Appellate Division Affirms Waiver of Section 40 Lien Rights by Employer

In the unreported decision of Tomaselli v. Petco, No. A-2252-24 (App. Div. March 3, 2026), the Appellate Division held that an employer waived its remaining Section 40 lien rights even though it did not explicitly state it was doing so.

The case involved a store manager who was struck by a motor vehicle while collecting shopping carts in the store’s parking lot.  The claim was admitted as compensable and Section 40 lien rights were reserved in the employer’s answer.

The employee initiated a third-party claim and recovered $85,000.00 from the tortfeasor, as well as $15,000.00 from his UIM carrier.  Therefore, his total recovery was $100,000.00.

The employer’s claims administrator sent a letter to petitioner regarding their lien and Section 40 rights.  At the time of that letter, the total lien for medical and indemnity payments was $177,084.30.  The letter further stated “We have agreed to accept $33,333.33” representing 1/3 of the total recovery in the third-party and UIM case.

The employee’s attorney then sent respondent’s administrator a check for $33,333.33, along with a letter stating that the check represented the “full and final payment of any outstanding worker’s compensation lien, in connection with the above referenced claim.”  The administrator accepted and cashed the check.

At the Workers’ Compensation trial, respondent sought a ruling that it had remaining Section 40 credits to be applied to any award of permanent disability.  After reaching a finding that petitioner sustained disability in the amount of 55% of partial total, with a credit of 25% of partial total for prior functional loss, the Judge held that the $33,333.33 payment by petitioner represented the full extent of the Section 40 lien, and any further recovery had been waived.  In reaching this finding, the Court noted the established practice of parties often compromising liens for 1/3 of the third-party recovery and that this seemed to be the intent of the parties here.  Notably, the Court pointed out that when the administrator sent its lien letter, it did not reserve any future rights and petitioner’s attorney’s letter clearly set forth their intent that the payment was made in “full and final” satisfaction of the lien.

The Appellate Division affirmed this ruling, finding that under the circumstances of the case, respondent had waived its right to further lien recovery.  Of importance to the Appellate Division was the wording of petitioner’s letter indicating a full and final payment of the lien, followed by the administrator’s conduct in accepting and endorsing the check, rather than objecting to the language.

In practice, third-party claims often settle while the worker’s compensation claim is still pending and employers are asked to accept 1/3 of the settlement.  Although the Tomaselli decision is unreported, it is an important reminder for employers and their administrators to clarify whether or not they are agreeing to accept the 1/3 payment and, if so, whether remaining lien credits are being waived.  If no such waiver is intended, that should be clearly communicated to the petitioner’s attorney in order to avoid any confusion and potential surrender of remaining lien rights.