An employer that rejects a workers’ compensation claim can still assert a lien for benefits paid to the employee while the matter was under investigation, a New Jersey appeals court says.

Wednesday’s precedential ruling in Greene v. AIG Casualty Co. reversed a worker’s comp judge’s refusal to allow the lien.

Kelly Greene, an account analyst for AIG Casualty Co., claimed she injured her knee on June 5, 2009, when she slipped in the lobby of the building where she worked because the floor was wet from the rain. AIG initially denied the claim and told her to send her medical bills to her health insurer.

Several days later, it authorized her to get medical and temporary disability benefits, citing a statutory proviso that allows employers to pay for care without waiving the right to contest liability.

About 10 weeks after that, AIG asserted a lien against any sum Greene might recover from a third party.

Greene subsequently filed a workers’ compensation claim, alleging she hurt her knee on the job.

AIG responded that the matter was under investigation but kept paying the benefits.

Later, however, it amended its answer, denying that the injury occurred in the course of employment and moved to dismiss the claim.

By that point, Greene had received $118,805 in benefits.

Greene countered with a motion seeking to compel AIG to keep paying her medical bills.

She followed up with another a few months later to bar AIG from asserting a lien, offering to concede lack of coverage in exchange for AIG’s waiver of its statutory subrogation rights to go after her $225,000 settlement with the building owner.

She contended that AIG could only assert the lien if her injuries were deemed compensable under the workers’ compensation law. If not, no lien.

workers’ compensation Judge Rose Mary Granados agreed, holding that section 40 of the workers’ compensation statute, which allows assertion of the lien, does not apply to claims for which coverage is denied.

“If the claim is determined not to be compensable, the section is inapplicable. If it is compensable, the section applies,” reasoned Granados. “Either we try the matter of compensability or [AIG] relinquishes its lien.”

Granados’ order dismissing the case provided that the $225,000 be held in escrow for 45 days pending a possible appeal.

In reversing, the appellate court discussed the history of the lien, which kicks in only where the recovery from the third party equals or exceeds the benefits received, and is meant to prevent double recovery by the employee.

Appellate Division Judge Allison Accurso, joined by Jane Grall and Ellen Koblitz, wrote that nothing in the law “conditions reimbursement of the claim from a third-party settlement on whether the benefits the employer paid were owed in the first place.”

Thus, AIG was entitled to recover the benefits it paid, minus the expenses and legal fees from the personal-injury action.

The result was further justified on the policy ground that it encourages employers to make prompt, voluntary payments to injured workers.

Accurso mentioned that other states, including Idaho and Minnesota, have reached the same conclusion.

She rejected Greene’s argument that AIG’s payment of benefits penalized her because her health insurer would otherwise have paid, noting that sums paid under her health plan would have been deducted from a tort judgment under the collateral source rule.

John Geaney of Capehart & Scatchard in Mount Laurel, who represents AIG, says he was surprised there was no case directly on point even though the workers’ compensation law is 100 years old.

The author of a workers’ compensation manual for the New Jersey Institute of Continuing Legal Education and of the New Jersey Workers’ Comp Blog, Geaney remarks, “I thought it was settled law but couldn’t find a case where this had actually been litigated.”

Greene’s attorney, John Jasieniecki of Green, Jasieniecki & Riordan in Florham Park, did not return a call.