Friday, August 30, 2013

The Absolute Right of Subrogation of the Work Comp Insurer ... and possible Waiver

The Worker Compensation Insurer Right to Subrogation and the waiver of that right.
The Pennsylvania Workers Compensation Act provides the worker compensation insurer with a right of Subrogation to recover benefits paid to an injured employee, where the injury is the result of the act or omission of a third party. See Section 319, 77 P.S. 671.

When the injured employee makes a recovery in a civil action arising from the work injury, the work comp insurer may request reimbursement from the recovery against the culpable party.

When a civil action is settled, the parties may set forth the the financial details of recovery and the subrogation lien calculation, in a Third Party Settlement Agreement (LIBC 380). The agreement may reflect the terms the parties have reached regarding the assertion or waiver of subrogation rights in any further civil action recovery.
At times, a disagreement may arise as to the exact rights of the parties.

Aminov v. WCAB (Herman E. Ewell), No. 311 C.D. 2013 an unreported decision of a panel of the Commonwealth Court of Pennsylvania, authored by Judge McGinley on July 15, 2013, reported this type of dispute.

Factual & Procedural Background

Employee was injured in a work-related motor vehicle accident.
The work comp insurer paid over $230,000 in medical and wage loss benefits.
Employee recovered $45,000 from the negligent third party in a civil action settlement.
A Third Party Settlement Agreement reflected the subrogation lien calculation and payment of slightly more than $23,000.

Employee filed another civil action against the Under Insured Motorist (UIM) portion of the Employer's automobile insurance policy.
Employee made a recovery against Employer's UIM, but did not disclose the amount. It was said to be in excess of the outstanding amount of the work comp subrogation lien (($185,908.44).

Employer filed a Review Offset Petition.
Before the WCJ Employer offered the Third Party Settlement Agreement.
That Agreement read:
 Claimant's 3rd party recovery was $45,000.00. The amount available for satisfaction of the 
 subrogation lien is $23,194.38. Defendant/Carrier will accept $23,194.38 in full satisfaction of their subrogation lien.

The WCJ found Employer did not explicitly waive the work comp insurer rights from any future third party claims. On the contrary, the WCJ found the work comp insurer put employee on notice that it intended to seek recovery from future claims.
A letter to Employee counsel stated: "receipt of this partial lien recovery does not waive our rights to further potential recovery in the pending UIM claim".

The WCJ granted Employer's Review Offset petition to assert its subrogation rights against the UIM recovery.

WCAB affirmed, stating the Section 319 mandated employer is automatically subrogated to employee's rights against third parties for compensable injuries.
Employer did not waive its subrogation rights through the Third Party Settlement Agreement language.
  • The only party referenced in the agreement were the civil action defendants (the LIBC form has an area to caption the parties in the recovery).
  • Attached to the Agreement was a release form which stated the form was not a release of any claims in any future UIM benefits. 
  • WCAB noted the work comp insurer wrote to employee counsel before employee sent the initial subrogation lien reimbursement check and again advised it was not waiving its rights against any UIM claim. 
Commonwealth Court Decision

The Court affirmed the WCJ and WCAB.
The Court rejected Employee argument that it was an error of law to consider the correspondence sent to employee. Employee argued the fully executed Agreement between the parties shows that the work comp insurer intended to waive any further right to any and all subrogation.

The Court relied upon the reasoning in Gorman v. WCAB, 952 A.2d 748 (Pa. Cmwlth.2008).
In Gorman the parties settled a work comp case via Compromise and Release Agreement. In the paragraph which asks: Is there a lien or potential lien for subrogation under Section 319?
The answer was marked "No".
When employee made a subsequent civil action recovery, in a lawsuit initiated after the signing of the Compromise and Release Agreement, Employer sought a subrogation credit from that recovery.

In Gorman, the Court found that the C&R Agreement did not note there was any potential for future subrogation.  The parties stated that there was no claim at the time the C&R was signed. This is not the equivalent of a waiver of any future subrogation rights. The Court held the Employer could not have bargained away any subrogation rights, as part of the C&R settlement, as neither party contemplated a civil action settlement at the time of signing the C&R Agreement.

The Employer's subrogation rights may only be abrogated by choice. Gorman citing Winfree v. Philadelphia Electric Company, 554 A.2d 485 (Pa. 1989). slip opinion page 7.

 In the instant case, the Court held it was appropriate for the WCAB to consider the correspondence of the parties, in addition to the Third Party Settlement Agreement to determine the intention of the parties.
Employee appellate argument relied upon the general rule that " the intent of the parties to a written contract is presumed to be contained within the contract itself".

However, where the contract terms are ambiguous and susceptible of more than one reasonable interpretation, the court (WCAB) is free to receive extrinsic evidence, ie., parol evidence, to resolve the ambiguity. Krizovensky (Pa. Super. 1993).

Here, the Third Party Settlement Agreement language is capable of multiple reasonable interpretations. It was appropriate to examine all of the evidence to determine the intention of the parties.
The evidence of record lends strong weight to the fact that Employee did not intend to waive its right to subrogation lien recovery in future third party claims. Employer work comp insurer wrote a letter to employee counsel stating that the partial line recovery did not waive its rights to further subrogation recovery in the pending UIM claim. Employee attorney response to this letter did not protest that statement.
There was no error of law to consider the correspondence, beyond the Third Party Settlement Agreement, to determine the intention of the parties. The Employer was entitled to assert a subrogation lien against the employee UIM recovery.

Practice Pointers

1. This controversy demonstrates the important of carefully documenting the terms of the settlement agreement. Employer carefully documented their position. They addressed the issue of subrogation recovery in the pending UIM claim. In accord with Gorman, even if employer was unaware of the further recoveries, employer would still have a right of recovery. 

2. On occasion, I have prepared a Supplemental Agreement (LIBC 337) for execution by the parties, concurrent with the Third Party Settlement Agreement form. As the Third Party form has limited "space" on the form, to include additional terms or agreement of the parties, the Supplemental Agreement provides an "official" document to memorialize any additional terms.

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