Thursday, May 1, 2014

The "Absolute Right" of Pennsylvania Workers' Compensation Subrogation Recovery

The Pennsylvania Workers' Compensation applies to all injuries occurring within the Commonwealth. See: (Section 101).

Additionally, pursuant to the extra-territorial provisions,  the WCA applies if an employee suffers an injury, while working outside of the territorial boundaries of the Commonwealth, if:

          (1) the employment is principally localized in Pennsylvania, or;

          (2) he/she is working under a contract of hire made in Pennsylvania, in employment not principally localized in any state, or;

          (3) he/she is working under a contract of hire made in Pennsylvania, in employment principally localized in another state, whose work comp law is not applicable, or;

          (4) he/she is working under a contract of hire made in Pennsylvania, for employment outside the USA or Canada.

(See: Section 305.2)

When a Pennsylvania resident is injured in a motor vehicle accident in Delaware, while in the course of her employment, She is entitled to PA Workers' Compensation benefit payments and the Employer is entitled to assert a subrogation right against any civil action recovery from the third party responsible for the accident.

... but what happens when the Employee civil action recovery is limited by Delaware law? ... does the Pennsylvania Act still provide the Employer with an absolute right of recovery?

Young v. WCAB (Chubb Corporation and Federal Insurance Company), No. 1432 C.D. 2013,
 a reported decision of a panel of the Commonwealth Court of Pennsylvania, authored by Judge Cohn-Jubelirer on March 10, 2014, addressed these issues.

Factual and Procedural Background

Employer accepted responsibility for the December 2003 motor vehicle accident and commenced payment of indemnity wage loss benefits and medical expense reimbursement via a Notice of Compensation Payable (LIBC-495).

In the course of subsequent litigation of petitions for Suspension, Termination and Utilization Review, the parties negotiated a settlement via a Compromise & Release Stipulation (LIBC-755). In May 2006, Employee settled future work comp benefits for a lump sum of $85,000. The Employer maintained it's right of subrogation, as per paragraph 11 of the LIBC form.

Employee subsequently settled her third-party action against the Delaware driver for $160,000.
There was no indication in the record, that Employee or her legal counsel advised Employer of this third-party settlement. There was no indication that Employee asked Employer to compromise its lien. (slip opinion page 3).
Employee counsel placed 1/3 of the settlement ($53,333) in an escrow account to "resolve" Employer's work comp lien. Counsel indicated this was the "customary" way of handling a work comp lien.
 [... maybe in Delaware].

Employer filed a Petition for Review to assert the work comp subrogation lien, as Employee settled the third-party action without adequately protecting the Employer's lien. The Employer's lien totaled $219,101.
Employer asserted is was entitled to recover a net lien of $101,381.

WCJ Decision in Employer Review Petition

Employer was entitled to a subrogation lien recovery.
Employer did not agree to compromise its lien.
PA law applied, not Delaware law.
Employee and Employee counsel were not jointly and severally liable for repayment to Employer.

WCAB affirmed and denied Employee appeal.

Commonwealth Court affirmed and denied employee appeal.

Commonwealth Court Reasoning:

1. Pennsylvania law applies to determine the Employer subrogation rights ... which apply to the Delaware civil action recovery.

Employee argued Delaware law should apply to the assessment of the subrogation lien of Employer. They argued in Delaware they could not include certain expenses in the third-party action, but these items were included in the subrogation lien. Delaware law precluded employers from being reimbursed for expenses that were precluded from evidence at trial.

Employee argued a "Conflict of Laws" analysis would show that Delaware had more significant contacts to this litigation than Pennsylvania,  therefore Delaware law should apply.

This argument was rejected. Just as in the Allstate Insurance Co. v. McFadden (Pa. Super. 1991),
Pennsylvania has a significant interest in this litigation,as this Employer made payments under the PA WCA and this employer has a right to monies paid to its employee by a third party.

Similarly in Byard F. Brogan Inc. v. WCAB (Morrissey) (Pa. Cmwlth. 1994), after a conflicts of law analysis Pennsylvania law applied, which had the effect to preclude a subrogation recovery  (at that time the Motor Vehicle Insurance law did not provide a right of subrogation). [an earlier MDS appellate case].

In the instant case, the substantial contacts of Pennsylvania to the Delaware civil  ligation were that:
 the employee was a Pennsylvania resident; she availed herself of benefits pursuant to the PA WCA; the employer was a NJ corporation, doing business in Pa;  under a PA insurance policy.
When Employee entered into the Compromise and Release Settlement, she affirmed the Employer's subrogation lien. [slip opinion page 10].

2. Employee argument that it was inequitable for Employer to be fully reimbursed for its subrogation lien ... this argument was rejected by the Court.
The Court explained, the statutory language at Section 319 has been interpreted to provide a right of subrogation to the Employer which is "statutorily absolute and can be abrogated only by choice".

Employee's equity arguments are contrary to established case law holding that there are no equitable exceptions to subrogation. citing Thompson v. WCAB (USF&G) (Pa. 2001).

3. Employer satisfied its burden of proof to establish its entitlement to subrogation and the amount of its lien. The WCJ accepted Employers documentation of payments made to employee. The WCJ appropriately subtracted duplicate entries and items not subject of recovery. The WCJ appropriately included the prior underlying 20%  attorney fee payments. The Employer payment detail evidence supported the WCJ findings of fact on his point.

Practice Pointers:

1. Cudos to Attorney Lee Fiederer of Chartwell Law Offices for a successful result. 

2. Too often, the Employer's right of subrogation lien recovery comes under attack, with the same old arguments. Some sort of "equity"is alleged in the denial of  reimbursement to the Employer for the vast amounts of wage loss and medical expense advanced to an injured employee ... where a third party is actually responsible for creating this obligation upon the Employer.

 When the Employer seeks reimbursement of its advanced payments ..."its not fair".
As often noted in appellate decisions, the injured employee has no right to a double recovery for wage loss and medical expense. 

3. In this instance the underlying third-party civil litigation in Delaware was concluded . When the third-party litigation is concluded in Pennsylvania, I believe it is a best practice to file a Workers Compensation Petition to assert one's subrogation rights, in lieu of pursuing a remedy in the Court of Common Pleas. 
WCJ are familiar with the "absolute" right of subrogation and the calculation of the Employer's net lien recovery.

4.  When the civil action is pending, I believe it is essential for the Employer to assert its right to subrogation lien recovery via intervention and participation in the civil action OR protect the Employer's rights via written agreement with the Plaintiff-Employee counsel. 

5. I believe it is a conflict of interest for the Plaintiff-Employee to "represent" the subrogation rights of the Employer and simultaneously represent the rights of the injured Employee. One attorney cannot serve Two divergent interests ... particularly when there is a finite amount of Settlement dollars... the interests of the parties must be compromised ...
who is compromised in this scenario?
Retain separate, experienced Work Comp Defense Counsel.


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