Frazier v. New Jersey Mfrs. Ins. Co.

• Decision Date: 22 September 1994
• Citation: 647 A.2d 472,276 N.J.Super. 84
• Parties: Christopher FRAZIER, Plaintiff-Respondent, v. NEW JERSEY MANUFACTURERS INSURANCE COMPANY, an insurance company licensed in the State of New Jersey, Defendant-Appellant. Christopher FRAZIER, Petitioner-Respondent, v. AUTOTRON ELECTRIC, Respondent-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 84

276 N.J.Super. 84

647 A.2d 472

Christopher FRAZIER, Plaintiff-Respondent, v. NEW JERSEY MANUFACTURERS INSURANCE COMPANY, an insurance

company licensed in the State of New Jersey,

Defendant-Appellant.

Christopher FRAZIER, Petitioner-Respondent, v. AUTOTRON ELECTRIC, Respondent-Appellant.

Superior Court of New Jersey Appellate Division.

Argued Sept. 14, 1994.

Decided Sept. 22, 1994.

Moira E. O'Connell, Morristown, for appellant, New Jersey Mfrs. Ins. Co. (McElroy, Deutsch & Mulvaney, attorneys; Moira E. O'Connell, of counsel, and on the brief).

Hilton L. Stein, Montville, for respondent, Christopher Frazier (Hilton L. Stein, Montville, attorney; Leonard A. Giusti, Newark, and Mr. Stein, on the brief).

Before Judge SHEBELL, SKILLMAN and WALLACE.

The opinion of the court was delivered by

SHEBELL, P.J.A.D.

In this case we revisit the issue of whether a workers' compensation lien attaches to the proceeds of a legal malpractice action brought to recover damages from the attorney who failed to properly prosecute a third party action against the tortfeasor responsible for the worker's injury. Notwithstanding the earlier decision of this court in Wausau Ins. Cos. v. Fuentes, 215 N.J.Super. 476, 522 A.2d 440 (App.Div.1986), we hold that the legal malpractice recovery in question is subject to the workers' compensation lien of N.J.S.A. 34:15-40.

On March 4, 1987, Christopher Frazier was injured at work while employed by Autotron Electric, Inc. ("Autotron"). On July 11, 1987, Frazier's then attorney filed a workers' compensation claim on Frazier's behalf against New Jersey Manufacturers Insurance Company ("NJM"), the workers' compensation insurer of Autotron.

In January 1992, Frazier, through new counsel, asserted a legal malpractice claim against his former attorney for failure to file suit against a general contractor, as an alleged third-party tortfeasor, within the period of the statute of limitations. On June 3, 1992, NJM's attorney gave notice to Frazier's attorney in the malpractice action that NJM would assert a compensation lien against the proceeds of any recovery. On September 5, 1992, Frazier settled the malpractice claim for $675,000, an amount less than the policy limit of the malpractice insurance.

On February 18, 1993, Frazier filed a complaint for declaratory judgment in the Chancery Division, Middlesex County, asserting that NJM did not hold a valid workers' compensation lien against the proceeds of the malpractice settlement. NJM counterclaimed for judgment enforcing a workers' compensation lien against the malpractice settlement proceeds and seeking to assert the lien against future payments.

NJM and Frazier each moved for summary judgment. Frazier also moved to amend his complaint to seek damages and an accounting, alleging that NJM breached a "duty to review, compromise when appropriate, or otherwise manage the payment of medical bills charged directly to Plaintiff," and failed to "properly administer plaintiff's benefits under the Workers' Compensation laws."

On January 7, 1994, after oral argument, the Chancery Division judge granted summary judgment in Frazier's favor on the lien issue, relying on this court's opinion in Wausau Ins. Cos. v. Fuentes, supra. The judge also granted Frazier's motion to amend the complaint, noting that "the issues of what's raised by the proposed complaint [are not] ripe for a court to evaluate until they're put into issue." Frazier filed his amended complaint on January 21, 1994. We thereafter granted NJM's motion for leave to file an interlocutory appeal of the Chancery Division order.

On March 24, 1994, a Workers' Compensation judge entered a judgment declaring Frazier totally and permanently disabled. The judge also held that NJM "is precluded from exerting a statutory lien pursuant to N.J.S.A. 34:15-40 against the settlement proceeds of the legal malpractice lawsuit previously pursued by petitioner." NJM paid workers' compensation benefits to Frazier that totalled $149,977.64 as of April 21, 1994. NJM also appealed from the workers' compensation judgment and we granted NJM's motion to consolidate the two appeals.

N.J.S.A. 34:15-40 provides as follows:

Where a third person is liable to the employee or his dependents for an injury or death, the existence of a right of compensation from the employer or insurance carrier under this statute shall not operate as a bar to the action of the employee or his dependents, nor be regarded as establishing a measure of damage therein. 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 shall be only such as is hereinafter in this section provided.

(a) The obligation of the employer or his insurance carrier under this statute to make compensation payments shall continue until the payment, if any, by such third person or his insurance carrier is made.

(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 fees as hereinafter defined.

[Id. (emphasis added).]

Since our decision in Wausau Ins. Cos. v. Fuentes, our Supreme Court has held that the Legislature's intent in adopting N.J.S.A. 34:15-40 was that a workers' compensation lien should attach against an employee's recovery when the recovery is predicated or premised on the tortious conduct of a third-party. Midland Ins. Co. v. Colatrella, 102 N.J. 612, 617, 510 A.2d 30 (1986). ¹ In Midland, the workers' compensation provider was granted a lien against settlement proceeds from the employee's uninsured motorist insurance policy. The employee had argued that N.J.S.A. 34:15-40 only applies to recoveries obtained directly from a third-party tortfeasor.

In holding that a compensation lien attaches against the proceeds from an uninsured motorist policy, the Midland court reasoned that

[i]n effect, an uninsured motorist provision is a contractual substitute for a tort action against an uninsured motorist. By comparison, the acts of the third-party tortfeasor produce the recovery to which the compensation lien attaches. Thus, the tortious act of a third-party is the predicate for both recovery of uninsured motorist proceeds and the assertion of a workers' compensation lien. Because recovery under uninsured motorist insurance is premised on the tortious conduct of another, the proceeds of that recovery, like the proceeds of an injured employee's third-party action, should be subject to a compensation lien.

[Midland, supra, 102 N.J. at 617, 510 A.2d 30 (citation omitted).]

This holding was in accord with the reasoning of our earlier decision in Montedoro v. City of Asbury Park, 174 N.J.Super. 305, 416 A.2d 433 (App.Div.1980). We concluded in Montedoro that proceeds from the employer's uninsured motorist policy are subject to a workers' compensation lien. We focused on the predicate of the recovery, the negligence of the third-party tortfeasor, and held that the essence of a recovery under an uninsured motorist policy "is as compensation for the uninsured driver's common law liability." Id. at 308, 416 A.2d 433. We also noted that "[t]he insured's legal entitlement to damages for the uninsured driver's negligence imports into the UM policy all of the normal rules governing tort liability and damages." Id. at 308-09, 416 A.2d 433 (citation omitted).

The Midland court addressed the statutory construction issue as follows:

Arguably, as the Montedoro court found, the term 'third person' in N.J.S.A. 34:15-40 could be construed to include an uninsured motorist. Nonetheless, the statute does not define 'third person' to include an uninsured motorist or its carrier. Consequently, we base our decision on the belief that the primary concern of the Legislature here, as in other work-related injuries caused by third-party tortfeasors, is to integrate the sources of recovery.

[Midland, supra, 102 N.J. at 618, 510 A.2d 30 (citation omitted).]

The Supreme Court reserved judgment on the question of whether a compensation lien attaches if the uninsured motorist coverage is less than the full amount of the employee's...