In a case of first impression, the Appellate Division held that where a public entity settles with an injured plaintiff for an at-work injury, the plaintiff's independent contractor-employer is not entitled to a credit for workers compensation payments in a subsequent indemnity suit by the public entity. In Serpa v. New Jersey Transit, a construction worker was severely injured while working on a train station owned by New Jersey Transit -- a publicly owned concern. He received some $900,000 in workers' compensation payments from his employer, the general contractor for the job. New Jersey Transit paid the plaintiff $1.5 million to settle a personal injury suit, wherein the employer was named as a third-party defendant on an indemnity claim. The employer's attorney agreed on the record that the $1.5 million was a reasonable settlement. However, after being apportioned 85% of the fault at trial on the indemnity issue, the employer sought a credit for its workers compensation payments. The trial court declined the requested relief and the Appellate Division affirmed. The court held that N.J.S.A. 59:9-2(e) precludes reimbursement to an employer from a public entity tortfeasor. Rather, the public entity or public employee receives a credit for the workers compensation payments, if a judgment is entered. Thus, in a settlement, a public entity cannot reasonably be expected to pay full value for a claim, knowing that if the case goes to trial, it will receive a credit against the damage verdict for the workers' compensation payments. This was not accounted for by the employer in consenting to the reasonableness of the settlement.

Ultimately, the lesson taught by Serpa for carriers with insureds who work with public entities is that the public entity's right to a credit for workers compensation payments made to injured employees must be taken into account before conceding as to whether a settlement proposal is reasonable. In this case, counsel for the employer should have argued that a settlement of $600,000 was appropriate.