It’s important for workers’ compensation practitioners to understand the nuances of navigating third-party settlements, in order to understand how to subrogate money from third-party suits and to set realistic expectations when employer negligence is at issue.
Whether it’s an auto accident or product liability, the fact remains that personal injury suits often concurrently run alongside workers’ compensation claims. While both may evolve over time, workers’ compensation defendants need to know how to subrogate against third-party suits.
WHAT DO I DO? THE THIRD PARTY HAS SETTLED WITH THE APPLICANT/PLAINTIFF
Almost universally, third-party settlement and release agreements contain a clause that the applicant/plaintiff is responsible for any and all liens including the workers’ compensation lien.
Therefore, the applicant/plaintiff cannot “settle around” the carrier because the workers’ compensation insurance carrier is a third-party beneficiary to the settlement and release agreement.
If the applicant/plaintiff refuses to resolve the subrogation lien pursuant to the language in the third-party settlement and release agreement, a separate lawsuit can be filed against the applicant/plaintiff pursuant to Labor Code section 3860(c).
NOTICE OF LIEN
If the carrier only files a Notice of Lien in the third-party civil action, the subrogation lien is subject to a contingency fee reduction plus costs before reimbursement to the carrier.
Therefore, the applicant/plaintiff’s attorney can reduce the subrogation lien by 40% plus costs before reimbursement.
COMPLAINT-IN-INTERVENTION
The better litigation strategy is to file a complaint-in-intervention. Then there is no automatic 40% reduction plus costs to the subrogation lien. Further, and more importantly, if the carrier files a complaint-in-intervention, then it is a party to the third-party civil action then the workers’ compensation carrier can continue any litigation against the third-party carrier, even if the third-party carrier settles with the applicant/plaintiff.
Please note, third-party insurance carriers want a global settlement with the plaintiff and the plaintiff-in-intervention. But again, if the carrier is a plaintiff-in-intervention it can continue to litigate the subrogation lien as appropriate.
FEHA CLAIMS
Discrimination claims against the employer pursuant to the Fair Employment and Housing Act (FEHA) have no effect on subrogation. Subrogation involves personal injury claims against a third-party, not the employer.
FEHA claims for discrimination are against the employer. It is simply a separate civil claim against the employer, which is usually not covered under any workers’ compensation liability policy that the employer may have. If it is covered under a liability policy, there is usually a large deductible/self-insured retention (generally $250,000).
EMPLOYER NEGLIGENCE
The real impediment to subrogation recovery is employer negligence. The applicable law is Arbaugh v. Procter & Gamble Manufacturing Co. (1978) 80 Cal 3d 500. It states that there is a formula to be applied to determine the recovery amount to the carrier.
First, determine the value of the third-party civil case (individual applicant/plaintiff). There are many ways to do this: amount of settlement, medical costs, testimony of experts in the civil case.
Second, what is the percentage of employer negligence out of 100%?
Third, multiply the employer negligence times the case value and this figure becomes the “threshold”.
Example: The civil case is worth $100,000.00. The employer negligence is 25%. The carrier cannot collect any monies below their payout of $25,000.00 (which is 25% of $100,000.00). This avoids double recovery for a negligence employer. In other words, the carrier can only collect monies spent above the threshold amount of $25,000.00.
To establish the credit, you have to conduct a mini-civil trial at the Board, which is pretty rare for workers’ compensation judges to do.
The employer or workers’ compensation carrier insurer has the burden of showing (1) that there has been a settlement between the injured employee and a third-party tortfeasor entitling it to a credit, and (2) the comparative negligence of the injured employee or the third-party tortfeasor. The employee has the burden of establishing (1) the total amount of his damages and (2) the employer’s negligence. (Martinez v. Associated Engineering & Construction Company, 44 CCC 1012)
Thereafter, it becomes a math exercise. If the value of the third-party civil case is high and there is significant employer negligence, the subrogation lien can be extinguished completely.
For example, if the third-party civil action is worth $1 million and there is 50% employer negligence, the work comp carrier would have to pay out $500,000.00 (50% of $1 million) before it could recover any civil money or assert a Petition for Credit.
CONCLUSION
In conclusion, understanding these nuances will help defendants set realistic expectations for recovery subrogation, and increase defendants’ chances of recouping money back. Please feel free to contact me directly at Bradford & Barthel should any of these subrogation issues arise in your cases.
Got a question about subrogation or other workers’ compensation defense issues? Please feel free to contact Peter V. Fitzpatrick, who is a partner at Bradford and Barthel’s Ontario location. Mr. Fitzpatrick has more than 25 years in workers’ compensation defense with a heavy focus on all aspects of civil matters, including third-party suits and subrogation. He can be reached at pfitzpatrick@bradfordbarthel.com or (909) 476-0552.
Viewing this website does not form an attorney/client relationship between you and Bradford & Barthel, LLP or any of its attorneys. This website is for informational purposes only and does not contain legal advice. Please do not act or refrain from acting based on anything you read on this site. This document is not a substitute for legal advice and may not address every factual scenario. If you have a legal question, we encourage you to contact your favorite Bradford & Barthel, LLP attorney to discuss the legal issues applicable to your unique case. No website is entirely secure, so please be cautious with information provided through the contact form or email. Do not assume confidentiality exists in anything you send through this website or email, until an attorney/client relationship is formed.