Pa Work Comp Subrogation in Civil Action

The Pennsylvania Workers' Compensation Act provides the Employer and Insurer with a right to subrogation against a civil action recovery, arising from the compensable work injury, where the injury is "caused in whole or in part by the act or omission of a third party". See: Section 319, 77 P.S. 671.

This right to subrogation is said to be "absolute". The Pennsylvania Supreme Court has explained the rationale behind the right to subrogation is:
(i) to prevent double recovery for the same injury by the claimant;
(ii) to ensure the employer is not compelled to make compensation payments as a result of the negligence of a third party;
(iii) to prevent a third party from escaping liability for its negligence.
Dale Manufacturing (Pa. 1980).

A Question arises as to the right to subrogation where the injured Employee makes a recovery against another party, who was not the third party tortfeasor who caused the Employee's injury.

Kennedy v. WCAB (Henry Modell & Co. Inc.) No. 1649 C.D. 2012 is a reported decision of a panel of the Commonwealth Court of Pennsylvania, authored by Judge Leavitt on August 1, 2013, which addressed this legal issue.

FACTUAL & PROCEDURAL BACKGROUND

Employee sustained a crush injury to the hand while using a conveyor belt at work. The conveyor belt was manufacturer and installed by Keystone Spray Equipment Inc. Employer's work comp insurer, Liberty Mutual, initiated wage loss and medical expense payments.

Employee legal counsel informed Employer of the intention to file a 3rd party products liability civil action against Keystone. Employer placed Employee on notice of its subrogation rights against any 3rd party recovery. Employee counsel agreed to "protect" the subrogation lien, so as to withhold disbursement of any proceeds from the products liability action until Employer was reimbursed for its lien.
In Employee's products liability action, Keystone's insurer, Regis Insurance Company refused to defend the claim, asserting the action fell within the "products liability" exclusion in the Keystone insurance policy.

The Trial Court approved a $426k consent judgment against Keystone. The parties stipulated that Keystone was negligent in the manufacture, installation and failure to warn, regarding the conveyor belt. Keystone was financially insolvent. Employee agreed to not pursue Keystone, but accepted an assignment from Keystone of its rights under its liability policy and Employee pursued Regis Insurance for collection of the judgment.

Employee filed a lawsuit against Regis Insurance for breach of contract and bad faith refusal to defend and indemnify Keystone.
The Trial court ruled in Employee's favor, concluding the Regis Insurance had a duty to defend Keystone in the product liability lawsuit. Regis was direct to indemnify Keystone for the amount of the $426k consent judgment. This order was affirmed on appeal by the Superior Court.

So, Regis paid Employee. Now Employer Keystone asked for payment of it's subrogation lien, ie, the work comp benefits paid to Employee in the amount of $81,000. When Employee did not pay, Employer filed a work comp Review petition to assert it's subrogation right.

Employee argued the money came from Regis Insurance for the [assigned] breach of contract action , not from the products liability action against Keystone.

WCJ granted Employer's review. WCJ concluded Employer was entitled to subrogate the Employee civil action recovery from Regis Insurance as that action arose from the original work injury.

COMMONWEALTH COURT DECISION

The decision of the WCJ was affirmed, allowing the Employer's worker compensation insurer, Liberty Mutual, to recoup the wage loss and medical expense payments made to Employee from the civil action recovery that Employee made against Regis Insurance, the insurer of employer, who decline to defend the products liability civil action.

Remember, Employer had the right to file a lawsuit against Regis Insurance for its refusal to defend Employer in the products liability action filed by employee.  Employer assigned this right to Employee. Employee was successful and recovered $426k from Regis Insurance. Then Liberty Mutual asserted its right to subrogation against this recovery for the $81,000 work comp payments made.

Why was the work comp insurer able to subrogate the civil action recovery employee made against Regis Insurance, when Regis was not the 3rd party tortfeasor?
Keystone was the negligent 3rd party hat caused the injuries to Employee.

This situation was analogous to the Poole (Pa. 2002) decision where the claimant recovered in a civil action for legal malpractice, where his attorney did not properly file a civil action against the 3rd party responsible for his slip and fall injury. The claimant recovery from his attorney was subject to the subrogation right of the work comp insurer. A legal malpractice claim is unique in that it requires the claimant "demonstrate, not merely an injury as a result of the malfeasance of his previous counsel. but also the malfeasance of the original tortfeasor which resulted in the underlying injury".
Poole, 810 A.2d at 1184.

There is no right to subrogation, in cases where the monetary recovery came from a source unrelated to the 3rd party [such as a recovery from the claimant's own insurance policy; American Red Cross (Pa. 2001).], or where the tortfeasor caused a subsequent harm, different from the original compensaible injury [a civil rights violation by a subsequent employer; (Brubacher Pa. 2003).].

The instant case involves a monetary recovery from the insurance carrier for the 3rd party tortfeasor. The tortfeasor caused Employee's original work injury.
Employee had no independent cause of action against Regis Insurance. He stepped "into the shoes" of Keystone, as an assignee of the right to pursue payment from Regis. Like the Poole decision, this employee's lawsuit against Regis depended upon the "malfeasance of the original tortfeasor".
Allowing reimbursement of Employer's work comp subrogation lien satisfies the purposes of the subrogation statute.

PRACTICE POINTERS:

1. Investigate the potential for any third party recovery by claimant and the potential for a right of subrogation, AT THE OUTSET OF THE CLAIM ASSESSMENT.

2. Investigate the potential for ant third party recovery by claimant and the potential for a right of subrogation, AT THE CONCLUSION OF THE WORK COMP LITIGATION, circumstances change!

3. In my opinion, work comp insurers should NEVER have the claimant/plaintiff counsel "protect" the subrogation rights of the work comp insurer in any civil action. IMO, there is an inherent conflict of interest, as the interests of the parties differ, on so many points ... AND when there is a finite source of funds available for recovery ... who do you think the Plaintiff lawyer will favor???