Judge Jack Sabatino, New Jersey Appellate Division (Photo: Carmen Natale)

A New Jersey appeals court has ruled that a regulation exempting high-low agreements from a mandate on reporting medical malpractice settlements to state agencies doesn’t protect the proceeds of such accords from a workers’ compensation lien.

The Appellate Division in a published decision Wednesday affirmed a ruling that injured plaintiff Paolo Marano was not exempt from attachment of a $34,000 lien to the $250,000 he received under a high-low deal in his suit against an orthopedic surgeon.

At issue on appeal was a statute requiring medical malpractice carriers to notify the state Medical Practitioner Review Panel of any medical malpractice claim settlements, judgments or arbitration awards.

A 2009 revision to the accompanying regulation, N.J.A.C. 11:1-7.3 (a)(1), says the notification requirement does not apply to payments made under high-low agreements. The revision was made to avoid “misleading” circumstances where a settlement is reported, even though the defendant-doctor is found not to be negligent by the fact-finder, the court noted.

“Neither the proposal to revise the regulation in question nor its adoption in the New Jersey Register mention any impact of the regulation upon the ability of an employer or insurer to enforce a workers’ compensation lien,” Judges Jack Sabatino, Mitchel Ostrer and Lisa Firko said in Marano v. Schob, M.D. “In fact, the proposal explicitly noted the amendment would ‘have little or no economic impact on insurers,’” Sabatino wrote for the panel.

According to the court, plaintiff Marano was a police officer in Union Township who sustained injuries in a work-related accident in July 2012. His suit claimed that orthopedist Clifford Schob failed to properly diagnose his condition and to advise him to visit the emergency room. While undergoing rehabilitation, Marano received workers’ compensation benefits totaling $51,779.

Marano sued Schob and Comprehensive Orthopedics for medical malpractice in September 2012. The parties entered into a high-low agreement calling for the plaintiff to receive at least $250,000 and no more than $750,000, and they also agreed to subject the malpractice claims to binding arbitration. After a two-day hearing in January 2016, the arbitrator found no cause of action and dismissed the claim against Schob and Comprehensive.

Per the high-low agreement, Marano received $250,000, and the workers’ compensation lien was estimated at $34,000.

Marano claimed the no-cause outcome of the arbitration had the effect of extinguishing the workers’ compensation lien. Claims administrator PMA Cos., acting on behalf of Garden State Municipal Joint Insurance Fund, disagreed, asserting that the $250,000 that Marano received would be an improper “double recovery,” if the lien was not satisfied.

In November 2016, Marano filed a complaint in the Law Division, seeking a declaration that the “low” payment under the high-low agreement was not subject to the lien. In March 2017, Essex County Superior Court Judge L. Grace Spencer denied Marano’s application, ruling that payments made pursuant to high-low agreements are to be treated as settlements under the lien statute.

Marano appealed and claimed before the Appellate Division that, as a matter of law, the 2009 revision to the reporting regulations required the “low” payment to be exempt from PMA’s lien.

He also argued that the Appellate Division’s 2008 ruling in Pool v. Morristown Memorial Hospital was wrongly decided and should be reconsidered. In Pool, the court said a payment to the plaintiff from a defendant physician in a medical malpractice suit as the negotiated “low” figure was subject to a lien, even though the jury rendered a no-cause verdict.

Marano claimed that the Pool analysis was negated by the 2009 adoption of new regulations. He further asserted that public policies underlying the adoption of the 2009 regulations are thwarted by allowing “low” payments to be subject to workers’ compensation liens. A primary reason for the regulations, Marano claimed, was to give doctors an incentive to enter into high-low deals, and he contended that fewer high-low deals would be negotiated, if Pool is permitted to stand.

“[F]uture plaintiffs will have to demand higher ‘low’ figures to take into account lien obligations,” Marano also argued, according to the opinion.

The concern underlying the 2009 amendment, about misleading the public in cases where a no-cause result still yields a settlement payment, “has no relationship to a common carrier’s rights” to impose a lien on the recovery, Sabatino said.

Even accepting the “premise that fewer high/low agreements will be negotiated if the ‘low’ award is deemed subject to” a lien, it “does not negate the strong public policies … recognized in Pool,” Sabatino wrote.

Christopher Carlson of Capehart Scatchard in Mount Laurel, who represented insurance carrier PMA, said the opinion may have been approved for publication in order to reaffirm support for the Pool verdict and to reiterate the commitment to preventing double recovery.

E. Drew Britcher of Britcher Leone in Glen Rock, who represented Marano, did not return a call about the case.