Preserving your Supersedeas Fund Recovery Rights in C&R Settlements

Settling the PA Work Comp case and Preserving Any Right to Supersedeas Fund Recovery.

The settlement of a workers' compensation case can provide a final resolution of disputed issues regarding indemnity wage loss benefits and liability for medical expense reimbursements. The parties may negotiate a final resolution of all disputed issues or just a portion of the issues presented.

At times, the parties will reach a negotiated settlement of wage loss benefits and keep "open" the responsibility for future medical expense reimbursement.

In one scenario, Employers and Insurers may settle several issues and also request a Workers' Compensation Judge decision regarding a pending Termination/Suspension/Modification petition. The intention is to preserve a right to a Supersedeas Fund Reimbursement, in the event of a successful decision.
As a point of explanation, the Supersedeas Fund exists to reimburse benefits paid by Employers/Insurer's, when it is later determined that those benefits were not payable.

 Reimbursement is available from the date of the filing of the petition. The Bureau of Workers' Compensation is the "conservator" of the fund. They may administratively review and voluntarily approve the reimbursement request. They may dispute the request and require litigation of this issue before the Workers' Compensation Judge.

One obstacle to pursuit of a Supersedeas Fund recovery, is the use of imprecise language in the Compromise and Release settlement documents.If you pay a lump sum to settle ALL of the issues regarding past and future work comp benefits ... there may be no remaining right to Supersedeas Fund reimbursement.

H.A. Harper Sons, Inc. v WCAB (Sweigart and BWC Legal Division), No. 86 CD 2013,  a published decision of a panel of the Commonwealth Court of Pennsylvania, authored by Judge Brobson on January 3, 2014, addressed a Supersedeas Reimbursement issue.

Factual and Procedural Background
Claim Petition
Employee was injured, filed a Claim petition and was successful before the Workers' Compensation Judge (WCJ). However, the Employer/Insurer disputed the correctness of the WCJ determination of the Employee Average Weekly Wage (AWW) at the time of the injury.

Employer appealed the grant of the claim and also the AWW calculation.
On appeal to the Pennsylvania Workers' Compensation Appeal Board (WCAB) the Employer requested a Supersedeas of benefit payments during the appeal. This request was denied.

Termination Petition
While the WCAB appeal was pending, Employer had Employee examined by a medical expert and based upon those findings, Employer filed a petition for Termination of benefit payment.
During the Termination petition litigation, the parties reached a settlement agreement as to future benefit liability. The pending petition was amended to a Petition to Seek Approval of a Compromise and Release Agreement.

Compromise and Release Decision
The WCJ issued an order to approve the C&R Agreement. "Upon payment of the specified benefits to ...Claimant and his attorney, [Employer] shall be released from liability for Claimant's work injury to the extent set forth in the [C&R] Agreement". (emphasis supplied) slip opinion page 2.

WCAB Decision
The Employer appeal of the AWW calculation was granted. The WCJ was reversed only on this point, the balance of the WCJ decision was affirmed. Accordingly the TTD compensation rate was corrected from $389.50 to $204.28 per week.

This AWW rate change did not have any impact upon the C&R settlement amount, rather it "created" a right to Supersedeas Fund Reimbursement.

 Remember, the Employer challenged the correctness of the AWW rate in the appeal to the WCAB. The WCAB denied Employer's request for a supersedeas of benefit payment during the appeal process. Therefore, by that order, Employer was compelled to initiate benefit payments ... at a rate which was in excess of Employee's actual benefit entitlement. As Employer was compelled to pay these benefits,  which Employee was not entitled to receive, a right to reimbursement was created when Employer prevailed on appeal.

Supersdeas Fund Reimbursement Application
Employer filed an application for reimbursement from the Supersedeas Fund, for the overpayment which resulted from the WCJ  award of the higher AWW rate. The reimbursement request was from the date of the filing of the supersedeas request to the WCAB to the date the case was approved for settlement (the C&R decision).

WCJ granted the $20k+ Supersedeas Reimbursement.
WCAB reversed this decision.
WCAB relied upon past Commonwealth Court decisions which denied a Supersedeas Fund Reimbursement request, where the C&R documents reflect a final outcome of all issues raised  in the WCJ proceedings.
[See: Stroehmann Bakeries (2001); Bethlehem Structural Products (2001); Department of Labor (2007) ; Coyne Textile (2008).].

Commonwealth Court Appeal
Employer argued that the WCAB erred when it reversed the WCJ grant of the Reimbursement Application, as the C&R Agreement approved by the (first) WCJ order did not resolve or settle the AWW issue. The AWW issue was pending on appeal to the WCAB.
The WCAB appeal proceeded and was not withdrawn as a condition of the C&;R settlement.
Accordingly, there was not a final outcome of the proceedings, on the AWW issue.

Section 443(a) allows a Supersedeas Fund Reimbursement where:
          "(a) If, in any case in which a supersedeas has been requested and denied under the provisions of
                section 413 or section 430, payments of compensation are made as a result thereof and upon
                the final outcome of the proceedings, it is determined that such compensation was not, in fact,
                payable, the insurer who has made such payments shall be reimbursed therefor."

In Stroehmann Bakeries v. WCAB (Plouse) 768 A.2d 1193 (Pa. Cmwlth. 2001) the parties entered into a Compromise and Release Agreement which rendered as moot,  the pending employer's termination petition.

The Stroehmann settlement document was for the issues involved in this claim - whether the claimant's disability from the work injury has ceased. This language would include the pending issue of termination. As such, there was no remaining issue of termination, which could form the basis for a post-C&;R decision by the WCJ to"grant" a termination and create a corresponding Supersedeas Fund Reimbursement Right.

Conversely in Bethlehem Structural Products v. WCAB (Vernon) 789 A.2d 767 (Pa. Cmwlth. 2001) the employer filed a Review Petition, challenging the accuracy of the AWW calculation. While a WCAB appeal was pending on this AWW issue, the parties entered into a Compromise and Release Settlement. Those settlement documents stated the employer  "will not withdraw its appeal to the Board on the issue of the correct calculation of the [claimant's AWW], so that its right to supersedeas fund reimbursement for previously paid benefits will be unimpaired". 789 A.2d at 770.

The Commonwealth Court held that employer in Stroehmann's effectively preserved its right to Supersedeas Fund Reimbursement.

In the instant case, the Compromise and Release Agreement stated the settlement was for all  future wage benefits, not past benefits.The WCAB appeal, pending at the time of C&R settlement, involved the correct calculation of past and future wage loss benefits. The C&R Agreement settled all issues regarding future benefits. The Employer Supersedeas Fund Reimbursement request was for past benefit payments, up to the date of the C&R approval.

The issue of whether the Employer overpaid past wage loss benefits due, to the incorrect AWW calculation was not explicitly settled by the C&R Agreement. As the C&R Agreement did not settle the exact issue raised by Employer in its WCAB appeal, this issue was not rendered mooted by the C&R Agreement language or by the WCJ C&R approval.

PRACTICE POINTERS
1. This decision highlights the importance of proper drafting of settlement agreements.

My preference is to specifically identify the issues resolved... but more importantly to specifically identify the issues which are not resolved by a Compromise and Release Settlement Agreement. 

2. Over the nearly 18 years of drafting Compromise and Release Agreements, we have approached each case as a unique agreement. The defense counsel must identify the issues pending, the issues resolved and any remaining issues.

 It is incumbent upon legal counsel to discuss all of these issues with the client. At times, the client has directly negotiated a settlement"figure" with claimant counsel and leaves it up to legal counsel to "sort out" the details. This practice can lead to disagreements regarding specific settlement terms. 

3. It may seem pedantic, but a best practice is to review each known issue and discuss potential issues that may exist or may arise subsequently, such as subrogation interests.

4. Another best practice is to avoid "last minute" settlements, which may cause the client and  legal counsel, in their haste, to overlook details and potential issues. The vast majority of Judges (if not all Judges) will allow a continuance, to allow for review and resolution of pending issues.

PA Supreme Court reverses $1.2 million Jury Verdict based on Statutory Employer Immunity

In construction related injury cases, the concept of the "Statutory Employer" status of the general contractor can be decisive of liability issues.

The General Rule (no pun intended) is that a General Contractor has secondary liability for worker compensation benefit payments to the injured employee of it's subcontractors. If the subcontractor does not have work comp insurance coverage for its employees, then the General Contractor is responsible for benefit payments. The Legislative purpose for imposing this responsibility upon General Contractors was remedial, they wanted to ensure payment of work comp benefits to injured workers, in the event of a default by the subcontractor, who should have been primarily responsible. See: Section 302(b), 77 P.S. 462.
Qualp v. James Stewart Co,. 109 A. 780 (Pa. 1920) [cited by Patton at slip opinion page 2].

The Statutory Employer enjoys the same immunity (as a traditional employer would) from liability in tort, related to the work injury. The Workers' Compensation Act is the exclusive remedy of the injured worker against one's employer. This immunity will apply, even where the Statutory Employer has not been required to make any actual benefit payments.
 See: Fonner v. Shandon, Inc., 724 A.2d 903 (Pa. 1999). 

What are the limits, if any, of this Statutory Employer Doctrine?

Patton v. Worthington Associates Inc., No. 32 MAP 2013, a recent opinion of the Supreme Court of Pennsylvania authored by Mr. Justice Saylor on March 26, 2014 addressed this question.


Factual and Procedural Background
The facts in Patton are rather straightforward.
Patton fell and injured his back while working at a construction site in October 26, 2001.
Nearly 12 1/2 years later, we have a final decision in this litigation.

Patton was the sole employee (and principal) of Patton Construction Inc.
Patton Construction Inc. entered into a standard subcontract agreement with Worthington Associates, Inc., to perform carpentry work at a Levittown Church. Worthington was the general contractor at this job.

Patton filed civil action against Worthington asserting that they failed to maintain safe conditions at this jobsite. At trial, Worthington moved for Summary Judgment on the basis that is was Patton's statutory employer and was immune from civil suit. This Motion was denied, as were subsequent motions.

Trial court identified the issue in controversy and determined that a general contractor is not a statutory employer, relative to employees of an independent contractor.

Question: was Patton an independent contractor or employee with respect to Worthington?
This  interrogatory was submitted to the jury. The jury returned a verdict in the amount of $1.5 million. (also finding Patton 20% comparatively negligent).

Superior Court affirmed in a divided opinion.

Supreme Court Reversal of Superior Court affirmation of Trial Court. 

The Supreme Court opinion "paused to observe" that:

•  Worthington contracted with Patton Construction Inc, not Patton in his personal capacity.
• Patton, himself had no contract with Worthington and accordingly he could not be considered an independent contractor, or even a contractor for purposes of Sections 203 or 302(b) of the Workers' Compensation Act.
• Patton was not a common law employee of Worthington, he was an employee of Patton Construction Inc.

The Supreme Court noted that the Trial Court set up an errant dichotomy for the jurors, by requesting their response to the "independent contractor versus employee" question.

In terms of Patton's relationship with Worthington, as an individual, Patton was not in either category!

As correctly stated by Worthington in its appeal, the only accurate answer is that: 

Patton is an employee of Patton Construction Inc.

Patton Construction Inc. stands as a subcontractor in its relationship to Worthington. 

The Supreme Court opinion reviewed the historical interpretation of the Statutory Employer concept.

Conventional subcontractors are dependent contractors, not independent contractors, for purposes of the Workers' Compensation Act, Sections 203 and 302(b). 

Their employees are not contractors at all, nor, at least in the absence of special circumstances, are they employees of the general contractor. Patton, slip opinion page 9.

Patton's status as the principle owner of Patton Construction Inc. does not alter the analysis or outcome. 

The jury verdict was reversed as Worthington has statutory employer status under these facts.

Worthington has immunity from the civil tort action of Patton.

Practice Pointers:

1. This case discusses legal concepts, which are difficult for the non-workers compensation professionals. The Statutory Employer concept and liability issues must be reviewed by legal counsel, experienced in workers' compensation matters. The issue of  immunity for civil litigation is significant. In this case it was decisive.

2. When addressing a construction related injury, it is prudent to interview the parties and review the contracts to develop a correct outline and analysis of the relationship of each party to the other. 

3. Cudos to Worthington for persevering and confirming the correct method of analysis of this Statutory Employer issue. Mr Justice Saylor has authored an opinion that provides clear legal reasoning for our future assessment of this issue.