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In Thomas v. City of East Orange, Docket No. 1-1468-10 (App. Div. 2011), the Appellate Division panel, Judges Reisner and LeWinn, affirmed the trial court’s ruling, holding an injured employee does not have to reimburse an employer or carrier for monies paid on a workers compensation claim when the third-party tortfeasor is a public entity..

The plaintiff, a police officer in the City of East Orange, was injured while driving a vehicle on the job. He obtained coverage for his injuries through the City, which was self-insured for workers compensation purposes. In addition to his workers compensation action, he filed suit against the City of Newark and the County of Essex for negligence and obtained a settlement. The lawsuit did not seek recovery for medical bills or lost wages and further, the settlement did not allocate any funds for those expenses and losses. By virtue of N.J.S.A. 59:9-2(e) and Travelers Insurance Co. v. Collella, 168 N.J. Super. 412, 416 (App. Div. 1979), plaintiff was actually barred from recovering an award from a public entity for medical bills or lost income that would be otherwise recoverable through workers compensation. N.J.S.A. 59:9-2(e) provides, in pertinent part, “No insurer or other person shall be entitled to bring an action under a subrogation provision in an insurance contract against a public entity or public employee.”

After plaintiff’s settlement with the public entity tortfeasors, East Orange sought subrogation from the plaintiff for the amount paid on the workers compensation claim and placed a lien on the settlement proceeds, pursuant to the Workers Compensation Act, N.J.S.A. 34:15-40(d). The Act provides that an employer or its compensation carrier may obtain reimbursement, out of an employee’s settlement with a third party, for any monies the employer or carrier made to the employee.

Plaintiff filed a motion for summary judgment. The trial court judge, The Honorable Michael E. Casale, in a written opinion, held “where, as here, a public entity is the third-party tortfeasor, the Tort Claims Act (TCA), N.J.S.A. 59:9-2(e), bars subrogation by the employer or its worker’s compensation carrier.” The Appellate Division adopted Judge Casale’s opinion, adding that, “It is clear N.J.S.A. 34:15-40 not only permits subrogation recovery from the employee, but would allow a lawsuit directly against the third-party tortfeasor. However, in enacting the TCA, the Legislature intended that the cost of worker’s compensation payments should not be shifted to a public entity that happened to be a third-party tortfeasor. Instead, those costs were to be absorbed by the workers compensation insurance.”

The opinion continues that, as a practical matter, litigants who settle third-party suits often request higher settlement amounts, contemplating the subrogation aspect of the settlement. However, in a case where the third-party tortfeasor is a public entity, this would result only in higher payments for the citizens of the state, which is not consistent with the goals of the Tort Claims Act. Furthermore, “allowing subrogation where the employer and tortfeasor are both public entities would authorize one public entity to sue another, resulting in litigation costs to both, and, at best, an eventual shift of funds from one taxpayer funded pocket to another. Again, that result would be counterproductive and inconsistent with the purpose of the TCA.”