409 Union Avenue
P.O. Box 539
Middlesex, New Jersey 08846-0539

Of Counsel
Fred S. Brause, Jr.

The discussion below is now amended by the March, 1999 release of the Appellate Division case of Raso v Ross Steel Erectors. This case settles the issue of the applicability of Section 40 lien credits to "rehab" charges in favor of the respondent. In the Raso case, the "rehab" nurse performed such functions as scheduling medical provider exams, arranging therapy and counseling, secured transportation for the patient, attended team meetings and so on and so forth. The Appellate Division agreed with the trial judge that these services were part and parcel of "curative" treatment and were reasonable and medically necessary. Under the circumstances the respondent was permitted to include the "rehab" expenses as part of the lien and is entitled to applicable lien credit reimbursement out of the third party recovery. In any case in which a respondent has such rehab vendor charges for services substantially similar to those mentioned above in the Raso case, the respondent will want to be sure to include such charges in the Section 40 lien and seek reimbursement accordingly.

TITLE: Prosper Through "Lien" Times:

Simplifying New Jersey Workers’ Compensation Subrogation

For years, even some of the most experienced compensation attorneys and workers’ compensation claim handlers have at times fallen victim to the consternation created over the workers’ compensation lien topic in New Jersey (the Section 40 lien). While some have found this issue to be fraught with confusion, it is one that we may all master with a little time, experience and a working calculator.

Let us start with a background discussion of Section 40. N.J.S.A. 34:15-40 (Section 40) allows respondents to assert lien credits against third party awards. The intent is to prevent double recoveries. If the third party recovery is equal to or in excess of the compensation lien, and so long as the respondent has properly perfected the lien, the respondent is entitled to reimbursement of the lien less the percentage of counsel fee received by the plaintiff’s attorney in a third party action (minus $200.00 for cost of suit). For instance, if the third party attorney’s fee is 33-1/3% of the award, the respondent is entitled to 66-2/3% reimbursement of the lien less the $200.00 for cost of suit (assuming in fact at least $200.00 for cost of suit). As another example, if the third party counsel fee is only 25%, the lien reimbursement will be 75%.Under our case law, the percentage of the lien reimbursement is in direct proportion to the counsel fee percentage.

As of September 1, 1996, the New Jersey Court Rules allow plaintiff’s attorneys a one-third fee up to a $500,000.00 recovery. As a practical matter, since most third party awards are under $500,000.00 and usually involve a one-third fee to the plaintiff’s attorney, Section 40 lien reimbursement usually involve a two-thirds reimbursement of the lien (less $200.00 cost of suit). It is for this reason that carriers usually speak of "getting two-thirds back". Bear in mind that you may be entitled to more than a two-third reimbursement depending upon the counsel fee percentage.

As mentioned above, the September 1, 1996 amendments to the New Jersey Court Rules allow a one-third fee up to the first $500,000.00 of a third party award. The plaintiff’s attorney may accept up to 25% of the next $250,000.00 of recovery and afterwards is entitled to 20% of the next $500,000.00 of recovery. In those large third party awards which exceed $l,250,000.00 any counsel fee over that amount must be set by the Courts.

IT IS OF UTMOST IMPORTANCE TO KEEP IN MIND THAT THE LIEN MUST BE "PERFECTED". THIS MEANS THAT YOU MUST USE CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO SERVE NOTICE OF YOUR LIEN (THE "LIEN LETTER") ON THE THIRD PARTY OR PARTIES. In addition to serving the third party with your lien letter, it is advisable to likewise serve the lien letter on the plaintiffs’/petitioners’ COUNSEL by certified mail, return receipt requested.

When a third party case has settled or is about to settle, to finalize your lien reimbursement you must know the following:


On occasion circumstances arise in which carriers find justification to compromise the Section 40 lien. For the purposes of this review, I will not go into the pros and cons of compromising or not compromising the lien. A word of caution, however, in any case in which you have acceded to a compromise of the lien to date. You want to be sure to spell out in writing with the plaintiff’s attorney that your compromise of lien pertains only to your lien amount at the time of the agreement to compromise and is not a compromise on future lien credits (unless, of course, there is that rare instance in which you have in fact agreed to waive or compromise future lien credits).

Again, in the event you agree to a compromise of your lien to date and the third party settlement is in excess of the lien to date, you want to be sure that there is no doubt at all that you will assert full lien credits for any payments over and above the amount of the lien at the time of the third party settlement and at the time of your agreement to compromise.

LET US NOW TURN TO THE $64,000.00 QUESTION: What are the compensation payments which properly comprise the Section 40 lien?

A respondent may properly seek Section 40 lien reimbursement for payments for temporary disability, permanent disability and medical treatment. The Section 40 lien must be calculated to include only expenses in these three areas.

Medical expenses which are not part of treatment must not be included in the lien. PLEASE BE SURE NOT TO INCLUDE IN THE LIEN YOUR PAYMENTS FOR DEFENSE MEDICAL EXPERT/"IME" PERMANENCY EVALUATIONS. With the typical New Jersey formal compensation claim, permanency exams will be scheduled with experts who will evaluate permanent disability. These experts will also testify on your behalf if necessary. The charges for such exams by "forensic experts" are not recoverable under Section 40.

There may be "gray areas". Consider this hypothetical question: A carrier seeks an opinion by a recognized "IME" physician who does not evaluate permanency at the time of the exam but instead advises of a need for further treatment. Should the cost of that exam be considered "treatment" and included in the lien? An argument may be made that this particular evaluation is diagnostic in nature and thus part of a course of curative and restorative treatment. TO AVOID CHARGES OF MISCALCULATING THE LIEN, HOWEVER, I WOULD URGE THAT ANY EXPENSE WHICH RAISES ANY QUESTION OF WHETHER OR NOT IT PERTAINS TO "TREATMENT" SHOULD BE CAREFULLY REVIEWED (PERHAPS IDEALLY WITH ADJUSTER AND SUPERVISOR). ANY EXPENSE OTHERWISE WHICH RAISES DOUBT ABOUT LIEN RECOVERABLITY SHOULD BE DOUBLY SCRUTINIZED BEFORE ADDING THE CHARGE INTO THE LIEN.

Lien figures submitted by carriers in the past have been challenged by plaintiffs/claimants in cases in which the carrier improperly included in the lien the costs of defense "IME" exams.

In other instances, carriers have been challenged by including in the lien amounts paid to vendors for auditing of treatment expenses. Most carriers and third party administrators routinely contract with professional medical auditors who examine all medical bills. Obviously the purpose is to ensure that the medical providers are not overcharging.

In the past it has also been claimed that carriers have included in the lien charges paid for auditing of treatment expenses. Many carriers and third party administrators routinely contract with professional medical auditors who examine all medical bills. Obviously the purpose is to ensure that the medical providers are not overcharging. Such vendors police the charges of the providers but are not hands on providers themselves. It is my considered opinion that the plaintiff’s Bar would have strong ground to contend the charges of the medical bill auditors are not a treatment expense and should not be a part of the Section 40 lien. We realize nevertheless that the petitioner does benefit if the medical auditors succeed in lowering the treatment charges (as the reduction of the bill and the corresponding reduction of the lien means all the less the petitioner will have to repay).

Perhaps the greatest area of controversy is the inclusion in the lien of charges of so-called medical management or "rehab" vendors. Experience shows that virtually all carriers in the past have considered such charges to be part and parcel of the medical treatment and in turn have included such expenses in the lien. The counter-argument from the plaintiffs’ Bar include contentions that such vendor services were provided for "cost containment" and not actual hands-on curative treatment. The further argument is that such charges are an administrative expense only. As we well know, in claims involving long term disability, such nurse/rehab vendors may be assigned to a claim for months on end. In such instances, the charges can be substantial. The vendors’ bills will include travel time, phone call to carriers, doctors and counsel, arrangements for IME exams and so on.

I am aware of no reported case which has decided the issue of whether or not the "nurse/rehab" charges may or may not be included in the Section 40 lien. You should, therefore, remain prepared to back up any and all charges included in the lien. I URGE YOU TO SCUTINIZE ALL CHARGES SO THAT YOU MAY TAKE A REASONED POSITION ON INCLUDING OR EXCLUDING ANY CHARGES IN THE LIEN. WHERE THERE IS ANY DOUBT, A CAREFUL REVIEW OF THE CHARGES SHOULD TAKE PLACE.

I am informed, however, that at least in the State of Pennsylvania there has been a determination that the charges for such medical management vendors may not be included in the workers’ compensation lien.

Obviously there are instances in which a vendor such as a "nurse/rehab" entity may be involved in actual treatment. For instance a visiting nurse who travels to the home of the injured worker to give injections, change dressings, and otherwise provide "hands-on" care would certainly appear to be an actual treatment provider.

Lastly, keep in mind that RESPONDENTS’ SHARES OF ASSESSMENTS at the final hearing are NOT part of the lien. These respondents’ assessments include respondents’ share of counsel fee to petitioner’s attorney, respondents’ share of fees to petitioner’s medical experts and respondents’ share of interpreter fees and the stenographic fee. Again these respondents’ assessments are not recoverable.

Brushing up on the Section 40 lien area will help maintain your conscientious record of compliance with Section 40 lien requirements. This will help ensure that both claimants and respondents receive the proper entitlement under Section 40. You will want to be able to continue to fully back up all expenses comprising the lien as being proper and legitimate. You should remain prepared to furnish full itemization of every lien charge. I know you will want to continue to exercise great care to safeguard the entitlement of both carrier and claimant.

I will certainly be happy to discuss any further questions.

Thank you!

P.S. As noticed at the outset, please be reminded that the March, 1999 Appellate Division case of Raso v Ross Steel Erectors has now favorably settled the question on the applicability of lien reimbursement for medical rehab vendors. In Raso the "rehab" nurse scheduled transportation for the patient, arranged treatment, secured nursing care, attended team meetings and so on and so forth. In any case in which a respondent has substantially similar rehab services you will want to be sure to include the reasonable expenses for such services in the Section 40 lien and seek reimbursement accordingly.