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Appellate Court Refines Rules on Workers’ Compensation Lien Rights

By on September 23, 2015 in Key Defenses with 0 Comments

The case of Jose Moreira v. Carlos Peixoto, et. al., A-5741-12T1 (App. Div. September 10, 2015) presents a complex tale of insurance fraud that ends with an important clarification about the lien rights of an employer and the potential challenges to lien calculations by employees.

Jose Moreira was injured working privately on a house owned by a manager of Macedos Construction Company, Inc. (Macedos).  The company (Macedos) fraudulently reported to its workers’ compensation carrier, Virginia Surety Company (VSC) that Moreira was a full-time employee of the company.  In addition to this misrepresentation, Moreira signed a written statement to VSC’s adjuster stating that he was a full-time employee of Macedos who had been hired and injured on the same day, namely October 1, 2005.  Moreira also filed a claim petition asserting that he worked for Macedos when he was injured.  Based on these misrepresentations, VSC paid $260,864 in workers’ compensation benefits for Moreira.

Astonishingly, Moreira next filed a civil law suit against Macedos, alleging that he was a “business invitee” of Macedos on the day of his accident and not an employee.  He settled this case for $3.7 million against Macedos.  VSC filed a counterclaim against Macedos alleging that the company committed fraud under the Insurance Fraud Prevention Act and under the New Jersey Workers’ Compensation Fraud Act.  The jury in the fraud trial exonerated Moreira of fraud, but the jury did find Macedos guilty of fraud under both Acts.  For reasons that are unclear, the jury awarded VSC no damages for the fraud violations.  However, the judge awarded VSC $1,031,330 for counsel fees and trebled that amount under the Insurance Fraud Prevention Act.

Next VSC pressed its subrogation rights against Moreira since he recovered $3.7 million dollars in his settlement with Macedos.  Even though Moreira had filed a claim petition asserting that he was an employee, he raised a rather bold defense.  He contended that since he was not in fact an employee of Macedos, the workers’ compensation lien did not apply.  The judge ruled that Moreira could not have it both ways, stating that since “Moreira was believed to be an employee of Macedos and actually received the workers’ compensation benefits, the lien was valid even though Moreira was not an employee.”  This meant that VSC would be entitled to reimbursement of two thirds of its payments or about $172,877.

On appeal to the Appellate Division, Moreira argued both that he was not an employee and should not have to pay back the lien.  Further, he argued that VSC failed to prove that the medical costs were reasonable and necessary.  The Appellate Division rejected flatly the non-employee argument:

Here, Moreira held himself out as an employee of Macedos when he submitted the written statement to VSC’s adjuster and applied for workers’ compensation benefits.  Although the jury found he did not act fraudulently, he still received workers’ compensation benefits on his representations.  Thus, permitting Moreira to retain the workers’ compensation benefits paid by VSC would allow him to obtain a double recovery to which he had no more right than if he was a legitimate employee of Macedos.  Accordingly, we conclude that VSC has a valid lien on the settlement proceeds.

The next issue which the court considered related back to an important case, Raso v. Ross Steel Erectors, 319 N.J. Super. 373 (App. Div.), certif. denied, 161 N.J. 148 (1999).  That case focused on what payments are lienable under N.J.S.A. 34:15-40 and held that ordinarily rehabilitation nursing expenses are only lienable if the employer can prove the care benefited the employee and was reasonable and necessary.  Moreira argued that the judge improperly included in the lien calculations non-reimbursable payments made to VSC’s claims administrator and a medical case management company.

The Appellate Division made a key distinction at the outset between care selected by the employee and care selected by the carrier. “Moreira cannot argue that the workers’ compensation payments VSC made directly to him or to health care providers he selected were not reasonable and necessary to cure or relieve his injuries.”  Having said this, the court went on to discuss the differences between care chosen by the employee or by the employer/carrier:

Because N.J.S.A. 34:15-15 addresses the different issue of what an insurer can be forced to pay, and because an employee should not be able to select treatment providers and accept treatment and then claim it was unnecessary, we decline to extend Raso beyond insurer-selected medical providers.  Moreover, we do not require the insurer to carry its burden regarding insurer-selected providers until the plaintiff provides some evidence, such as a medical report or medical witness as in Raso, that the treatment was unnecessary, which Moreira did not do here.

In essence, the court held that as to care selected by Moriera, those bills could not be questioned at all regarding reasonableness and necessity.  As to care selected by the carrier, Moreira must first offer evidence that the treatment was not necessary before he can challenge the reasonableness and necessity of the care.

Lastly, the court remanded the case for a determination of whether VSC included non-reimbursable payments made to VSC’s claim administrator and a medical case management company in calculating the lien amount.  The court cautioned, “Just as ‘medical expenses’ under N.J.S.A. 34:15-40(b) should not include the salaries an insurer pays its employees for administrative work, it also should not include the fees the insurer pays an outside entity to do outsourced administrative work.”

This case is important for many reasons, and it is regrettable that it has not been published.  It offers one of the few serious discussions of the Raso case in regard to when an employee can challenge the reasonable and necessary standard with respect to lien inclusion.  It sets a new distinction between care chosen by the employee and care chosen by the carrier.  The case also provides a warning to employers to be careful not to include administrative charges in lien calculations.  For this reason, claimants’ and plaintiffs’ counsel routinely ask for a breakdown of the lien calculations to make sure the lien numbers are valid.  The case is also helpful in discussing two parallel fraud statutes, namely the Insurance Fraud Prevention Act and the New Jersey Workers’ Compensation Fraud Act.

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About the Author

About the Author:

John H. Geaney, a shareholder and co-chair of Capehart Scatchard's Workers' Compensation department, began an email newsletter entitled Currents in Workers’ Compensation, ADA and FMLA in 2001 in order to keep clients and readers informed on leading developments in these three areas of law. Since that time he has written over 500 newsletter updates.

Mr. Geaney is the author of Geaney’s New Jersey Workers’ Compensation Manual for Practitioners, Adjusters & Employers. The manual is distributed by the New Jersey Institute for Continuing Legal Education (NJICLE). He also authored an ADA and FMLA manual as distributed by NJICLE. If you are interested in purchasing the manual, please contact NJICLE at 732-214-8500 or visit their website at www.njicle.com.

Mr. Geaney represents employers in the defense of workers’ compensation, ADA and FMLA matters. He is a Fellow of the College of Workers’ Compensation Lawyers of the American Bar Association and is certified by the Supreme Court of New Jersey as a workers’ compensation law attorney. He is one of two firm representatives to the National Workers’ Compensation Defense Network. He has served on the Executive Committee of Capehart Scatchard for over ten (10) years.

A graduate of Holy Cross College summa cum laude, Mr. Geaney obtained his law degree from Boston College Law School. He has been named a “Super Lawyer” by his peers and Law and Politics. He serves as Vice President of the Friends of MEND, the fundraising arm of a local charitable organization devoted to promoting affordable housing.

Capehart Scatchard is a full service law firm with offices in Mt. Laurel and Trenton, New Jersey. The firm represents employers and businesses in a wide variety of areas, including workers’ compensation, civil litigation, labor, environmental, business, estates and governmental affairs.

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