Beware of Model Tunnel Vision

LEVERAGING LEGACY LIABILITY www.airroc.org Vol. 10 No . 1 Spring 2014

FIO UPDATE • EXCHANGES RISE AGAIN? • NEGOTIATE SECRETLY • PA COMP SUBRO MYERS IN THE SPOTLIGHT • OUR ILLUSTRIOUS ILLUSTRATOR • AIRROC/IAIR FORUM LEGALESE PA Workers’ Compensation Law Statutory Right to Subrogation

Very few employers and their 566 Pa. 420, 781 A.2d 1146 (Pa. 2001). Provision Co.), 152 Pa. Cmwlth. 559, 620 insurers would rank Pennsylvania Subrogation recovery under Pennsylvania A.2d 550 (Pa. Commw. Ct. 1993). law means that an employer who issues as a favorable forum for workers’ 4. Employer’s Partial Responsibility for workers’ compensation payments to an Injury – The employer’s statutory right to compensation claims. Yet, injured employee can recover such pay- subrogation may not be challenged by an subrogation recovery remains ments from the injured employee when the allegation that the employer was partially employee obtains a settlement and/or ver- a well-protected right of relief responsible for the employee’s injury. dict award from the alleged tortfeasor(s) Heckendorn v. Consol. Rail Corp., 502 Pa. for employers and their insurers in an action arising from the same inci- 101, 465 A.2d 609 (Pa. 1983). in this Commonwealth. The dent as the compensable work injury.1 5. Laches – Laches, an equitable doctrine effectiveness of subrogation as a The classification of subrogation rights as which serves to bar a party from seeking right of recovery in Pennsylvania statutory, rather than equitable, is a monu- relief when he fails to do so in a timely mental distinction. Subrogation derived is due to its statutory genesis. manner, is not applicable to the statu- from common law equity is subject to tory right of subrogation. Superior Lawn This article emphasizes the equitable limitations, whereas subrogation Care v. WCAB (Hoffer), 878 A.2d 936 (Pa. positive impact of Pennsylvania’s recovery derived from statue is unassail- Commw. Ct. 2005). able to most equitable challenges. statutory scheme in protecting In affirming the employer’s absolute statu- the subrogation recovery rights of Equitable Challenges Thwarted tory right of subrogation against equitable employers and their insurers. challenges, the Pennsylvania Supreme Pennsylvania courts have consistently Court in Thompson v. WCAB (USF&G), rejected equitable challenges to an em- 566 Pa. 420 781 A.2d 1146 (2001), reasoned: Statutory Foundation ployer’s right to subrogation recovery un- “The General Assembly already having weighed the equities, it would be inappro- The concept of subrogation is based on der the Act. In upholding this “absolute” priate for this Court to approve of ad hoc two general equitable principles (i.e., fairness): statutory right, the courts have rejected the following arguments as bases for equitable exceptions to subrogation.” 1. To prevent a claimant from receiving eliminating or reducing the employer’s Despite the straightforward statute, payment twice for the same injury (“dou- subrogation recovery: backed by unwavering support from the ble recovery”) and; 1. Lack of Cooperation – The employer’s Pennsylvania appellate courts, equitable 2. To ensure that the party at fault is ul- failure to cooperate with the employee in challenges may continue to be raised by timately held responsible for the injury the third party action does not bar or re- claimants seeking to protect their double claimed. duce the employer’s subrogation recovery. recovery. Such challenges may occur in While subrogation is conceptually rooted Winfree v. Phila. Elec. Co., 520 Pa. 392, 554 the workers’ compensation forum and/or in equity, subrogation rights under Penn- A.2d 485 (Pa. 1989); Kelly v. WCAB (A-P- in third party forums. sylvania law are directly derived from stat- A Transport Corp.), 107 Pa. Cmwlth. 223, ute under Section 319 of the Pennsylvania 527 A.2d 1121 (Pa. Commw. Ct. 1987). The Shield of Exclusivity Workers’ Compensation Act (the “Act”). 2. Lost Evidence/Spoliation – The loss of Employers and their counsel may be Section 319, in relevant part, provides: evidence by the employer, which would faced with various challenges from op- posing counsel in the civil forum, as well Where the compensable injury is have assisted plaintiff in his third party as civil litigation judges, and/or mediators caused in whole or part by the act claim, does not serve to bar the employer’s concerning the rights and/or amounts or omissions of a third party, the right to subrogation. Thompson v. WCAB of subrogation recovery. Fortunately, the employer shall be subrogated to the (USF&G Co.), 566 Pa. 420, 781 A.2d 1146 absolute statutory right of subrogation right of the employee, his personal (Pa. 2001); Glass v. WCAB (City of Phila.), is further protected by the exclusivity representative, his estate or his de- 61 A.3d 318 (Pa. Commw. Ct. 2013). provisions of the Pennsylvania Work- pendents, against such party to the 3. Subrogation Recovery Should be Re- ers’ Compensation Act, which serve as a extent of compensation payable un- duced by Claimant’s Comparative Negli- shield to protect against adverse decisions der this Article by the employer…” gence – A claimant’s right to recovery in by outside forums. See, Section 303(a) of 77 P.S. sec. 671 (emphasis added). a third party action, reduced by his own the Pennsylvania Workers’ Compensation The extent of compensation paid equals comparative negligence, does not reduce Act, as amended. medical expenses plus indemnity benefits. the employer’s right to recovery of the full lien amount. Goldberg v. WCAB (Girard 1 Under Section 401 of the Act, the term “employer” See Thompson v. WCAB (USF&G Co.), includes its “insurer”. 77 P.S. sec. 701.

AIRROC MATTERS / SPRING 2014 PA Workers’ Compensation Law John J. Muldowney

Statutory Right to Subrogation A few examples of the effects of the exclu- Minnesota, New Mexico, Texas, and sivity shield are referenced below: …it is of little recourse to Utah. Id. 1. Civil Courts May Not Determine a assert the absolute right of States in which equitable limitations Waiver of the Subrogation Lien – Failure subrogation long after the based on the nature and/or amount of of the workers’ compensation carrier to damages recovered include: Arkansas, appear at a third-party common pleas claimant has spent his third Colorado, Georgia, Kansas, Massachu- pre-trial conference does not serve as party settlement funds. setts, Michigan, New Mexico, and South a waiver of the employer’s subrogation Carolina. Id. In summary, these states rights, even when the court of common ------limit the recoverable amounts from sub- pleas had found that such conduct served rogation to medical expenses and wage as a waiver. Romine v. WCAB (CNF, Inc.), Regardless of any representations or deter- loss, while disallowing recovery from 798 A.2d 852 (Pa. Commw. Ct. 2002). minations by any third party forums, the third party damages that are non-eco- determination of whether an employer/ nomic such as pain and suffering. 2. Denial of the Subrogation Right in a insurer is entitled to subrogation remains Civil Forum Does Not Prevent Subrogation within the exclusive jurisdiction of the Preserving the Actual Recovery Recovery – No res judicata/collateral workers’ compensation authorities. Thus, estoppel effect arises from a civil court any determinations outside of the workers’ While Pennsylvania provides a more ex- decision regarding determination of an compensation forum have no effect on the pansive base of subrogation recovery than employer’s subrogation rights. The denial employer’s subrogation rights. many other states, it is of little recourse of the employer’s subrogation right in a to assert the absolute right of subrogation civil forum does not bar the employer Pennsylvania Compared long after the claimant has spent his third from asserting such right in the Workers’ with Subrogation Schemes party settlement funds. Compensation forum. PMA Ins. Grp. Third party actions should be closely v. WCAB (Kelley), 665 A.2d 538 (Pa. of Other States monitored by the employer and/or their Commw. Ct. 1995). As with Pennsylvania, the analysis of the counsel to determine the status of a third party action and evaluate potential re- 3. Even a Verdict in Favor of Defendant right to subrogation recovery by employ- May Not Extinguish an Employer’s ers in other states begins with the statutes covery. A written agreement should be Subrogation Rights – A verdict in favor of each individual state. However, the obtained from the claimant’s third party of the defendant, where the parties means by which subrogation can be ob- counsel to escrow funds from the third had entered into a high/low settlement tained and the limitations on the recovery party settlement/award prior to satisfac- agreement with a guaranty to the can vary greatly from one state to the tion of the lien. Absent a written agree- claimant of recovery regardless of the next. Many states, by statute and judicial ment, the claimant’s third party counsel is jury verdict, does not extinguish the interpretation, provide limitations based under no legal or contractual obligation employer’s right to recovery under on the percentage of employer liability to protect the lien of the employer. CNA such a settlement agreement. Id. for the alleged injury and/or provide eq- Ins. v. Ellis and Weiss, 764 A.2d 1118 (Pa. uitable limitations of recovery under the Super. Ct. 2000) (published without opin- 4. Molding of a Verdict or Settlement in “made whole doctrine”. The Made Whole ion). Mere notification to the claimant’s a Third-Party Action Does Not Limit Doctrine, Gary L. Wickert, Esq. third party counsel of the workers’ com- the Rights of Recovery – A molding of The statutes of Pennsylvania’s neighboring pensation lien is not enough to impose a verdict or settlement to include only states of Delaware, New Jersey, and New an obligation on claimant’s third party recovery of pain and suffering damages York, are similar to Pennsylvania in provid- counsel to protect the lien. Id. does not eliminate the employer’s right to ing subrogation recovery without reduc- In the event that claimant’s third party full subrogation of its lien. Bumbarger v. tion for employer liability and/or equitable counsel will not sign a written agreement Bumbarger, 190 Pa. Super 571, 155 A.2d limitations. Workers’ Compensation in All to protect the subrogation lien, an attor- 216 (Pa. Super. Ct. 1959). 50 States, Gary L. Wickert, Esq. The New ney should be retained to represent the York statute does, however, provide that an 5. The Filing of a Post-Verdict Action employer’s interest in subrogation recov- Does Not Stay Subrogation Recovery – action can be brought against an employer ery. It may be necessary for the employer’s for contribution when the injury, as de- The claimant’s filing of a post-verdict attorney to intervene in the third party fined by statute, is a “grave injury”. Id. complaint for abuse of process, allegedly action to ensure recovery of the lien in ad- arising from the underlying third-party States in which the employer’s liability vance of the distribution of the third party action, does not serve to stay the employ- for an injury provides a percentage based award or settlement. At the very least, a er’s right of subrogation recovery. Stout reduction in the amount of subrogation stipulation should be obtained from the v. WCAB (Pensbury Excavating, Inc.), 948 recovery, include: Alaska, Arizona, claimant’s third party counsel confirming A.2d 926 (Pa. Commw. Ct. 2008). California, Idaho, Kentucky, Louisiana, agreement to the lien distribution.

AIRROC MATTERS / SPRING 2014 LEGALESE

PA Workers’ Compensation Law (continued)tlements Conflict?

Recovery and Settlement tion lien might be advisable. Under these Pennsylvania Workers’ Compensation Act, circumstances, the employer’s workers’ as confirmed by the relatively consistent The issue of subrogation recovery often compensation representative should be decisions of the Pennsylvania courts. To arises during settlement negotiations of apprised of settlement negotiations and/ maximize recovery under this right it is the pending third-party litigation. In at- or even involved in a settlement con- important to recognize the types of third tempting to obtain a settlement of the ference. Of course, such participation party recoveries subject to subrogation, third party action, counsel for both the should be entered into with caution, with know the limitations of such recoveries third party plaintiff and defendant (and the exclusivity protections of the workers’ and preserve the actual subrogation even the third party judge) may place compensation asserted. recovery by assistance from counsel when pressure on the employer to compromise necessary. l its subrogation lien. In responding to To achieve maximum subrogation recov- such pressures it should be kept in mind ery it may be advisable to retain and con- that 1) The employer is under no obliga- sult with counsel to evaluate the potential tion to compromise; and 2) the ultimate value of the third party recovery, monitor John “Jack” Muldowney goal is to obtain the maximum amount of the third party action, confirm agreement is a Partner in the subrogation recovery. Accurate analyses to lien protection, intervene if necessary, Yardley, PA office of Hill of both the liability and anticipated dam- participate in third party settlement con- Wallack LLP, where he is a ages in the third party case are essential ferences, and follow up with a petition in member of the Complex for determining whether a lien should be the workers’ compensation forum to ef- Litigation and Workers’ compromised to effect settlement. fectuate lien recovery. Compensation practice groups. jmuldowney@ In civil cases involving a significant work- Conclusion hillwallack.com ers’ compensation lien, with less than certain civil liability, an agreed upon Subrogation recovery remains a well- compromise of the workers’ compensa- protected statutory right under the

AIRROC MATTERS / SPRING 2014