by Kermit N. Sprang –
California subrogation law can be a rude surprise for those not familiar with its procedures. Out here, it’s “the law of the jungle” – you get only what you fight for. An employer 1 who does not actively investigate and participate in an employee’s third party action can expect one of three results, all of them bad.
First, the employer may not learn of the employee’s action at all. Although the employee is required to notify the employer when he files his action, his failure to do so will not adequately protect the employer’s rights. If the defendant is not aware of the employer’s subrogation claim when it settles with the employee, the employer is barred from suing the defendant. The employer is relegated to an action against the employee, who is most likely judgment-proof.
Second, if the employer does learn of the employee’s action but does not actively participate, it may still recover nothing. The employee can “settle around” the employer by explicitly omitting the employer’s damages from his settlement. In theory, this allows the employer to try its case against the defendant independently, but this right may be meaningless–employee-defendant settlements are most common on the eve of trial, and the trial judge is unlikely to grant the intervening employer any additional time to prepare for trial. Indeed, these settlements are most likely to occur when the defendant believes that the employer is not ready for trial.
Third, if the employer does recover its damages, it may be forced to pay fees to the employee’s attorney. If the employer has not actively participated in the action, it will pay the employee’s attorney fees at the percentage recited in the employee’s fee agreement, usually 33-1/3 to 40% of its recovery, plus a pro rata share of the litigation expenses.
A recent change in California’s statute of limitations exemplifies the employer’s need to remain vigilant. Prior to 2003, California had a one-year statute of limitations for personal injury actions; in 2003 it was extended to two years. The extension benefits employers, but it also presents additional hazards.
The benefit is that the additional year can be used to conclude the workers’ compensation claim and, thereafter, investigate the claim against the defendant prior to filing. In a state where “fast track” rules prevail, and actions are routinely tried within one year from the date they are filed, that additional time can be very helpful.
But the additional year also brings risks. Too many employers do not actively address subrogation until the statute of limitations is about to run. For such an employer the extra year simply gives the employee the extra year to settle with defendant while postponing the employer’s subrogation investigation, making its investigation of the claim more difficult.
The most serious hazard to unwary employers arises where the prospective defendant is a governmental entity, because the claim filing deadline has not be extended. It is still six months, followed by an additional six to file an application for late claim. An employer that waits until the two-year statute of limitations is about to run to investigate its subrogation rights may find they are long gone.
Subrogation in California can be very helpful to employers, but only if they are prepared to be “King of the Jungle”. To put it another way: be proactive, or say “Hasta la Vista” to your subrogation rights.
1 In California workers’ compensation law, “employer” refers collectively to the employer and its workers’ compensation carrier.
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