N.J. Workers’ Compensation Law Change Benefits Carriers and Small Businesses

Workers’ compensation insurance laws in the Garden State are anything but garden variety. However, a recent ruling in the New Jersey Appellate Division has brought a significant change to auto-accident cases that may benefit both insurers and small businesses and will likely lead to more subrogation cases. Subrogation is the assumption of a third party, such as a workers’ compensation insurance provider, of another’s legal right to collect a debt or damages.

As a key manufacturing state, New Jersey was an early leader in the workers’ compensation movement in the United States. Today, workers’ compensation, also referred to as workman’s comp, in New Jersey still operates as a “no-fault” insurance program that provides defined benefits for workplace accidents or occupational illnesses. An injured worker is covered regardless of fault. In exchange for guaranteed benefits, the worker relinquishes the right to bring a civil action against the employer for pain and suffering or other damages. To maintain a uniform program, every private-sector employer must obtain a workers’ compensation insurance policy or be qualified as a self-insured employer. Insurance premium rates and policy procedures are set by the New Jersey Compensation Rating and Inspection Bureau. Failure to maintain workers’ compensation coverage for employees can result in significant civil fines, penalties and criminal violations.

Workers’ compensation laws vary by state, and N.J. workers’ compensation law is complex in terms of how it handles subrogation.

In New Jersey, the rules about subrogation set a verbal threshold that third parties, such as insurance carriers, had to meet to seek reimbursement independently from negligent tortfeasors, or those whose negligence causes damages to another. The verbal threshold is “a threshold based on a person’s degree of injury that must be exceeded before a suit can be brought against the negligent party in a state with a no-fault insurance law,” according to the International Risk Management Institute Inc. But meeting that threshold is now no longer necessary in workers’ compensation cases with the ruling in New Jersey Transit v. Sanchez.

The ruling affirms workers’ compensation carriers’ lien rights, allowing carriers to pursue reimbursement independent of the employee even if the employee doesn’t meet the verbal threshold. It puts N.J. workers’ compensation law more in line with other states’ laws about workers’ compensation and subrogation in auto-accident cases.

In New Jersey Transit v. Sanchez, the New Jersey Appellate Division ruled that when a worker is injured carrying out job responsibilities, the workers’ compensation carrier has a right to pursue subrogation against the third-party tortfeasor under the New Jersey Workers’ Compensation Act, instead of under the state’s Automobile Cost Reduction Act. That means the carrier can now recover damages from the third-party tortfeasor even if the Automobile Cost Reduction Act’s verbal threshold precludes the injured worker from recovering non-economic damages, according to the New Jersey Law Journal.

Prior to this ruling, workers’ compensation carriers were considered on the same level as plaintiffs. If the injured employee did not meet the verbal threshold, a carrier could not go after the responsible party to seek reimbursement. The only way a carrier could recover damages was by meeting the threshold or through a negotiated settlement with the third-party’s attorney.

The ruling benefits workers’ compensation insurers in New Jersey by letting them independently pursue more subrogation cases for recovery. It gives carriers a more equal voice.

It also has the potential to benefit small businesses in New Jersey. A carriers’ ability to seek reimbursement without having to meet the verbal threshold could help improve small businesses’ loss ratios – the percentage of workers’ comp expense to the premium paid. This could result in improvement of the small business’ experience modification rates. Experience modification uses the employer’s past experience to project future losses and is used to help determine the premium a policyholder will pay. In short, the ruling has the potential to reduce workers’ compensation insurance premiums for New Jersey’s small businesses.

EMPLOYERS is committed to helping small businesses operate safer, more efficient workplaces. Contact EMPLOYERS® today to learn more about our cost-effective workers’ compensation insurance.

The information provided is intended to provide a general overview. This information is not legal advice and should not be relied on as such. EMPLOYERS® makes no warranties for the accuracy, adequacy, or completeness of the information provided, and will not be responsible for any actions taken based on the information contained herein. If you have legal questions or need legal advice, please consult an attorney.