COMPENSATION SUBROGATION UPDATE Arthur by alicejenny

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									            WORKERS’ COMPENSATION SUBROGATION UPDATE
                       2012: FIRST QUARTER

          Joseph M. Nemo, Chair
          612 375-5953
          jmnemo@arthurchapman.com                                      ALABAMA

                                          Case Law Development: Allocation of Recovery: Subrogated
                                          Carrier Paid First Before Employee’s Estate Entitled to Any
          Blake W. Duerre, Co-Chair
          612 375-5932                    Periodic Payments Under Settlement Annuity
          bwduerre@arthurchapman.com
                                          Nuss Lumber Co., Inc. v. Estate of Monghan, 2012 Ala. Civ. App
                                          LEXIS 60, No. 2100806 (Ala. Ct. App., Mar. 9, 2012) – Decided
          Michael J. Nemo, Co-Chair       March 9, 2012
          612 375-5969
          mjnemo@arthurchapman.com
                                          Injured worker Monghan initiated a lawsuit in tort against multiple
                                          parties relative to personal injuries he sustained in a work-related motor
                                          vehicle accident. Monghan’s employer, who paid substantial workers’
         Michael D. Carr                  compensation benefits to and on Monghan’s behalf as a result of the
         612 375-5962
         mdcarr@arthurchapman.com         motor vehicle accident, asserted its subrogation right to a credit or
                                          repayment of benefits under §25-5-11(a), of the Alabama Code, relative
                                          to any recovery Monghan made against the at-fault parties.
         Charles B. Harris
         715 808-0513                     Ultimately, Monghan entered into a confidential settlement with the
         cbharris@arthurchapman.com
                                          alleged at-fault parties but later died. A portion of the funds were placed
                                          in an annuity, while another portion was placed in a trust. Nuss Lumber
                                          moved for summary judgment seeking subrogation recovery under §25-
         Shannon A. Nelson
         612 375-5927
                                          5-11(a) of the Alabama Code. The parties agreed that Nuss Lumber was
         sanelson@arthurchapman.com       entitled to recover $1,380,634.50 from the third-party settlement funds,
                                          but the parties disagreed as to the manner in which the funds would be
                                          taken from the trust and annuity to satisfy the subrogation lien. The trial
         William J. McNulty               court ruled that Nuss was entitled to a lump sum payment of
         612 375-5939
         wjmcnulty@arthurchapman.com
                                          $351,660.27, and that the remaining balance of more than $1 million
                                          was to be incrementally paid to Nuss from the annuity over 69 monthly
                                          payments, while the trust also issued incremental monthly payments to
                                          the estate’s representative and Monghan’s widow. Nuss Lumber
          Aaron D. Schmidt                appealed, arguing that it was entitled to recover the full amount of its
          612 375-5978
          adschmidt@arthurchapman.com
                                          lien before the estate (Monghan’s widow and the estate’s representative)
                                          collected any funds from the settlement. The Court of Appeals agreed,
                                          holding that when there is no dispute that the employer is entitled to
                                          recover from third-party funds, as in this case, §25-5-11(a) mandates
         Christina E. VonderHaar
         612 375-5983                     that the employer is entitled to receive the funds when the employee
         cevonderhaar@arthurchapman.com   recovers and collects them, establishing a recovery right that has priority
WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.                                                             PAGE 1
over the employee’s right to the third-party settlement proceeds. The court noted that §25-5-11(a) of the
Alabama Code operates to relieve an employer of the financial burden of a work-related injury and shifts the
burden to the culpable party while also preventing a double recovery for the same injury by the employee. The
Court noted that if the estate were allowed to retain both the tort settlement funds and the benefit of the
workers’ compensation benefits Nuss paid before Nuss was fully compensated, then the burden of the injury
would partly remain on Nuss, in contravention of §25-5-11(a). The Court noted that having already been paid to
compensate for an injury that was later compensated for by the third parties, Nuss should be repaid first before
the estate receives settlement funds from the third parties.

At the time judgment was entered, the then available funds in the trust and annuity were less than the total
amount Nuss was due to recover. As a result, Nuss also argued that the annuity should be liquidated so that it
could immediately recover the full amount it was owed. As to that issue, the Court ruled that Nuss could not
force Monghan’s estate to liquidate the annuity so that Nuss could make an immediate and full recovery, noting
that although Section 25-5-11(a) gives an employer a right to recoup funds paid to the employee, it does not
require asset liquidation to achieve that end immediately.

                Note: Section 25-5-11(a) provides in pertinent part:

                        If the injured employee, or in case of death, his or her dependents, recovers damages
         against [a party other than the employer], the amount of the damages recovered and collected shall be
         credited upon the liability of the employer for compensation. If the damages recovered and collected are
         in excess of the compensation payable under this chapter, there shall be no further liability on the
         employer to pay compensation on account of the injury or death. To the extent of the recovery of
         damages against the other party, the employer shall be entitled to reimbursement for the amount of
         compensation theretofore paid on account of injury or death….[T]he employer shall be entitled to
         subrogation for medical and vocational benefits expended by the employer on behalf of the employee…

Section 25-5-22(a) creates a right to a credit or reimbursement with respect to an employer’s liability for
compensation, but the statute creates a right to subrogation with respect to an employer’s liability for medical
benefits. “Compensation” and “medical benefits” are distinct benefits under the Act. See §25-5-1(1), Ala. Code
1975. There is also a difference between a statutory credit and subrogation. See Trott v. Brinks, Inc., 972 So.2d
81, 85-87 (Ala. 2007).

                                                 CALIFORNIA

Case Law Development:     Financial Responsibility Endorsement (MCS-90) for Interstate Truckers and
Applicability When Injured Party Has its Own Insurance Protection.

Century-National Ins. Co. v. Global Hawk Ins. Co., 203 Cal. App. 4th 1458 (Cal. Ct. App., Feb. 29, 2012) –
Decided February 29, 2012.

An employee of the sanitation company was rear-ended while driving for his employer. The employee was rear-
ended by a 2000 Freightliner driven by an employee/owner of E&Z Express Trucking. The injured employee
made a claim against E&Z Express’ insurer, which denied the claim because that particular 2000 Freightliner
was not listed on Global Hawk’s, E&Z Trucking’s insurer, policy.

However, because E&Z Trucking was a motor carrier engaged in interstate trucking, Global Hawk’s policy
carried a financial responsibility endorsement (MCS-90) which stated in relevant part: “In consideration of the
premium stated in the policy to which this endorsement is attached, the insurer (the company) agrees to pay,
within the limits of liability described herein, any final judgment recovered against the insured for public
liability resulting from the negligence in the operation, maintenance or use of motor vehicles subject to the
                                                 WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
PAGE 2                                                        ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.
financial responsibility requirements of Section 29 and 30 of the Motor Carrier Act.” In short, the MCS-90
endorsement obligated Global Hawk to provide coverage under certain conditions for all of its insured’s
vehicles including a truck not described under the policy.

Global Hawk denied the insured’s employee’s claim because of the fact that the Freightliner was not
specifically insured under the insurance policy. As a result of this, the insured employee recovered uninsured
motorist benefits from Century-National insurance, the insurer of the vehicle the injured employee was driving
at the time of the accident. The injured employee subsequently executed a UM subrogation agreement.

Century-National initiated a subrogation action against Global Hawk and against Global Hawk’s insured E&Z
Trucking. The owners of E&Z Trucking, individually, and E&Z Trucking defaulted on Century-National’s
complaint, and a default judgment was entered against them.

The trial court granted Century-National’s motion as to its right to reimbursement. The trial court found: “There
is no triable issue of material fact as to Global Hawk’s duty under the MCS-90 endorsement to its insurance
contract to reimburse uninsured motorist benefits paid by Century-National for a June 13, 2006, truck accident
involving Global Hawk’s insured.”

On appeal, Global Hawk argued that an MCS-90 endorsement does not make one insurance company liable to
reimburse another insurance company that covered the loss under its own policy. In other words, Global Hawk
claimed that MCS-90 liability is not “triggered” when the dispute at issue is between two or more insurance
companies, about apportioning the cost of compensating the injured plaintiff. Global Hawk argued that only
when the injured plaintiff directly sues the insurance company, and the underlying policy would not have
covered the loss, does the MCS-90 endorsement come into play.

The court disagreed with Global Hawk’s main contention, i.e. that Century-National provided “other
insurance.” Global Hawk argued that an MCS-90 insurer’s duty to pay arises only when (1) the underlying
insurance policy to which the endorsement is attached does not otherwise provide coverage, and (2) either no
other insurer is available to satisfy the judgment against the motor carrier, or the motor carrier’s insurance
coverage is insufficient to satisfy the federally-prescribed minimum levels of financial responsibility.

The court disagreed that Century-National was an “other insurer” within the meaning of the MSC-90
endorsement. The “other insurer” meaning within that endorsement means any other insurer of the tortfeasor
motor carrier, not the insurer of the person injured by the motor carrier. “The MCS-90 endorsement operates
only to guarantee a source of payment of a judgment, and does not relieve the motor carrier or its liability
insurers of their duty to satisfy an injured party’s judgment against the carrier.” Allowing a motor carrier to
avoid payment under the endorsement because there was “other insurance” available to the injured party would
defeat the purpose of the financial responsibility regulations, which were to “assure that injured members of the
public would be able to obtain judgments collectible against negligent authorized carriers.” This would in effect
amount to a windfall to insurers of motor carriers as well.

The court of appeals granted Century-National’s motion for summary judgment and ruled that it was entitled to
subrogation reimbursement against Global Hawk.




WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.                                                         PAGE 3
                                                   COLORADO

Case Law Development:           Statute of Limitations

Am. Compensation Ins. Co. v. MTD Products, Inc., 2012 U.S. Dist. LEXIS 18583, No. 09-CV-02934-RBJ-
BNB (D. Colo., Feb. 15, 2012) – Decided February 15, 2012.

An employee at a tire store was injured while inflating a tire on a snow blower when the plastic rim holding the
tire exploded. The workers’ compensation carrier ultimately settled the claim for $284,000. It sought to recoup
its loss against the manufacturer of the snow blower, MTD Products, on claims asserting: (1) negligence, (2)
strict liability, and (3) breach of the implied and express warranties of merchantability. MTD brought a motion
for summary judgment alleging that ACIC did not commence suit within the two-year statute of limitations.

In a similar incident in 2006, the manager of ACIC informed MTD’s legal department that it was processing a
workers’ compensation claim for an individual. The notice stated that an employee was injured while inflating a
tire and the plastic rim shattered.

On October 17, 2007, the injured employee in the present case was injured when a tire “blew up” while he was
inflating it. Rubber and plastic from the wheel also allegedly caused injuries. ACIC assigned an independent
adjuster to investigate the loss on October 18, 2007, and ACIC sent internal emails inquiring whether the
Consumer Product Safety Commission had recalled similar inferior quality snow blower wheels (snow blower
wheels are generally made of metal, this wheel was plastic).

After investigating the claim further, on October 24, 2007, ACIC’s manager sent a fax to MTD’s outside
counsel concerning the unrelated 2006 case. In that fax, the manager stated:

         “One of our insured employees just recently had another similar situation in CO. I do not need to get all
         the facts . . . but the resulting explosion caused the employee to endure a frontal craniectomy. If it’s one
         of MTD’s, which I think it is, then this $500.00 claim [referring to the 2006 incident] is going to be
         mere soda change as compared with the next one.”

On November 2, 2009, ACIC filed its complaint against MTD. Because October 31, 2007 was a Saturday, the
claim was timely filed if it arose on or after October 31, 2007. If the claim arose before October 31, 2007, it was
time barred by the two-year Colorado statute of limitations.

A party must bring an action against manufacturers or sellers of products within two years after the claim for
relief arises and not thereafter. Colorado appellate courts hold that a claim for relief arises under this statute “on
the date both the injury and its cause are known or should have been known by the exercise of reasonable
diligence.”

MTD argued that ACIC’s claim was time barred by the two-year statute of limitations.

The undisputed facts show that ACIC acted immediately and with substantial diligence in investigating the
accident. By the day after the accident, ACIC’s adjuster knew that the employee sustained a “serious head/brain
injury.” On October 19, 2007, ACIC’s Loss Prevention Consultant stated he did not yet know whether the cause
of the explosion was a product defect, user error or something else. By October 21, 2007, ACIC’s outside
investigator noted that it appeared that the plastic wheel blew from the tire and hit the employee in the face.

On October 24, 2007, ACIC’s manager sent the fax to MTD’s lawyer outlining the fact that the plastic tire
exploded. The court found that in short, by October 24, 2007, a management level employee of ACIC who dealt
with subrogation claims was aware of the nature and scope of the employee’s injuries. He knew that the injury
resulted in a plastic tire explosion, and believed that the injuries were caused by the misconduct of another.
                                                   WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
PAGE 4                                                          ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.
ACIC argued that the claim did not arise at least until October 31, 2007, when ACIC received its investigative
report, but the court found that the report did not provide any significant information about the cause of the
accident beyond that which ACIC already knew from earlier communications.

ACIC also argued that “suspicion of a possible connection does not necessarily put a reasonable person on
notice of the nature, extent, and cause of an injury.” But the facts showed that ACIC had more than a mere
suspicion of the facts of the injury on October 24, 2007. The court reasoned that if facts had to be established
with absolute certainty, then a statute of limitations defense could never be established without a trial on the
merits, and even then a verdict would only mean that a jury found the elements to have been established as
more likely than not.

ACIC argued that as subrogee it steps into its insured’s shoes and acquires his rights. Courts have rejected
arguments that an insurer’s subrogation claim does not arise for statute of limitation purposes until the insurer
pays the insured, holding in context that the claim arises when the insured’s claim arises. Finally, ACIC argued
that the claim did not arise until it admitted liability to the employee and paid workers’ compensation benefits.
The court dismissed this argument noting that courts have frequently rejected insurers’ arguments that their
claim against a third-party tortfeasor does not arise until the insurer pays the insured.

Defendant’s motion for summary judgment on statute of limitations grounds was granted.

                                                  FLORIDA

Legislative Development:      Subrogation in Medical Malpractice Claims

House Bill 1233

House Bill 1233 purported to create medical malpractice reforms by creating a comprehensive patient
compensation system with an associated patient compensation board, which would have exclusive jurisdiction
over medical malpractice claims. Among other things, the Bill purported to reduce medical malpractice claims
by the amount of collateral source payments made to the claimant, potentially impacting subrogation claims.
However, the Bill died in the Civil Justice Subcommittee on March 9, 2012.

                                                   HAWAII

Case Law Development:         Statute of Limitations

First Insurance Company of Hawaii, Ltd. v. A&B Properties, Inc., 2012 Haw. LEXIS 72, No. SCAP-10-
0000213 (Haw., Mar. 14, 2012) – Decided March 14, 2012.

Workers’ compensation carrier First Insurance of Hawaii, Ltd., timely initiated a lawsuit against A&B
Properties within the two-year limitations period applicable to personal injury claims under Hawaii Revised
Statute §657-7, asserting its right of subrogation for reimbursement of workers’ compensation benefits paid to
and on behalf of the injured worker, Joseph Toro, a result of the alleged negligence of A&B Properties in
causing Toro’s work-related injuries. The injured worker did not file suit against the alleged third-party
tortfeasor, A&B Properties, or intervene in the workers’ compensation carrier’s pending suit against A&B. The
workers’ compensation carrier and third-party tortfeasor later reached an agreement to settle the workers’
compensation carrier’s claims against the third-party tortfeasor on a walk-away basis (dismissal of the
subrogation action, no subrogation recovery, and each party bearing its own fees and costs). Injured worker
Toro refused to consent to the settlement, something that is required under Hawaii Revised Statutes §386-8 for
such a settlement to be legally valid. See HRS §386-8 (“[n]o release or settlement of any claim or action under

WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.                                                         PAGE 5
this section is valid without the written consent of both employer and employee”). After the two-year statute of
limitations on personal injuries expired, injured worker Toro sought to intervene in the still pending action
between the workers’ compensation subrogation carrier and third-party tortfeasor. The third-party tortfeasor
moved for summary judgment on the alleged basis that HRS §386-8, which governs the right of an employee to
intervene in an employer’s third-party liability lawsuit under workers’ compensation law, does not allow an
employee to intervene after the applicable statute of limitations had expired. The circuit court granted the
motion and denied the injured worker’s intervention in the pending suit and both the third-party tortfeasor and
workers’ compensation carrier sought dismissal of the subrogation action.

The Supreme Court of Hawaii reversed, holding that HRS §386-8 does not limit an employee’s right to
intervene in a workers’ compensation carrier’s timely filed lawsuit, even where the injured worker seeks to
intervene after the applicable statute of limitations has run. At issue were two statutory provisions, both of
which address initiation of actions for recovery of compensation paid in workers’ compensation:

HRS §386-8 provides in relevant part:

        If within nine months after the date of the personal injury the employee has not commenced an action
against such third person, the employer, having paid or being liable for compensation under this chapter, shall
be subrogated to the rights of the injured employee. Except as limited by Chapter 657, the employee may at any
time commence an action or join in any action commenced by the employer against such third person.

HRS §657-7 provides in relevant part:

        Actions for the recovery of compensation for damage or injury to persons or property shall be instituted
within two years after the cause of action accrued, and not after, except as provided in section 657-13.

The Supreme Court held that HRS §386-8 is ambiguous when it is read in conjunction with HRS §657.7, since
the latter does not explicitly address an employee’s right to intervene and is, by its terms, limited to the
initiation of an action, not intervention in a pending action.

The Supreme Court observed that a prior version of §386-8 provided that if an employee failed to file suit
within nine months, then the employer would be subrogated to the rights of the employee. The Court noted that
after that enactment, confusion arose as to whether employees lost the right to file suit after the nine-month
period elapsed. As a result, in 1959, the legislature added the phrase at issue in this case, “[e]xcept as limited by
Chapter 657, the employee may at any time institute an action or join in any action instituted by the employer
against such third person.” The Supreme Court held that the legislative history establishes that the Legislature
was trying to address a narrow issue, of dispelling the belief that the statute established a nine-month statute of
limitations on the injured employee’s right to institute an action. The Court went on to note that the legislative
history does not suggest that the Legislature was attempting to limit an employee’s rights in the distinct context
of intervention in an already-filed action. As such, the Court held that HRS §386-8 was not intended to restrict
an employee’s right to intervene in an otherwise timely action, but rather was intended to restrict an employee’s
right to institute or commence an action.




                                                  WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
PAGE 6                                                         ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.
                                                     ILLINOIS

Legislative Development:       Joint and Several Liability

Illinois House Bill 3905

Illinois House Bill 3905 is currently in the House Rules Committee. The Bill purports to change Illinois’ joint
and several liability law. The current statute provides:

        Any defendant whose fault, as determined by the trier of fact, is less than 25% of the total fault
attributable to the plaintiff, and any third-party defendant “except the plaintiff’s employer,” shall be severally
liable for all the other damages. Any defendant whose fault, as determined by the trier of fact, is 25% or greater
of the total fault attributable to the plaintiff, the defendants sued by the plaintiff, and any third-party defendants,
“except the plaintiff’s employer,” shall be jointly and severally liable for all other damages.

House Bill 3905 eliminates the language “except the plaintiff’s employer” and replaces it with the language,
“who could have been sued by the plaintiff”:

        Any defendant whose fault, as determined by the trier of fact, is less than 25% of the total fault
attributable to the plaintiff, and any third-party defendant “who could have been sued by the plaintiff” shall be
severally liable for all the other damages. Any defendant whose fault, as determined by the trier of fact, is 25%
or greater of the total fault attributable to the plaintiff, the defendants sued by the plaintiff, and any third-party
defendants, “who could have been sued by the plaintiff,” shall be jointly and severally liable for all other
damages.

The language change is not likely to have any substantial impact on workers’ compensation subrogation carriers
given that under the exclusive remedy of workers’ compensation, an employee’s employer can never, by
definition, be “a third-party defendant who could have been sued by the plaintiff.”

                                                    LOUISIANA

Legislative Development:       Louisiana House Bill 697

On March 29, 2012, the Louisiana House of Representatives introduced House Bill 697, which addresses
lawsuits against third-party tortfeasors in workers’ compensation claims. The proposed legislation purports to:

*     Restrict a workers’ compensation carrier’s recovery to the amounts paid or payable, regardless of the
amount recovered by the injured worker;

*      Confirm limitation of a workers’ compensation carrier’s recovery rights to the employee’s recovery of
lost wages and medical benefits and not for any other tort-based damage class the employee can recover (e.g.,
emotional distress, pain and suffering, etc.);

*      Distinguish between special and general damages in any settlement of the third-party claim;

*       Establish penalties payable by any employer or workers’ compensation carrier who unreasonably
withholds consent to a compromise settlement (112% of the compensation lien or $8,000.00, whichever is
greater);



WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.                                                               PAGE 7
*      Limit the workers’ compensation carrier’s “first dollar” right of recovery to those amounts awarded for
lost wages and medical benefits. Previously, the workers’ compensation carrier’s first dollar right of recovery
extended to all damages, regardless of how they were itemized or classified by a judge.

                                                 LOUISIANA

Case Law Development:         Notice

Bennett v. Arkansas Blue Cross Blue Shield, 11-1180 (La. App. 1 Cir. 2/13/12), 2012 La. App. LEXIS 146 –
Decided February 13, 2012.

Louisiana Revised Statute 23:1102(B) provides in part that an employee who settles a lawsuit without the
consent of the employer and insurer forfeits the right to future compensation, including medical expense
benefits. Here, employee Bennett’s back was injured in the course and scope of her employment with Blue
Cross when she tripped in a hole outside the building in which she worked. Blue Cross’s workers’
compensation insurer, St. Paul Fire and Marine Insurance Company (“St. Paul”), voluntarily paid workers’
compensation indemnity and medical expense benefits to and on behalf of Bennett. A year after the work injury
occurred, Bennett commenced a tort action against the owner of the building, Turner United Partnership
(“Turner”) and Turner’s liability insurer, Trinity Universal Insurance Company (“Trinity”). St. Paul intervened
in the action to assert its statutory right to reimbursement of benefits paid, which claim totaled approximately
$75,000.

Turner then filed a reconventional demand against St. Paul and a third-party demand against Blue Cross. Turner
alleged that Blue Cross through the lease contract agreed to waive any right of subrogation against Turner and
that this caused Blue Cross’s insurers, including St. Paul, to likewise waive any right of subrogation and that,
therefore, Blue Cross was responsible for Turner’s loss. Turner also argued that Blue Cross had agreed to hold
harmless and indemnify Turner for any losses resulting from Blue Cross’s failure to perform under the lease,
including the claims asserted by Bennett.

Bennett eventually settled with Turner for $250,000, and Bennett’s tort claim was dismissed, but neither Blue
Cross nor St. Paul provided written consent to the settlement. The trial court dismissed Turner’s claims against
St. Paul and Blue Cross, and Turner and Trinity were ordered to reimburse St. Paul the $75,000 it had paid in
work comp benefits.

Turner and Trinity appealed, arguing that the trial court erred in failing to uphold the lease provision requiring
Blue Cross to waive any subrogation rights. The court of appeals found that Blue Cross’s obligation under the
lease to waive subrogation and cause its carriers to also do so did not apply to Bennett’s claims based on defects
in Turner’s premises, and also found that because Turner failed to obtain written approval for the compromise
with Bennett from St. Paul under La. R.S. 23:1102(C)(1), Turner was required to reimburse St. Paul for its lien.

As a result of the settlement, St. Paul stopped paying benefits to Bennett. Bennett subsequently filed a disputed
claim against Blue Cross in the Office of Workers’ Compensation in connection with pain management
treatment not authorized by Blue Cross. Blue Cross opposed the claim with a preemptory exception and a
motion for summary judgment. Blue Cross argued that Bennett had no right of action because she previously
settled with a third party without obtaining approval from her employer and therefore forfeited her right to
future compensation benefits and, alternatively, that she had no cause of action to recover the cost of medical
treatment from her employer unless and until she could first show that she had exhausted her settlement
proceeds. In response, Bennett asserted that Blue Cross waived its workers’ compensation subrogation claim
against Turner in the lease agreement and that, therefore, Blue Cross was not required to consent to her
settlement with Turner.

                                                 WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
PAGE 8                                                        ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.
The workers’ compensation judge overruled the exception of no right of action and denied the motion for
summary judgment. Blue Cross then appealed, and the court of appeals dismissed the appeal on the basis that
the rulings were interlocutory and not appealable. The workers’ compensation judge subsequently signed
another judgment providing the same relief but stating that it was final and appealable. Blue Cross again
appealed, and the court of appeals again dismissed the appeal, holding that the judgment was not final for
appellate court jurisdiction.

The workers’ compensation judge dismissed the case without prejudice for Bennett’s failure to provide the
court with a judgment. The judgment of dismissal ordered that the action could be reinstated upon a showing of
good cause within 30 days. Approximately one year later, Bennett filed a disputed claim for compensation
against Blue Cross challenging Blue Cross’s termination of benefits and its failure to authorize pain
management treatment. Blue Cross asserted in its answer that the claim was barred by res judicata and because
she settled her claim against Turner without the written consent of her employer, Blue Cross. In awarding
benefits and outstanding medical expenses to Bennett, the workers’ compensation judge ruled that Blue Cross
had waived in its lease agreement the right of subrogation including its right to recover from Bennett’s third-
party tort claim.

Blue Cross appealed the judgment. Blue Cross argued that Bennett’s claim should have been dismissed on the
basis of res judicata because she failed to reinstate her claim within the 30-day period allowed by the judgment.
The court of appeals reversed and held that the workers’ compensation judge erred in finding that Bennett did
not forfeit her right to future compensation under Louisiana Revised Statutes 23:1102(B), and that the
subrogation clause of the lease did not excuse Bennett’s failure to obtain Blue Cross’s approval of her
settlement with Turner. Although the statute allowed an employee who failed to obtain the consent of an
employer to a settlement to recover benefits in excess of the settlement proceeds under certain circumstances,
because the workers’ compensation judge found that Bennett did not forfeit her right to benefits, Blue Cross’s
claim that Bennett could not recover compensation benefits and medical expenses until she demonstrated that
she exhausted her settlement proceeds was not addressed by the workers’ compensation judge. Therefore, the
court of appeals remanded this case to the Office of Workers’ Compensation to address that issue consistent
with its opinion in this case.

                                                 LOUISIANA

Case Law Development:         Solidary Liability and Contribution

Kelly v. Scottsdale Ins. Co., 2012 U.S. App. LEXIS 3194, No. 10-30669 (5th Cir., Feb. 13, 2012) – Decided
February 13, 2012.

Under Louisiana law, a UM insurer and a workers’ compensation carrier are “solidary obligors.” Accordingly,
the carrier’s payment of workers’ compensation benefits to an injured employee may reduce the UM insurer’s
liability to the employee by the amount of those benefit payments.

In this case, Kelly sustained serious injuries while operating a car in the course and scope of his employment
with LFI. The car collided with another vehicle that was negligently operated by an uninsured driver. The car
operated by Kelly was leased by LFI. The car was covered by LFI’s liability and UM policy with Scottsdale.

Kelly filed a workers’ compensation claim with LFI and commenced a tort action against Scottsdale. LFI
intervened in the tort action alleging a right to subrogation reimbursement from any damages recovered by
Kelly from Scottsdale. The district court concluded that LFI and Scottsdale were solidary obligors and that,
accordingly, LFI and Scottsdale were solidarily obligated to Kelly. The district court granted summary
judgment to Scottsdale to the extent that LFI sought subrogation reimbursement from Scottsdale through Kelly.
WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.                                                         PAGE 9
The court reasoned that Kelly could not recover from Scottsdale on any amounts that he had already recovered
from LFI, and that LFI was not entitled to subrogation reimbursement through Kelly to that extent. The district
court explicitly declined to decide whether LFI could seek contribution from Scottsdale on other grounds.

LFI appealed the district court’s grant of summary judgment on its complaint in intervention against Scottsdale
Insurance Company and Kelly. In affirming the district court, the court of appeals applied Louisiana substantive
law. The court noted that the Louisiana Supreme Court held that an uninsured motorist carrier and a workers’
compensation carrier are solidary obligors vis-à-vis the injured claimant to whom they owe compensation. The
court of appeals stated that the Supreme Court held that the collateral source rule, which prevents a tortfeasor
from reducing his liability to the claimant by the amount of any payments received by the claimant from an
independent source, does not apply in cases where the claimant was injured in the course of employment
through the fault of a third-party tortfeasor. The court stated that where a workers’ compensation carrier has
paid benefits to an injured claimant, those payments extinguish the UM carrier’s obligation to pay out the same
benefits, and the carrier is entitled to reduce its liability to the claimant by the amount of those payments. The
court of appeals held that accordingly in this case, LFI’s benefit payments to Kelly extinguished Scottsdale’s
obligation to pay Kelly for those same benefits.

The court also noted that article 1804 of the Louisiana Civil Code and §23:1101 of the Louisiana Revised
Statutes may provide LFI a right to seek contribution reimbursement from Scottsdale for a portion of the
benefits it paid to Kelly, but pointed out that such a right concerns the manner in which the liability would be
allocated among the insurers which is separate and distinct from the question of the insurers’ solidary liability to
Kelly and whether Kelly had the right to obtain a double recovery from Scottsdale and LFI.

                                                     MAINE

Legislative Development:      Allocation of Recovery/Workers’ Compensation Carrier’s Proportionate
                              Share of Attorney’s Fees/Costs

House Paper 1154

House Paper 1154 was enacted into law on February 28, 2012. It eliminates the workers’ compensation carrier’s
obligation to pay a proportionate share of costs and attorney’s fees when the injured worker or his/her
beneficiaries obtains a tort recovery from a third-party tortfeasor relative to a work-related accident.
Additionally, where the employer recovers from a third-party tortfeasor in excess of the workers’ compensation
benefits paid, the amendment removes the former requirement that the employer reduce the excess to be paid
over to the injured worker, for attorney’s fees and costs.

                                                  MARYLAND

Case Law Development:         Lien Reduction/Set-Off

Williams v. TravCo Ins. Co., 2012 U.S. Dist. LEXIS 29570, Case No. CCB-10-2583 (D. Md., Mar. 5, 2012)
– Decided March 5, 2012.

Ms. Williams, while in the course and scope of her employment with the District of Columbia (D.C.), was
involved in an uninsured motorist accident while riding as a passenger in a vehicle driven by her supervisor.
Ms. Williams received workers’ compensation benefits from the D.C. as a result of her injuries. On the date of
the accident, Ms. Williams was covered under a Maryland personal automobile insurance policy with TravCo
providing $100,000 in uninsured motorist coverage and $2,500 in personal injury protection coverage. Ms.


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Williams alleged that TravCo breached its contracts to provide her with UM and PIP coverages arguing that the
coverages should not be reduced by the amounts she received under the D.C. workers’ compensation system.

Ms. Williams sought declaratory relief holding that any benefits paid to her by TravCo should not be reduced
by the amounts that she received from the District of Columbia under its workers’ compensation law. The case
presented a question of statutory interpretation under Maryland Code Ann., Ins., Section 19-513(e) which
provides that “benefits payable under the coverages described in 19-505 [PIP] and 19-509 [UM] of this subtitle
shall be reduced to the extent that the recipient has recovered benefits under the workers’ compensation laws of
a state or the federal government for which the provider of the workers’ compensation benefits has not been
reimbursed.” The parties agreed that Williams had received benefits under the applicable workers’
compensation laws and that the provider of those benefits had not been reimbursed to date. The issue before the
Court was whether TravCo was allowed to reduce any PIP or UM payments to Williams by the amount of
workers’ compensation benefits.

The Court held that since the insurance contract was made in Maryland, Maryland law governed the dispute.
The Court found that TravCo was entitled to reduce the benefits it paid Ms. Williams by the amount of workers’
compensation benefits she received. However, TravCo was not entitled to reduce both the PIP and the UM
coverages by the entire amount of the workers’ compensation benefits. The Court held that while the Maryland
statute providing for the reduction of insurance benefits does not expressly address whether one insurance
company can reduce two sets of benefits by the same amount under the same policy, given that insurance
policies are required to provide both UM and PIP coverages, it would be illogical to allow insurance companies
to take a set off of the workers’ compensation benefits twice under the same policy.

                                                  NEVADA

Case Law Development:        Interpretation of UIM Policy

Gen. Ins. Co. of Am. v. Cronk, 2012 U.S. Dist. LEXIS 32462, No. 3:10-CV-00588-LRH-VPC (D. Nev., Mar.
9, 2012) – Decided March 9, 2012.

This district court decision discusses provisions of NRS §616C.215. Cronk and Crumley were security officers
employed by the Carson Nugget Casino in Las Vegas. They were injured in a parking lot while on foot when
they were struck by a pick-up truck operated by an intoxicated customer. Their medical bills exceeded the
policy limits on the intoxicated driver’s automobile insurance policy and the limits of their own personal auto
policies, and they sought UIM benefits under Carson Nugget’s policy with General Insurance. General
Insurance denied the claim and commenced a declaratory judgment action contending that Cronk and Crumley
were not entitled to UIM benefits under the policy.

Employers Insurance was the casino’s workers’ compensation insurer and had paid benefits to Cronk and
Crumley. Employers Insurance filed a complaint in intervention against General Insurance seeking a declaration
of the rights of Cronk and Crumley under the General Insurance UIM policy and asserting its right to be
subrogated to those rights under NRS §616C.215. General Insurance and Cronk and Crumley then filed cross-
motions for summary judgment. Employers Insurance argued that the “occupying” requirement in the UIM
policy was void under NRS §616C.215(3)(c) which limits the ability of insurers to avoid liability by declaring
as void any provision in the employer’s UIM policy that has the effect of limiting the rights of subrogation of
the insurer. Employers Insurance argued that the “occupying” requirement was void because under paragraph

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ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.                                                        PAGE 11
(c) of the statute the requirement had the effect of both limiting Employers Insurance’s subrogation rights and
excluding coverage which would inure to the benefit of Employers Insurance.

The trial court ruled that the limitations of paragraph (3)(c) are never reached because subsection (3) only
applies when an injured employee sustains an injury caused under circumstances entitling the employee to
receive proceeds under his employer’s UIM policy. Because the court held that Cronk and Crumley were not
injured under circumstances entitling them to coverage as insureds under their employer’s UIM policy, because
they were not occupying a covered vehicle at the time of the accident, the court held that no right to subrogation
arose and that the protections afforded to that right are not relevant. Accordingly, the court granted General
Insurance’s motion for summary judgment on Employers Insurance’s complaint in intervention for subrogation.

                                                     OHIO

Case Law Development:

Horvath v. Walgreen Co., 2012 U.S. Dist. LEXIS 17655, No. 3:10 CV 1684 (N.D. Ohio, Feb. 13, 2012) –
Decided February 13, 2012.

An injured employee alleged that Walgreen negligently failed to warn of, or repair, a crack in the cement
pavement outside one of its distribution centers, thereby causing the employee to fall and sustain injuries while
making a delivery at Walgreen’s distribution center. Employee was carrying a bill of lading for her delivery and
exited her truck to walk to the pre-receiving area at the yard. She heard a “yard dog” and believed it was
moving because it did not sound like it was idling. The employee stated that nothing obstructed her view as she
walked and that she did not notice any defects in the cement.

With the six o’clock sun to her back, the employee neared the end of her trailer and stepped on a crack, causing
her to break her ankle in three places. The undisputed material facts demonstrate that the difference in elevation
between the two pieces of cracked cement was less than two inches.

The employee initiated her lawsuit against Walgreen. State Fund intervened and filed a Complaint against
Walgreen pursuant to its statutory right of subrogation.

Walgreen brought a motion for summary judgment on four grounds: 1) the employee’s failure to identify the
defect that caused her fall; 2) the “two-inch” rule; 3) the “minor imperfection” rule; and 4) the “open and
obvious” rule.

The court analyzed this matter and granted Walgreen summary judgment by operation of the “two-inch” rule.
The two-inch rule establishes a rebuttable presumption that height differences of two inches or less are
insubstantial as a matter of law. The presumption may be rebutted by showing attendant circumstances
sufficient to render the defect substantial.

An attendant circumstance includes any distraction that would divert the attention of someone in the same
circumstances and thereby reduce the amount of care an ordinary person would exercise. The attendant
circumstance must significantly enhance the danger of the defect, and contribute to the injured party’s injury.

The court found that the two-inch rule applied and no attendant circumstances existed to rebut the two-inch rule.
The injured employee stated at her deposition that yard dogs, trucks, golf carts, cranes and pallet jacks are all
vehicles one ordinarily expects to encounter in a large truck terminal such as Walgreen’s. Here, the injured
employee only heard one yard dog, nothing else was in the area. Moreover, an argument of a mere possibility of
other traffic does not constitute an attendant circumstance, as such a circumstance does not “significantly
enhance the danger of the defect.”
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Finally, an argument that an undisclosed presence of shadows could be dangerous stretches the attendant
circumstances rule beyond reasonable comprehension. A person should not be liable where he or she had no
control over shadows caused by the sun. This is especially true where, as here, the injured party’s view of the
crack was unobstructed, and there were neither pedestrians to contend with nor an unusual presence of vehicles.

For those reasons, Walgreen’s motion for summary judgment was granted.

                                                     OHIO

Case Law Development:

Posel v. Dayton Power & Light, 2012 U.S. Dist. Lexis 19862, No. 1:09-CV-00149 (S.D. Ohio, Feb. 16, 2012)
– Decided February 16, 2012

Plaintiff sought to recover damages for injuries he allegedly sustained as the result of a work site accident. The
workers’ compensation carrier paid workers’ compensation benefits to the plaintiff. The defendant sought to
exclude from trial evidence the collateral benefits the workers’ compensation carrier paid as well as the
insurer’s resulting subrogation lien. The defendant argued that any evidence of workers’ compensation benefits
paid to or on behalf of plaintiff was inadmissible under Ohio’s collateral source statute, and that evidence
pertaining to payments and the resulting subrogation lien was inadmissible under F.R.E. 403 because the
probative value of the evidence was substantially outweighed by the danger of unfair prejudice.

Plaintiff argued that defendant would not be prejudiced by the admission of such evidence whereas plaintiff
would be substantially prejudiced if he was precluded from introducing evidence of the lien.

The court found that by its very terms, the collateral source rule precludes only a defendant from introducing
evidence of a collateral source benefit when one of the exceptions enumerated in the statute applies. The statute
does not address whether a plaintiff is permitted to introduce such evidence. Nevertheless, the court did not rule
whether the collateral source rule applied because it found that the evidence of the workers’ compensation
payments and subrogation rights should be excluded under Federal Rule of Evidence 403.

The court found that the probative value of the evidence concerning workers’ compensation payments and the
subrogation lien is substantially outweighed by the danger of unfair prejudice and misleading the jury. The
plaintiff was unable to show how this evidence had any relevance to the issues of defendant’s liability for
plaintiff’s injuries and the damages plaintiff incurred. Nor did plaintiff show that he would be prejudiced if such
evidence was excluded. If a defendant is found liable, the plaintiff may recover “the reasonable value of
plaintiff’s medical treatment.” The parties can still present evidence of medical charges billed, amounts
accepted as full payments, and write-off amounts. But the jury simply will not be permitted to learn that the
amounts accepted by the providers were paid by a source other than the plaintiff. The jury would be allowed to
draw unfounded assumptions as to defendant’s liability and the damages incurred if the collateral source
evidence is admitted, given the standards governing the payment of workers’ compensation benefits differ from
those which govern the imposition of tort liability. For instance, defendant claims that all payments after
November 2007 were unreasonable and unnecessary, but if the jury sees that the workers’ compensation carrier
paid benefits after November 2007, it may infer that the wages and medical expenses were reasonable and
necessary by the very fact of their payment by the workers’ compensation carrier. Thus, defendant would be
unfairly prejudiced.

For those reasons, defendant’s motion in limine to exclude evidence of collateral sources was granted.



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                                                OKLAHOMA

Legislative Development:     Jurisdictional Limits for Small Claims

Senate Bill 1196

As of April 10, 2012, Senate Bill 1196 passed in both the House and Senate. The Bill increases the
jurisdictional limit for small claims cases from $6,000.00 to $10,000.00. The Bill is slated to become effective
November 1, 2012.

                                                   TEXAS

Case Law Development: Case dismissed for lack of subject matter jurisdiction.

Caldera v. The Ins. Co. of the State of Pennsylvania, 2012 U.S. Dist. LEXIS 12888, No. C-11-321 (S.D. Tex.,
Feb. 2, 2012) – Decided February 2, 2012

Plaintiff Caldera sustained a work-related injury in the course and scope of his employment in 1995. Defendant
Insurance Company of the State of Pennsylvania (ICSP) originally paid workers’ compensation benefits to
Caldera under Texas law. In 1998, Caldera began receiving Social Security Disability benefits. In 2002, ICSP
denied additional medical benefits to Caldera by filing a TWCC-21 with the Texas Workers’ Compensation
Commission (TWCC) claiming that the 1995 work-related injury had resolved and any new medical issues were
not related to the 1995 injury.

Caldera did not appeal the TWCC determination and his ongoing medical expenses were paid by Medicare. In
2005 and 2006, Caldera required surgery and the expenses were paid by Medicare. In April 2011, the parties
entered into an Agreed Judgment in State Court stating that the surgery in 2005/2006 was related to the initial
1995 work-related injury. While the Agreed Judgment established ICSP’s responsibility for medical expenses
related to the injury, it did not liquidate any damages or require any payment. ICSP denied payment for the
charges incurred by Caldera and paid by Medicare based on Caldera’s failure to comply with the
preauthorization requirements and for failure to timely submit the medical bills for payment. Given the lapse of
time, there was no longer any administrative remedy available to require ICSP to pay the medical expenses.
Caldera therefore filed a declaratory judgment action in federal court seeking a judgment that ICSP was liable
for the full amount Medicare paid on behalf of Caldera.

Caldera asserted that federal question jurisdiction provided the basis for the declaratory judgment action
pursuant to 42 U.S.C. §13595y(b), the Medicare Secondary Payer Act (MSP). ICSP filed its motion to dismiss
arguing that the pleadings did not state a proper MSP claim (federal question) because Caldera did not exhaust
his administrative remedies back in 2002. Caldera conceded that he did not exhaust his administrative remedies;
however, he claimed that the MSP preempted the unexhausted remedies and therefore provided jurisdiction.
The court held that while ICSP agreed that Caldera’s injury was compensable, it did not agree to pay any
damages as a result of the injury, and the opportunity to liquidate those damages was now barred by the
applicable limitations. Caldera argued that he was only required to prove ICSP’s “responsibility” as opposed to
“ liability” and that “responsibility” was the equivalent of a “compensable injury.” The Court ruled that a
plaintiff must demonstrate the alleged primary payer’s “ liability” as a condition precedent to making an MSP
claim and, therefore, liquidating the primary payer’s obligation was not a federal question triggering federal
jurisdiction. Accordingly, the Court granted ICSP’s motion to dismiss for lack of subject matter jurisdiction.
                                                WORKERS’ COMPENSATION SUBROGATION UPDATE – 2012: FIRST QUARTER
PAGE 14                                                      ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.
                                                   VERMONT

Legislative Development:      Lien Reduction

Senate Bill 169

Senate Bill 169 is currently in the Senate Rules Committee. In its current form, the Bill purports to amend
Vermont’s Workers’ Compensation Subrogation Statute (Title 21, §624), to provide that the workers’
compensation carrier shall reduce its lien in the same proportion as the injured worker’s tort recovery is reduced
due to comparative fault, limited liability, insurance coverage, or “some other reason.” The broad classification
of “some other reason,” if included in any final form of the Bill, has the potential for creating fertile ground for
injured worker’s attorneys to manufacture creative rationales for lien reduction in an attempt to gerrymander
recovery dollars away from the subrogated carrier. This is a Bill to watch as 2012 progresses.




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