeth v. Medford, 130 N.J.Super. 1, 324 A.2d 600 (Law Div.1974), rev'd 139 N.J.Super. 41, 352 A.2d 267 (App.Div.1976); Cf. Caputo v. Best Foods, 17 N.J. 259, 267, 111 A.2d 261, 265 (1955); see also the lower court opinions in this case, 134 N.J.Super. at 362, 341 A.2d 342, and 125 N.J.Super. at 327, 310 A.2d 527.

The Appellate Division, in Klacik v. Kovacs, made the following lucid and clearly valid observations about the rationale underlying this policy:

Clearly, had (the carrier) decided to institute its own action, or intervene in the action instituted by plaintiffs against (the third party tortfeasor), it would have been required to incur expenses including an attorneys' fee for such action. To establish an artificial rule which would provide an insurer with the right to sit back and permit its insured to proceed with an action, expecting to share in the avails of that proceeding without the burden of any of the expense, occurs to us to be anomalous. (111 N.J.Super. at 312, 268 A.2d at 308).

I hasten to add that, not only would a rule precluding contribution by the insurance carrier be generally unfair and inequitable, but it would create...