Page of Workers Compensation Liens in Third Party Claims

Page 1 of 17 Workers' Compensation Liens in Third Party Claims Thompson, Smyth & Cioffi February 2000 I. HISTORY OF THE STATUTE-N.C. GEN. STAT. §97-10.2 The reason that this topic exists is that usually tort recovery from a third party should hopefully be for a larger sum than the workers' compensation benefits. There is a reason for this. Workers' compensation benefits are designed to serve a different statutorily recognized public policy from that of making an injured person "whole" again. As has been recently stated: The general purpose of the Workers' Compensation Act, in respect to compensation for disability, is to substitute, for common law or statutory rights of action and grounds of liability, a system of many payments by way of financial relief for the loss of capacity to earn wages. There is no compensation provided for physical pain or discomfort. Branham v. Denny Roll & Panel Co., 223 N.C. 233, 236, 25 S.E.2d 865, 867 (1943) [O]ne of the purposes of the [Workers'] Compensation Act is to relieve against hardship rather than to afford full compensation for injury. The fixing of maximum and minimum awards in industry is a compromise on Kellams v. Carolina Metal Products, Inc. 248 N.C. 199, 203, 102 S.E.2d 841, 844 (1958). McMillian v. N.C. Farm Bureau Mutual Ins. Co., 125 N.C. App. 247, 251, 480 S.E.2d 437, 439 (1997), reversed on other grounds, 347 N.C. 500, 495 S.E.2d 352 (1998). The North Carolina courts have indicated that the purpose of §97-10.2 and its statutory predecessors was "to secure prompt reasonable compensation for an employee and simultaneously to permit an employer who has settled with the employee to recover such amount from a third party tort-feasor." Radzisz v. Harley-Davidson of Metrolina, 346 N.C. 84, 89, 44 S.E.2d 566 (1997). N.C. Gen. Stat. §97-10.2 provides for the interaction between workers' compensation, and third party tort actions. The predecessor statutory provisions to 97-10.2 have been around in some version since 1929. Over time, the statute has undergone many changes including changes pertaining to the admissibility of evidence of receipt of workers' compensation benefits as well as procedural changes in the way that settlements involving a workers' compensation lien are approved. A brief summary of the history of the predecessor statutes to 97-10.2 is found in Hogan v. Motor Lines, 38 N.C. App. 288, 248 S.E.2d 61 (1978) (tracing the statute from its original enactment in 1929 until the 1971 changes). Noteworthy changes have occurred in 1983, 1991, and again this summer. (i.e., 1999). In Fogleman v. D & J Equipment Rentals, 111 N.C. App. 228, 431 S.E.2d 849 (1993), the court held that it would be unconstitutional to apply statutory changes to 97-10.2 to claims that had already "vested" prior to October 1, 1991 and thus that is the bright line date for application of the newer versus the older statute. The reader should be aware that there were some substantial differences between the 1991 version of the statute and the 1983 version. See, e.g. Buckner v. City of Asheville, 113 N.C. App. 354, 438 S.E.2d. 467 (1994) (describing a number of changes as to the rights of the employer and employee pursuant to the 1991 amendment). In 1999, the Legislature has again amended the statute (specifically subsection 97-10.2(j)) and these amendments are already in effect as they took effect upon ratification on June 18. The 1999 statutory revisions generally pertain to the discretion afforded to a judge in addressing a lien triggered through Workers' Compensation Liens in Third Party Claims that statute. II. CREATION OF A LIEN Page 2 of 17 A basic question is how an employer triggers its rights to subrogation, forcing the plaintiff/employee and the alleged third-party tort-feasor to acknowledge the right of the employer in the tort litigation. First, it does not appear that the workers' compensation insurer needs to actively participate in the third party tort claim to preserve its lien. Byers v. N.C. State Highway Commission, 275 N.C. 229, 166 S.E.2d 649 (1969). Second, while a statutory argument could be constructed that pursuant to §97-10.2(f)(1) an employer has statutory rights only if it has "filed a written admission of liability for benefits under this Chapter with, or if an award final in nature in favor of the employee has been entered by the Industrial Commission"(emphasis added), it appears that the workers' compensation insurer/employer has a lien interest in a third-party settlement even though at the time of the settlement the employer has denied that the employee/plaintiff was entitled to any workers' compensation benefits, and had paid none. Radzisz v. Harley Davidson of Metrolina, 346 N.C. 84, 484 S.E.2d 566 (1997). In Radzisz, the North Carolina Supreme Court (in a 4-3 decision) held that an employer's statutory right to a lien on a recovery from a third party tort-feasor is "mandatory in nature" and the Industrial Commission does not have the statutory authority to discharge the lien. Id. at 89. The court found that the right to enforce a lien applies even to benefits "to be paid" and applies "regardless of whether the employer first filed an admission of liability or obtained an award from the Commission". The court specifically found that it would include "benefits awarded after the employee settles his third party claim or obtains a judgment." Id. at 90. In Radzisz the court additionally found that an agreement entitled "Settlement Stipulation and Agreement" did not set up any contractual rights which were not already existing under the statute and did not affect the outcome. In a dissenting opinion, Justice (now Chief Justice) Frye reasoned that the result reached by the majority would discourage prompt payment by workers' compensation insurers and would adversely affect the prompt and orderly resolution of claims. Id. at 93-94. As will be discussed later, this problem may be largely remedied by the 1999 amendments to 97-10.2(j). [see discussion supra p. 16-21] The Radzisz decision indicates that it would be a good idea to explore the possible compensability of the plaintiff/employee's injury under the Workers' Compensation Act before entering into any arrangements with the third party tort-feasor. Certainly the denial of workers' compensation benefits by the employer/insurer would seem to cut against a particularly favorable disposition of a subrogation lien in the event of a judicial apportionment. If there is a denied workers' compensation claim, both the plaintiff/employee and the third party want to make sure that the workers' compensation insurer, if any, is on notice of a settlement, and of a judicial hearing on the lien. If a plaintiff is perfectly content with a proffered settlement with a third-party tort-feasor and does not seek to also push for workers' compensation then this problem is largely moot. If there is any possibility that the plaintiff, in the future, might seek workers' compensation benefits in addition to the pending third-party settlement, the potential of lienholder status by the workers' compensation insurer cannot be ignored. III. CALCULATING THE SIZE OF THE LIEN FOR VARIOUS PURPOSES There are several important aspects of the calculation of the amount of the lien, including placing it in evidence before the jury pursuant to §97-10.2(e), and in determining how much should be paid back to the workers' compensation carrier. It seems that the burden is on the employer to establish that a particular treatment modality is covered by the lien. In Roberts v. A.B.R. Associates, 101 N.C. App. 135, 398 S.E.2d 917 (1990), the Court of Workers' Compensation Liens in Third Party Claims Page 3 of 17 Appeals held that the expenses incurred for a rehabilitation specialist would be part of a 97-10.2 lien on a third-party settlement, because the employer/workers' compensation insurer was able to establish they were proper expenses. In Bartell v. Sawyer, N.C. App. , 512 S.E.2d 93 (1999), the North Carolina Court of Appeals recently held that the employer lienholder was not entitled to receive repayment for its subrogation on prejudgment interest as to its workers' compensation payout, out of a favorable tort judgment for its employee/plaintiff. The court there read N.C. Gen. Stat. §97-10.2(f) literally and found no directive as to payment of prejudgment interest on a pro-rata basis between the employee/plaintiff and lienholding employer, and therefore concluded that the prejudgment interest fell into the category of "any amount remaining" which subsection (f) directs is to be paid to the employee. It would seem fair to assume that for other events and purposes, including evidentiary purposes, the same rule would apply, that is, prejudgment interest would not be used in calculation of the size of the lien. Along the same lines, in M.B. Haynes Corp. v. Strand Electro Controls, Inc., 127 N.C. App. 177, 487 S.E.2d 819 (1997), the Court of Appeals held that an employer did not have a statutory right to recover as additional damages against a third party tort-feasor the increase in workers' compensation premiums it was required to pay to the workers' compensation insurer as a result of the less favorable loss history caused by an injury on the job of its employee. The court held that such a damage to the employer was not derivative of a claim "to the third party by reason of such injury or death [to the employee]," so as to constitute a recoverable damage by way of a lien, relying in part on the statutory language found at N.C. Gen. Stat. §97-10.2(b). Thus, it does not appear that an employer can recover any damages other than provided for under G.S. §97-10.2, which deal with the derivative rights through injury or death to an employee. Perhaps the most controversial of the issues pertaining to the size of the lien is whether the lien may grow over time, or whether it is locked in at a particular figure on the date that a settlement occurs or judgment is entered. 97-10.2(e) speaks in terms of "benefits paid or payable" on account of such injury in referencing what amount of compensation shall be admissible in evidence in a trial. The construction of the phrase "paid or payable" seems to, in one sense, imply that future payouts should be contemplated in looking after the lien. In fact, in Hieb v. Lowery, 344 N.C. 403, 474 S.E.2d 323 (1996), the North Carolina Supreme Court dealt with a judgment where a trial court attached a lien to "all amounts paid or to be paid to plaintiff" by the workers' compensation insurer. Due to the unusual procedural history of the Hieb case, the appropriateness of the trial court's ruling on the size of the lien was apparently not at issue. The procedural history of the Hieb case in its many visits up and back from the appellate courts, is not for the faint of heart. See most recently, Hieb v. Lowery, N.C. App. , 516 S.E.2d 621 (1999). In Hogan v. Motor Lines, 38 N.C. App. 288, 248 S.E.2d 61 (1978), the Court of Appeals addressed a judgment which contemplated the possibility of a growing workers' compensation lien by having the defendant tort-feasor's settlement paid into the Clerk of Court to be subsequently disbursed in accordance with the anticipated orders of the Industrial Commission over time. Once again, the opinion did not address the propriety of that provision within the judgment, but rather was concerned with the constitutionality of giving the plaintiff/employee's attorney 1/3 share of the recovery by way of a statutory provision for the payment of fees. Also, the Order in Hogan was a consent judgment. On the other hand, there has been some dicta to suggest that the amount of the lien should be locked in with a sum certain as of the date of the judgment or settlement. For example, the North Carolina Supreme Court more recently held in Johnson v. Southern Industrial Constructors, 347 N.C. 530, 495 S.E.2d 356 (1998) that for purposes of determining whether the judgment was greater or less than the amount of the lien, for purposes of triggering the statutory right of a judge to exercise discretion in allocating the payout to a lien, the court held that the court should not "determine the amounts of Workers' Compensation Liens in Third Party Claims Page 4 of 17 compensation to be paid to injured workers" in determning whether the lien was greater than or less than the judgment. 347 N.C. at 538. Thus, on the one hand the Supreme Court has recently indicated that the possibility of a future payment of workers' compensation benefits should be built into an employer's subrogation rights, giving employers potential liens even if they have not at present paid any workers' compensation benefits or admitted liability, and on the other hand for purposes of calculating the size of the lien at the time of a judgment in the tort action, the potential future benefits of the employee/plaintiff through the Industrial Commission should not be calculated. One of the reasons given for its result in the Johnson opinion is that the Supreme Court was concerned about the additional burden to the superior court of making calculations of future workers' compensation benefits, indicating that the Industrial Commission is "far better equipped" to do this. 347 N.C. at 535-536. Much of this is addressed in the 1999 amendment to subparagraph (j), as it relates to non-evidentiary uses of the information of possible future workers' compensation payouts. [See, discussion supra at pp. 16-21]. It should also be noted in the context of introducing the lien as evidence at trial, that the pattern jury instructions speak in terms of the amount that plaintiff/employee has "received". See, N.C.P.I. Motor Vehicle 106.46 and N.C.P.I. General Civil 810.44 (identical instructions) In this regard, several points bear consideration. First, both the jury instruction pertaining to the workers' compensation setoff, and the evidence concerning the "said amount" of such workers' compensation benefits are triggered by the deliberate decision of a party to get into this area. [See, discussion infra pp. 9-12], by opting to put on evidence at trial of the workers' compensation lien. Our courts have held that when a party requests a jury instruction, that party cannot thereafter claim that giving that instruction was error. If a party chooses to put a specific future projection of the workers' compensation benefits into evidence is it bound by that figure for other dealings between the parties? Attempts in unrelated types of cases to undo one's own jury instruction have been rejected by the court. McLennan v. Chisholm, 66 N.C. 100 (1872); Buie v. Buie, 24 N.C. 87 (1841). Moreover, the same rule applies to stipulations made by a party, perhaps leading to the same result if a "said amount" of workers' compensation benefits is stipulated into evidence at trial. Stipulations at trial bind the party proffering the same. See, Rural Plumbing & Hearing, Inc. v. H.C. Jones Construction Co., 268 N.C. 23, 149 S.E.2d 625 (1966), Bertie-Hertford Child Support Enforcement Agency ex rel Souza v. Barnes, 342 S.E.2d 579, 80 N.C. App. 552 (1986). This becomes very important when an employer has been brought into a case by way of an allegation of employer negligence, so as to attempt to cut out its subrogation lien from a verdict. [See discussion infra pp. 12-15] There would seem to be a number of reasons why a defendant in the tort action should be bound by the amount of the lien that it places into evidence in calculating a setoff against a verdict. That is, it should not be allowed to use one figure for the jury at trial and later use a different (presumably larger) figure for purposes of calculating the size of the setoff. If the defendant tort-feasor wishes to make the employer's lien larger by projection of future benefits so as to represent a larger setoff against a verdict, in the event of a finding of employer negligence; it appears the same should be presented to the jury. This is indeed a two-edged sword. Also, any time that a defendant intends to place into evidence future workers' compensation benefits (which are "payable"), it would seem that there would need to be some form of certainty as to the plaintiff's entitlement to those benefits. Otherwise, the plaintiff could be left with the worst of both worlds, having a huge setoff apply to the verdict but perhaps later having the workers' compensation carrier keep the payout much lower through skill at the Industrial Commission hearing, or through unforseen medical circumstances. As a matter of practicality, this writer submits that it is almost impossible to fairly allow evidence of projected workers' compensation benefits to be submitted to the jury absent an agreement or testimony by the workers' compensation insurer that those benefits will be paid over time or at some specific future date. For example, a huge projected workers' compensation lien (subtracted for employer negligence) would not be fair if the plaintiff later through surgery or other circumstance radically reduced his or her likely workers' compensation payout. On a death benefit, the Workers' Compensation Liens in Third Party Claims Page 5 of 17 mathematics would appear more certain. Perhaps the 1999 amendment to subsection (j) will be construed in a way to give the trial court some authority on this point. Further, it does not seem that the case law contemplates that there be a "floating" set off but rather that some particular sum be arrived at. The cases which have looked at 97-10.2(e) indicate that a specific sum or amount be deducted from the jury verdict. See, e.g. Geiger v. Guilford College Community Volunteer Fireman's Association, Inc., 668 F.Supp. 492, 498 n.5 (M.D.N.C. 1987) ("in calculating defendant's liability at trial, the court will decrease the amount of any verdict by the amount, if any, defendant proves that N.C. Gen. Stat. §97-10.2(e) authorizes"). Moreover, if some future considerations are to be factored into the amount of the plaintiff's judgment, based on things that may or may not happen with the workers' compensation carrier at some future date, it could be argued that such a conditional or alternative judgment is nonetheless void. See, Strong's North Carolina Index 4th, Judgments, §74 at p. 66 (1992). See also, Flinchum v. Doughton, 200 N.C. 770 (1931) ("alternative or conditional judgments are void."); Lloyd v. Swansboro Lumber Co., 167 N.C. 97 (1914) (same). See also, Johnson v. Southern Industrial Contractors, supra, where the Supreme Court expressed reservations about the trial court's ability to make calculations of projected future needs and payouts. It is anticipated that there will be more litigation on these issues. This is an area for creative lawyering by all sides. An "expert" in workers' compensation benefits has been brought into a courtroom to give testimony on the anticipated total benefits that a plaintiff should expect, for purposes of setting an employer negligence deduction. IV. INTERACTION WITH UM/UIM SET OFF PROVISIONS IN AUTO POLICIES A situation often arises where an employee, in the course and scope of employment, is injured in an automobile by a third-party tort-feasor who may be uninsured or underinsured. In this situation, the workers' compensation insurer is desirous of exercising subrogation rights pursuant to §97-10.2 to the extent that it has been called upon to make payments to the employee/plaintiff. The employee/plaintiff would like to collect as large a sum as possible in conjunction with his workers' compensation claim and through the automobile accident which gave rise to the workers' compensation claim, and in any event, hopefully, from one or more sources at least 100% of his or her loss. The automobile insurer providing uninsured/underinsured motorist coverage for the benefit of the plaintiff would like to pay as little coverage as possible as a result of the accident, based upon the fact that the plaintiff has also been the recipient of workers' compensation benefits. The distinct interests of these three separate entities sometimes come into collision. A workers' compensation insurer and/or employer relies on N.C. Gen. Stat. §97-10.2(a) to assert that the underinsured motorist benefits should be recoverable by subrogation because the injury or death "was caused under circumstances creating a liability in some person other than the employer to pay damages therefor, such person hereinafter being referred to as the "third-party."" N.C. Gen. Stat. §97-10.2(a). Both the employer/workers' compensation insurer and the plaintiff want "to enforce the liability of the third party by appropriate proceedings. . . ." §§97-10.2(b) and (c). At the opposite end of the spectrum, generally in an adversarial position (sometimes even when the workers' compensation department and the auto department of the same insurance company are involved with the claim!) stands the auto insurer providing uninsured or underinsured motorist coverage. The UM/UIM insurer's position is derived from N.C. Gen. Stat. §20-279.21(e) which until October 1, 1999 provided in pertinent part that: (e) Such motor vehicle liability policy need not insure against loss from any Workers' Compensation Liens in Third Party Claims Page 6 of 17 liability for which benefits are in whole or in part either payable or required to be provided under any workers' compensation law. . . . Further, the UM/UIM insurer, whether in a business or a personal auto policy, will most likely have some standard language (usually in the "Limit of Liability" section) to the effect that there is a reduction or set off of coverage for all sums "paid or payable because of the bodily injury claim under any of the following or similar law: . . . workers' Compensation law. . . ." (Note that the phrase "or payable" is omitted from the companion third party recovery set off provision). Thus, with the workers' compensation insurer poised to collect a payout from any and all possible sources, including uninsured and underinsured motorist coverage, and with a UM/UIM insurer armed with a set off against its coverage for payouts by the workers' compensation insurer, litigation in this area was inevitable. For almost a decade, confusion and uncertainly reigned in the determining the applicability of setoff provisions in UM/UIM policy language for workers' compensation benefits paid or payable. Recently this area of law has been greatly clarified by the Supreme Court. In 1989, the North Carolina Supreme Court held that a business auto UIM insurer could avail itself of the workers' comp setoff provision. Manning v. Fletcher, 324 N.C. 513, 379 S.E.2d 854, reb. den., 325 N.C. 277, 384 S.E.2d 517 (1989), (Manning I), on subsequent appeal, 102 N.C. App. 392, 402 S.E.2d 648 (1991), aff'd per curiam 331 N.C. 114, 413 S.E.2d 798 (1992) (Manning II). Thereafter, the Court of Appeals held in a long series of opinions that the workers' compensation setoff provision would not also apply to any personal auto policies or to certain business auto policies. See, e.g., Hieb v. St. Paul Fire & Marine Ins. Co.,, 112 N.C. App. 502, 435 S.E.2d 826 (1993); Bailey v. Nationwide Mut. Ins. Co., 112 N.C. App. 47, 434 S.E.2d 625 (1993); Bowser v. Williams, 108 N.C. App. 8, 422 S.E.2d 355 91992); Sproles v. Greene, 100 NC. App. 96, 394 S.E.2d 691 (1990), aff'd in part, rev'd in part on other grounds, 329 N.C. 603, 407 S.E.2d 497 (1991). That line of cases from the Court of Appeals suffered some erosion in its continued viability with the issuance of the opinion in Brantley v. Starling, 336 N.C. 567, 444 S.E.2d 170, where the Supreme Court allowed enforcement of the workers' comp setoff provision from UIM coverage where the claimant was seeking UIM benefits from a policy issued to the employer "individually". In a more recent opinion, McMillian v. N.C. Farm Bureau Mut. Ins. Co., 347 N.C. 560, 495 S.E.2d 352 (1998), the Supreme Court drastically changed the rule, holding that the same statutory authority contained at N.C. Gen. Stat. §20-279.21(e) should reduce UM and UIM benefits for workers' compensation payouts regardless of whether the coverage was issued to a person or a corporation. The court held that there no statutory distinction created by the Legislature that the reduction be applicable only to "business" automobile policies and not to "personal" automobile policies. 347 N.C. at 565. The court expressly overruled the line of Court of Appeals' decisions that reached a contrary result. It came therefore as no surprise in Liberty Mutual Ins. Co. v. Ditillio, 348 N.C. 247, 499 S.E.2d 764 (1998), when the Supreme Court, following the McMillian reasoning, held that a limit of liability provision in a personal auto policy pertaining to UM coverage would be enforceable pursuant to N.C. Gen. Stat. §20-279.21(e)). One sentence at the end of that opinion has caused some uncertainty where the court notes as an aside, "We therefore specifically decline to decide whether a workers' compensation carrier has a right under N.C. Gen. Stat. §97-10.2 to a lien on UIM benefits paid to an employee where the UM limits exceed the amount of workers' compensation benefits." 348 N.C. at 253. Logic and mathematics would seem to dictate that the answer to this question ought to be that the workers' compensation insurer should not be able to subrogate, since the courts have allowed the UM/UIM insurer to exercise a setoff to the extent of the workers' compensation benefits, and a setoff by the auto insurer and simultaneous subrogation by the workers' compensation insurer would result in the worst of both worlds for a claimant, leaving the claimant with far less than 100% of the damages. Except in a situation where there is some actual successful execution and recovery on a judgment against an Workers' Compensation Liens in Third Party Claims Page 7 of 17 uninsured motorist, presumably through recovery of personal assets, a contrary holding would seem to be unfair to the claimant/employee. Of great importance in light of the McMillian decision is the fact that the Legislature has (perhaps in response to the McMillian decision) amended N.C. Gen. Stat. §20-279.21(e). The amendment is entitled "AN ACT TO CLARIFY THAT LIABILITY, UNINSURED, AND UNDERINSURED COVERAGE IS NOT REDUCED BY RECEIPT OF SUBROGATED WORKERS' COMPENSATION BENEFITS'. This statutory change appears to tilt the advantage back to the claimant and the subrogated workers' compensation insurer and against the auto insurer. The statute as amended reads as follows: (e) Such Uninsured or underinsured motorist coverage that is provided as part of a motor vehicle liablity policy need not shall insure against that portion of a loss from any liability for which benefits are in whole or in part either payable or required to be provided under uncompensated by any workers' compensation law nor and the amount of an employer's lien determined pursuant to G.S. 97-10.2(h) or (j). In no event shall this subsection be construed to require that coverage exceed the applicable uninsured or underinsured coverage limits of the motor vehicle policy or allow a recovery for damages already paid by workers' compensation. The policy need not insure a loss from any liability for damage to property owned by, rented to, in charge of or transported by the insured." The statutory provision is interesting in its wording. Clearly it contemplates that an injured plaintiff/employee will receive any payout uncompensated by workers' compensation up to the policy limits (and presumably subject to other appropriate policy setoffs such as amounts paid by the liability insurer), but it is slightly more ambiguous on amounts paid by the workers' compensation insurer to the plaintiff/employee. The last part of the first sentence seems to allow no setoff to the extent that there is "an employer's lien determined pursuant to G.S. 97-10.2(h) or (j)." This would suggest that any lien from the workers' compensation insurer would be recoverable against the UM/UIM insurer. (Please note that it is not the literal payout by the employer but rather the "amount of an employer's lien", which is subject to reduction or even elimination by a trial court judge under certain stated statutory circumstances.) The confusion to this reader arises with the following sentence which provides that "[i]n no event shall this subsection . . . allow a recovery for damages already paid by workers' compensation." This seems to be at odds with the preceding sentence, since "damages already paid by workers' compensation" are the very stuff that "an employer's lien" is made of. In this writer's opinion, this language from the second sentence is likely to be ignored, if a court considers the apparent purpose of this amendment to subsection (e) as a whole. A literal application of the second sentence would otherwise appear to demand that only an employer's lien based on payments not yet made by the workers' compensation provider would be payable through the UM/UIM section of the policy. We will certainly be dealing with a construction of the newest version of subsection (e) in the near future with policies issued or renewed after October 1, 1999. Most current cases however will be undoubtedly controlled by the Supreme Court's rulings in Manning, Brantley, McMillian, and Ditillio, supra. Finally, at least as to the setoff provision for workers' compensation benefits contained in the UM/UIM provisions prior to the 1999 amendment to N.C. Gen. Stat. §20-279.21(e), the Supreme Court has given guidance on the construction and application of the setoff provision. In Progressive American Ins. Co. v. Vasquez, 350 N.C. 386, 515 S.E.2d 8 (1999), a business auto policy provided that "any amount payable under this coverage shall be reduced by: a. all sums paid or payable under any workers' compensation, disability benefits or similar law exclusive of non-occupational disability benefits . . ." 350 N.C. at 396. The court there held that the setoff under underinsured motorist coverage would be a subtraction from the $1 million in UIM limits for all workers' compensation benefits paid to all employees involved in the accident, rather than subtracting just the workers' compensation payout for Workers' Compensation Liens in Third Party Claims Page 8 of 17 the claimant seeking recovery through the policy for injuries. Thus out of the UIM coverage limit of $1 million, there would be a setoff for the "aggregate of workers' compensation benefits paid or payable to all claimants for the accident" as well as for the liability coverage paid by the tort-feasor's insurer. 350 N.C. at 397. It would appear that this result will be altered post October 1, 1999 with the revision to N.C. Gen. Stat. §20-279.21(e), for policies issued or renewed after that date. V. ADMISSIBILITY OF EVIDENCE OF THE LIEN IN A TRIAL In 1983, the N.C. Gen. Stat. §97-10.2 was amended, doing away with the prior bar (since 1929) that "the amount of compensation and other benefits paid or payable on account of such injury or death shall not be admissible in evidence in any proceeding against a third party." The 1983 amendment specifically changed the law as to whether evidence of benefits would be admissible at trial and the first two sentences of sub-paragraph (e) were added to provide the following: The amount of compensation and other benefits paid or payable on account of such injury or death shall be admissible in evidence in any proceeding against the third party. In the event that said amount of compensation and other benefits is introduced in such a proceeding the court shall instruct the jury that said amount will be deducted by the court from any amount of damages awarded to the plaintiff. While there is not a lot of case law construing sub-section (e), there are a number of things that seem plain and easily discerned from this portion of the statute, as amended since 1983. These are as follows: (1) Evidence of "the amount of compensation and other benefits paid or payable . . . shall be admissible in evidence in any proceeding against the third party." This indicates that if such evidence is proffered, by using the word "shall" the Legislature mandated it should be admitted. The use of the word "shall" in a statute generally mandates that something be done. For example, the language "shall" as applied in Chapter 20 of the North Carolina Motor Vehicle Statutes, is "mandatory" and not merely "formal" and "directory language." Pearson v. Nationwide Mutual Ins. Co., 325 N.C. 246, 254-55, 382 S.E.2d 745, 749 (1989) (2) The statute provides "in the event said amount of compensation and other benefits is introduced in such a proceeding the court shall instruct the jury that said amount will be deducted by the court from any amount of damages awarded to the plaintiff." This obviously contemplates that whatever evidence is placed in the record concerning the amount of compensation paid or payable, it should be done before the jury receives its instructions from the court. Obviously, such evidence could not be presented at any later time than the jury instructions, and comply with the statutory mandate. A plain reading of the statue clearly contemplates that "in the event that said amount of compensation and other benefits is introduced," that is will be done before the jury gets its jury instructions. It does not appear evidence on the size of the lien would, for example, be timely after the jury verdict, absent a bifurcated trial, a prior court order or a stipulation. (3) The statue specifically states that "the court shall instruct the jury that said amount will be deducted by the court from any amount of damages awarded to the plaintiff." This phrase in sub-paragraph (e) tells the court and the jury the Workers' Compensation Liens in Third Party Claims Page 9 of 17 precise mathematical equation to be applied at the time the jury deliberates on the case. The statute provides that the "said amount" provided to the jury will in fact be subtracted from the verdict upon showing of negligence on the part of the employer. This amount "will be deducted by the court." It is interesting to note that a pattern jury instruction addresses this exact statutory provision and provides for the same mathematics to be applied to the set off as set forth in sub-paragraph (e). (N.C.P.I.-Civil 810.44 and N.C.P.I.-Motor Vehicle-106.46). In summary, the statutory provisions added to the beginning of sub-paragraph (e) in 1983 make it clear that if a party desires, it may present evidence to the jury of the amount of workers' compensation benefits "paid or payable". This is a choice of each party and is not mandated. If a party decides to introduce such benefits (we can assume this would usually be the defendant to show the jury that the plaintiff will get some money event if the jury does not award damages in the tort action) then it is admitted. However, in Anderson v. Hollifield, 123 N.C. App. 426, 473 S.E.2d 399 (1996), reversed on other grounds, 345 N.C. 480, 480 S.E.2d 661 (1997), the court held that admission of evidence of the plaintiff's workers' compensation recovery by defendant does not open the door to admission of liability coverage by the plaintiff as well. Also of interest is Frugard v. Pritchard, 338 N.C. 508, 450 S.E.2d 744 (1994) where plaintiff moved to bar admission of the lien by motion in limine but later unsuccessfully tried to offer this evidence over objection of defendant. The court held on appeal that this evidence should have been admitted, but was harmless error under the circumstances. In Johnson v. Southern Industrial Constructors, supra, the court indicated that a trial court should not attempt to make calculations of amounts "to be paid" to an injured employee/plaintiff for purposes of determining the right of the trial court to cut a lien pursuant to §97-10.2(j). It is uncertain what effect this opinion with its mention of the undesirability of trial courts attempting to project future workers' compensation payouts, will have on the aspect of a trial where one or more parties seeks to present evidence involving projected future payouts through workers' compensation. [See, discussion supra at pages 4-6] There is no statutory requirement that specifically links the introduction of the amount of the workers' compensation payment to the submission of the issue of negligence on the part of the employer. It seems that any party to the action would be entitled to admit this evidence. See Frugard, supra. A plaintiff may want to introduce the workers' compensation lien in a case where the defendant is hotly contesting whether the medical care and treatment was even related to the accident. The fact that the workers' compensation carrier paid the medical bills after the accident would seem to suggest that at least one insurer had decided that the injuries were related to the accident, and thus might bolster the plaintiff's position that the back surgery or other ailment was proximately caused by the tort in question. If the workers' compensation lien involves substantial rating and/or a large award paid out for permanent disability, then if the plaintiff is looking for a way to put big numbers on the blackboard with some objective basis, then the jury instruction and the statutory provision on which it is based provide a "launching pad" for the jury's inquiry into the appropriate size of the verdict. A defendant might desire to present evidence of the workers' compensation lien to make the jury feel better in a case of close liability, if it decides that the plaintiff's contributory negligence ought to bar recovery. Knowing that the plaintiff has in any event received substantial workers' compensation benefits might let the jurors feel better about a "Yes" on negligence and contributory negligence, or a "No" on negligence. Also, since workers' compensation benefits are mathematically limited, a defendant might hope that the mathematical statutory calculation would not serve as "launching pad" in the jury's eyes, but rather as a useful indicator. However, clearly the statutory provision and the pattern jury instruction attempt to instruct the jury that this is not the case and that the mathematical calculation is not in any way linked to their separate inquiry into valuation. The defendant might also introduce the workers' compensation lien if very little has been paid, and in this fashion imply that the plaintiff has not really been seriously injured. Workers' Compensation Liens in Third Party Claims Page 10 of 17 There are a multitude of reasons why any party might want to introduce the workers' compensation lien into evidence. An employer, whose negligence has been pleaded in the action, might even like to have the jury know about the substantial size of its workers' compensation lien so that the jury knows that the employer is already out a substantial amount of money because of the accident in question. Also, the employer might look better if the jury knows that it has been looking after its employee, albeit through mandatory workers' compensation benefits. Obviously any such strategy crafted by a party should be carefully considered. Also, the language of N.C. Gen. Stat. §97-10.2(e) and the wording of the Pattern Jury Instructions suggest care in what one attempts to overtly suggest to the jury about this evidence. VI. EMPLOYER NEGLIGENCE-SETOFF FOR THE LIEN AMOUNT The statutory provision for a determination for whether the employer was negligent, which would act as a bar, to the employer's subrogation rights against a third party tort-feasor was first created judicially in Brown v. Railroad, 204 N.C. 668, 169 S.E. 419 (1933). The procedure for establishing the employer's negligence as a pro tanto bar was later incorporated into N.C. Gen. Stat. §97-10.2(e). The history of this defense is discussed in Leonard v. Johns-Manfield Sales Corp., 309 N.C. 91, 305 S.E.2d 528 (1993). The public policy reason behind it is that an employer should not be able to benefit from its "own wrong". Leonard, supra 309 N.C. at 102; Geiger v. Guilford Fire Department, 668 F.Supp. 492 (M.D.N.C. 1987). In fact, this public policy has been extended to even include negligence by an employer which is a municipality otherwise immune from suit due to governmental immunity. Jackson v. Howell's Motor Freight, Inc., 126 N.C. App. 476, 485 S.E.2d 895, cert. denied, 347 N.C. 267, 493 S.E.2d 456 (1997) (holding that an issue of a municipality's negligence under N.C. Gen. Stat. §97-10.2 (e) should have been submitted to the jury despite the doctrine of governmental immunity). N.C. Gen. Stat. §97-10.2(e) provides in part: If the third party defending such proceeding, by answer duly served on the employer, sufficiently alleges that actionable negligence of the employer joined and concurred with the negligence of the third party in producing the injury or death, then an issue shall be submitted to the jury in such case as to whether actionable negligence of employer joined and concurred with the negligence of the third party in producing the injury or death. The employer shall have the right to appear, to be represented, to introduce evidence, to cross-examine adverse witnesses, and to argue to the jury as to this issue as fully as though he were a party although not named or joined as a party to the proceeding. Such issue shall be the last of the issues submitted to the jury. If the verdict shall be that actionable negligence of the employer did join and concur with that of the third party in producing the injury or death, then the court shall reduce the damages awarded by the jury absent the third party by the amount which the employee would otherwise be entitled to receive therefrom by way of subrogation hereunder and the entire amount recovered, after such reduction, shall belong to the employee or his personal representative free of any claims by the employer and third party shall have no further right by way of contribution or otherwise against the employer, except any right which may exist be reason of an express contract of indemnity between the employer and the third party, which was entered into prior to the injury to the employee. In the event that the court becomes aware that there is an express contract of indemnity between the employer and the third party the court may in the interest of justice exclude the employer from the trial of the claims against the third party and may meet the issue of the actionable negligence of the employer to the jury in a separate hearing. Workers' Compensation Liens in Third Party Claims Page 11 of 17 The statute provides the manner by which this procedure is triggered in order to obtain at trial an issue on the negligence of an employer. Subsection (e) provides that the issue of employer negligence shall be raised in the "answer" which is to be "duly served on the employer". Thus, it appears that such a procedure requires a specific reference to employer negligence in the answer, presumably a description of the negligent acts or omissions attributed to the employer, and the issue of some process to comply with the requirement that the employer be "duly served". Indicating on the certificate of service on the answer that it is being mailed to the employer (and for good measure, the workers' compensation insurer or plan administrator for a self-insured plan) would be a good idea. A copy of the answer could be served by certified mail, return receipt requested with some form of cover letter documenting the contents of the mailing. Some firms have created a separate document in the form of a "Notice" which is served with an attached answer which also alleges employer negligence. Thereafter, if the employer/workers' compensation insurer fails to appear, it would appear to be at their peril. It should be noted that the statute clearly not envision the employer/insurer to be "named or joined as a party to the proceeding". Thus, the caption remains unchanged, and the important triggering event would be properly documented service of the answer on the employer. Use of a summons and listing the employer as an "unnamed party" might be useful, as is sometimes done with UIM insurers. The circumstance has arisen where such an issue has been raised in the answer, but the defense lawyer has failed to follow through with the obligation to "duly serve" the employer/insured. On the eve of trial, the plaintiff's attorney is sometimes heard to say that the defendant's failure to properly bring the employer into the lawsuit should bar this issue from being submitted at trial. There is some question as to whether the plaintiff has standing on any issues involving employer's negligence. In Absher v. Vinnoy-Langford Plumbing Co., 78 N.C. App. 620 (1985), the Court of Appeals held that the plaintiff did not have standing to challenge the propriety of the submission of an issue of employer's negligence to the jury. The Court held that the plaintiff is "not a party aggrieved and has no standing." The reason for this is that under the statutory framework of the act, the plaintiff would have to pay back the subrogation lien to the employer from the judgment in any event if the issue of employer negligence was not submitted and the case was resolved by a jury verdict. 78 N.C. App. at 622. It is conceivable however that in circumstances involving verdicts lower than workers' compensation awards, and in settlement negotiations prior to a jury verdict, involving judicial discretion in setting the size of a lien, the plaintiff/employee certainly has a very keen interest in the status of the employer vis a vis the tort litigation. An employer charged with negligence in the incident is entitled to a jury trial on the issue of the employer's negligence. Williams v. International Paper Co., 324 N.C. 567, 380 S.E.2d 510 (1989) The statute does give the trial court some leeway on whether this issue is litigated in some form of a bifurcated trial by way of a presentation "to the jury in a separate hearing". Presumably, although the plaintiff does not have standing according to Absher on whether that issue is submitted in the first instance, it would seem that the plaintiff/employee would have standing to argue the propriety of a bifurcated trial versus one presenting all issues including that of employer's negligence, since any evidentiary and/or logistical considerations would effect the plaintiff as well as the other parties. It appears that once the jury makes a determination of negligence on the part of the employer, the trial court "must reduce by the amount which the employer would otherwise be entitled to receive therefrom by way of subrogation, from the judgment entered in favor of the injured employee." Tise v. Yates Construction Co., 122 N.C. App. 582, 586, 471 S.E.2d 102 (1996), quoted with approval on review, 345 N.C. 456, 459, 480 S.E.2d 677 (1997) In Absher, supra, the court indicated that for purposes of calculating the appropriate size of the judgment, the trial court should calculate prejudgment interest on the award after the deduction has been made for workers' compensation benefits received from the employer/workers' compensation insurer. The plaintiff, in that case, argued that interest should run on the entire verdict. The court reasoned that "interest should be calculated based upon the amount plaintiff Workers' Compensation Liens in Third Party Claims is actually entitled to receive." 78 N.C. App. at 624. Page 12 of 17 Like many other aspects of the statute, the ability of the defendant tort-feasor to bring the employer to the courtroom has potentially positive and negative repercussions for the tort-feasor. Obviously, if the workers' compensation lien is huge and the employer is negligent, such as through provision of an unsafe workplace or a defective piece of equipment, this allows the tort-feasor to obtain a substantial dollar for dollar set off for this exposure for those sums already paid. It can also make things complicated for the plaintiff at trial, as they have to deal with evidence pertaining to the employer which may distract some blame from the third-party tort -feasor. In these circumstances, absent a pending Woodson claim (for direct recovery against the employer in tort for his actions which were "substantially certain" to injure the plaintiff/employee), plaintiff's counsel usually will either stay on the periphery of a fight between the third-party tort-feasor and the employer with a minimalist approach, or suggest that the tort-feasor is merely trying to place the blame on anyone but itself. Another consideration in a case involving alleged employer negligence is the role of the attorney for the employer at trial. A trial court might well treat the employer as an unnamed defendant and thus put the alleged third party tort-feasor in a "cross-weave" on examinations with a guaranteed direct and cross examination of each witness by two different lawyers who both want to place blame on the defendant. Counsel for the tort-feasor might argue that since the rights of the employer to subrogation are derivative of the plaintiff, then the employer's role in the trial should be that of counsel for the equivalent of an unnamed plaintiff. However, the statutory wording seems to give more of a "defendant" flavor to the employer's role at trial, and certainly the Absher decision, supra, cuts against the idea that the plaintiff and the employer are joined at the hip for purposes of trying the case. There can even be some tactical consideration as to whether the employer's attorney would favor sitting at the table with the plaintiff's attorney or at the table of defense counsel or at a separate table. For purposes of trying to settle cases, the plaintiff's attorney must maintain a dichotomy of sorts, downplaying the likelihood of employer negligence for purposes of dealing with the third-party tort feasor, and accentuating the negligence of the employer in discussions (without the defendant tort-feasor present) with the employer on negotiating a percentage of the lien to be reimbursed to the employer. That is, the plaintiff's lawyer wants a low discount rate for valuing out the case when talking with the defense lawyer and a high discount rate when negotiating the percentage of the lien which needs to be repaid to the employer. In a circumstance where the plaintiff and the tort-feasor have reached a settlement and it remains for the court to decide how much of the lien should be reimbursed to the employer, a sizeable lien might justify a separate mediation process just for resolution of that issue. Additionally, as part of a settlement between the plaintiff and the third party tort-feasor, plaintiff's counsel could require as part of the deal, cooperation and insight into the opinions of the lay and expert witnesses of the defendant tort-feasor which would assist on establishing employer negligence at the hearing before the judge on the amount of the lien to be paid back. Another aspect of the employer negligence scenario requiring consideration is that circumstance where there is some form of contractual indemnity that runs between the third-party tort-feasor and the employer which might alter the obligation of the parties. Clearly, 97-10.2(e) envisions that circumstance where indemnity is contracted for and presumably such an issue can be asserted by the tort-feasor by way of a third-party complaint against the employer. That third-party complaint probably should not include a claim of employer negligence (since that is supposed to be placed in the answer according to the statute), but certainly the third-party complaint could describe grounds for indemnity against the employer pursuant to "an express contract of indemnity between the employer and the third-party." Actually, these circumstances are not uncommon, particularly where these two entities are dealing with Workers' Compensation Liens in Third Party Claims Page 13 of 17 each other on a project, such as at construction site in a relationship of owner versus general contractor, general contractor versus subcontractor or the like. Certain indemnity contracts of this nature have been by statute greatly restricted as being against public policy. For example, N.C. Gen. Stat. §22B-1 addresses indemnification provisions in certain construction projects. VII. RESOLUTION OF CLAIMS INVOLVING LIENS There are now two basic ways of resolving the issue of payment of the employer/workers' compensation insurer's subrogation lien. Absent the statutorily defined discretionary intervention by the court to cut the workers' compensation lien, there is an exact statutory mathematical progression of payout which is listed at 97-10.2(f)(1). The order of priority being first, court costs and expenses; second, payment of attorney's fees "not to excess 1/3 of the amount recovered"; third, reimbursement of the employer for benefits [subject to the 1/3 attorney's fees even when the employer has hired counsel as well as found in Hogan v. Motor Lines, supra,] and fourth, the remainder to the employee or the employee's personal representative. In that statutory list, the employee is the low person on the food chain. The second way is to trigger the discretionary authority of the court to alter the size of the reimbursement of employer benefits in this equation. Prior to the 1999 amendment to 97-10.2(f), [which is discussed infra at pp. 17-21] there was no judicial discretion to alter that priority of payment if the jury award was larger than the workers' compensation lien. See Hieb v. Lowery, 344 N.C. 403, 474 S.E.2d 323 (1996). The same principal of law was enunciated in a companion case, Hieb. v. Howell's Child Care Center, 123 N.C. App. 61, 472 S.E.2d 208 (1996). Cf, Johnson v. Southern Industrial Constructors, 347 N.C. 530, 495 S.E.2d 356 (1998) (holding that for purposes of this threshold comparison, future workers' compensation benefits were not counted, a construction that drew a dissenting opinion as well). The only exception to this general proposition was if the judgment obtained was insufficient to compensate the subrogation claim of the workers' compensation claim of the workers' compensation insurer. N.C. Gen. Stat. §97-10.2(j). See Martinez v. Lovette, 121 N.C. App. 712, 468 S.E.2d 251 (1996). In that event, since the verdict was less than the workers' comp. payout, then pursuant to 97-10.2 (j) the court had authority to set the amount of the subrogation lien to be paid to the employer. There was a serious defect in the statutory scheme which was pointed out in the dissenting opinion by Justice Frye in Hieb v. Lowery, 344 N.C. 403, 474 S.E.2d 323 (1996). In that case, a jury verdict was returned in favor the plaintiff/employee in the amount of $1,279,000 and the plaintiff's husband in the amount of $40,000. Unfortunately, the UIM carrier only had $475,000 in coverage which it had tendered for future distribution. The workers' compensation lien exceeded $266,400. Apparently the injuries to the employee were very significant. Due to a quirk in the wording in the statute, the net result in the majority opinion in Hieb was that since the judgment exceeded the workers' compensation lien, the trial court judge could not cut the workers' compensation lien, even though it was well on its way toward swallowing up the entire recovery, leaving little or nothing for the injured employee. (In this case, there was apparently an order allowing a floating or unfixed lien since benefits continued to be paid throughout the applicable time period.) Justice Frye pointed out in his dissent that focus on the judgment rather than the proceeds actually available from insurance added to "a triumph of form over substance" but nevertheless the way the statute is worded, the workers' compensation insurer came up a winner and the plaintiff a loser. It is therefore not surprising that this year (1999), the Legislature devised a statutory solution to deal with this gap. Now, a judge has discretion in cutting a workers' compensation lien regardless of the size of the lien and the size of the third party tort judgment, although certianly these figures could nevertheless be relevant to the exercise of the discretionary authority by the court. Workers' Compensation Liens in Third Party Claims Page 14 of 17 The recent amendment to N.C. Gen. Stat. §97-10.2(j) greatly rewrites the landscape and redefines the powers of a trial court judge to deal with workers' compensation liens. The statute is amended, effective June 18, 1999, and it applies to any judgment or settlement entered against third parties on or after June 18, 1999. The newly amended version of subsection (j) reads as follows: "(j) Notwithstanding any other subsection in this section, in the event that a judgment is obtained which is insufficient to compensate the subrogation claim of the Workers' Compensation Insurance Carrier, by the employee in an action against a third party, or in the event that a settlement has been agreed upon by the employee and the third party, either party may apply to the resident superior court judge of the county in which the cause of action arose, where the injured employee resides or the presiding judge before whom the cause of action is pending, to determine the subrogation amount. After notice to the employer and the insurance carrier, after an opportunity to be heard by all interested parties, and with or without the consent of the employer, the judge shall determine, in his discretion, the amount, if any, of the employer's lien lien, whether based on accrued or prospective workers' compensation benefits, and the amount of cost of the third-party litigation to be shared between the employee and employer. The judge shall consider the anticipated amount of prospective compensation the employer or workers' compensation carrier is likely to pay to the employee in the future, the net recovery to plaintiff, the likelihood of the plaintiff prevailing at trial or on appeal, the need for finality in the litigation, and any other factors the court deems just and reasonable, in determining the appropriate amount of the employer's lien. If the matter is pending in the federal district court such determination may be made by a federal district court judge of that division." There are several noteworthy changes to subsection (j). A judge now has authority to cut or disallow the workers' compensation lien regardless of whether the judgment obtained at trial is greater than or less than the lien amount. This glitch in the prior wording of subsection (j) was noted in the dissenting opinion of Justice (now Chief Justice) Frye in Hieb v. Lowry, 344 N.C. 403, 474 S.E.2d 323 (1996). It appears with this revision to subsection (j), the Legislature has remedied this circumstance and given the trial court full authority to address workers' compensation lien regardless of whether he or she is confronted with a settlement or a judgment. It does appear that there must be either a "settlement' or a "judgment". Pursuant to N.C. Gen. Stat. §97-10.2(j), if the plaintiff/employee and the third party reach a settlement, either of them may apply to "the Resident Superior Court Judge in the county in which the cause of action arose, where the injured employee resides or the presiding judge before whom the cause of action is pending" for a determination of the portion of the lien that the employer can recover. A federal judge may also perform this task. This statutory provision represents a very significant change from the 1983 statute which did not allow an enforceable settlement to be entered into under those circumstances unless the employer consented, in writing to the settlement as well. In essence, for workers' compensation claims arising before October 1, 1991, the workers' compensation insurer had, in effect, a veto over any settlement. This automatic veto was gone as of 1991. However, the plaintiff and the third-party are apparently still obligated to place the employer on notice of the settlement and also provide notice of the intent to have a judge determine the amount of the lien which should be recoverable. Even here there are pitfalls. First, when the statute says "settlement" the courts have enforced that requirement literally. In Martinez vs. Lovette, supra, the court held that payment of UM benefits into the court as a tender by the insured did not constitute a "settlement" and thus (under the pre-1999 version of the statute) there was no statutory authority for a judge to compromise the workers' compensation lien. Cf., Buckner vs. City of Asheville, 113 N.C. App. 354, 438 S.E.2d 467, pet. denied, 336 N.C. 602, 447 S.E.2d 385 (1994) (holding that under the pre-1991 version Workers' Compensation Liens in Third Party Claims Page 15 of 17 of the statute, a proper settlement was not established so as to trigger the authority of a judge to cut the workers' compensation lien). It is interesting to note that in the Supreme Court decision of Hieb vs. Lowery, supra, there was apparently a settlement between the plaintiff and the tort-feasor for the tort-feasor's $25,000 auto limits, followed by a subsequent tender of $475,000 to the court of underinsured motorist coverage (apparently without a settlement document but merely as a tender). The court there did not address whether there was a "settlement" for purposes of granting jurisdiction to a Superior Court Judge to cut the lien. A reading of that opinion may well lead the reader to conclude that the real problem in that case was a progression of rulings by different Superior Court Judges as to the status of the lien, which the Supreme Court took as ultimately being a circumstance where one Superior Court Judge was asked to overrule another on the same issue. In light of these recent decisions, if a plaintiff and a third-party tort-feasor and/or the UIM/UM insurer are going to try to resolve their differences, it would seem prudent for all concerned to draft some form of document with the word "Settlement" prominently affixed thereto. Moreover, to be safe in the context of a UM claim or a UIM claim with possible excess exposure and where the tort-feasor has no assets, the plaintiff's attorney might consider a gratuitous release of the tort-feasor as part of the "settlement" agreement so as to remove all doubt as to whether the statutory definition of "settlement" with a thirdparty is met, vesting jurisdiction with the Superior Court Judge to cut the lien. It is not at all inconceivable that getting to a position for possible cutting of the lien will be of much more value to a plaintiff than the prospect of an additional recovery from a tort-feasor without assets. Caution should be used in this circumstance to make sure a workers' compensation insurer cannot claim that a "settlement" has not been achieved, and thus automatically trigger the priority of payment provision under subsection (f)(1) that is so favorable to the employer (i.e., getting paid 100% before the plaintiff). If it is assumed that the process has been complied with by the parties such that the trial court judge does have authority to cut the lien, in such a hearing it would seem things are somewhat wide open as to what the judge can consider in his or her ultimate determination. The statute says the judge "in his [or her?] discretion" shall determine "the amount, if any," that the employer is entitled to receive. The statute, as amended in 1999, clearly gives the trial court judge discretion as to the amount, if any, of the lien, taking into account not only "accrued" but also "prospective" workers' compensation benefits. That is, the trial court judge has authority to act with finality regardless of whether all of the workers' compensation benefits have already been paid or whether they will be paid partially or fully in the future. This amendment thus appears to address the future payable benefits problem in the workers' compensation statute identified by Justice (now Chief Justice) Frye in his dissenting opinions, in Johnson v. Southern Industrial Constructors, 347 N.C. 530, 495 S.E.2d 356 (1998), and Radzisz v. Harley-Davidson of Metrolina, 346 N.C. 84, 44 S.E.2d 566 (1997) [See, discussion supra at pp. 2-3; 16] In the revised version of subsection (j), the Legislature gives the trial court judge guidance in the matters which shall be considered in deciding the amount, if any, of the employer's lien. The statutory list is as follows: 1. "The anticipated amount of prospective compensation the employer or workers' compensation carrier is likely to pay to the employee in the future". 2. The net recovery to plaintiff. 3. The likelihood the plaintiff will prevail at trial or on appeal. Workers' Compensation Liens in Third Party Claims 4. The need for finality in the [tort] litigation. Page 16 of 17 5. Any other factors the court deems just and reasonable in determining the appropriate of the employer's lien. Clearly, the fifth above-numbered category (my numbers, not from the statute) is a useful "catch all". Presumably, the factors enunciated in two recent pre-1999 amendment cases, Wiggins and U.S. Fidelity & Guaranty Co., infra, would be appropriate considerations under the "catch all" provision in the statute. In Wiggins v. Bushranger Fence Company, 126 N.C. App. 74, 483 S.E.2d 450, cert. denied, 346 N.C. 556, 488 S.E.2d 825 (1997), the Court of Appeals affirmed the decision by the trial court to cut the employer's subrogation lien to zero. The court noted that in the 1991 amendments to §97-10.2(j). The court did have discretion in determining the size of a lien upon the settlement of a claim, with or without the consent of the employer, in contrast to the pre-1991 circumstances. The court was untroubled by the prospect for the potential "for plaintiff to receive a double recovery via the operation of §97-10.2(j)" but held that such a result was contemplated by the statute "if justified by the equities of the case". 126 N.C. App. at 77-78. There the court held that in the specific findings of fact were "proper reasoned choices and value judgments." Id. at 77. In revealing the pertinent findings of fact, the court found in summary that there were allegations that the employer was negligent, that the employer was on notice that the particular condition "was very dangerous". The employer did not replace the dangerous condition with a new piece of equipment. The court found that a number of employees of the employer had complained to management about the difficulty of operation and prior problems with this equipment (in this case an outdoor roller gate at a rental car facility) and nevertheless the employer made no modification or repair. Id. at 75. Similarly, in U.S. Fidelity & Guaranty Co. v. Johnson, 128 N.C. App. 520, 495 S.E.2d 388 (1998) the court upheld a determination by the trial court that the workers' compensation lien should be eliminated at the discretion of the trial court pursuant to N.C. Gen. Stat. §97-10.2(j). The Court of Appeals held that it was within the discretion of the trial court as to the amount, if any, of the employer's lien. Implicit in that statutory language from subsection (j), the court found that the lien could be cut entirely at the discretion of the court. Id. at 523. Further, the court found that in that particular case the court did not abuse its discretion. The court held that "when a judge makes a ruling committed to his or her discretion, the law requires that a reasoned choice be made". Id. In that case, the court found that the Estate of the employee had received through the exhaustion of liability insurance coverage far less than the value for the wrongful death of the employee, particularly after the proceeds were divided 75%/25% with a passenger in the auto involved in the accident. Id. at 524. Thus, in reviewing the findings by the court in Wiggins and in Johnson, it appears that both the conduct of the employer and the realities of the available liability coverage to be received are fair considerations in a judge's exercise of discretion on the setting of a lien amount. Certainly the severity of the injuries, the amount of money at issue in the settlement, the conduct of the employer and the conduct of the workers' compensation insurer could all be considered as relevant on this issue. Obviously, any great economic hardship on the plaintiff is an excellent approach to take. If the workers' compensation insurer and/or employer were extremely uncooperative or unwilling to advance costs for expert expenses and the like in pursuit of the subrogation, then equities would cut against them in trying to grab the lion's share of the settlement. Also, once the tort settlement is reached, there is no reason why the plaintiff/employee could not raise the issue of employer negligence since an adverse jury verdict on employer negligence would bar the employer from recovery of any of the funds. At this hearing, if such evidence is to be presented, there is no reason why the employee and/or the employer could not call witnesses describing the circumstances of the accident and the relative Workers' Compensation Liens in Third Party Claims Page 17 of 17 responsibility of the employer for the accident if the trial court judge was so inclined at the hearing. This certainly would build a record on appeal if the appellate court is asked to review the exercise of discretionary authority by the trial court judge granted in subsection (j). It is submitted that this is another area where there is probably considerable room for creativity by the lawyers in presenting their positions. Whatever the judge's ruling, it should be embodied in an order with findings of fact and conclusions of law to comport with due process requirements. See Allen v. Rupard, 100 N.C. App. 490,397 S.E.2d 330, disc. rev. allowed, 328 N.C. 270, 400 S.E.2d 449, pet. withdrawn, 328 N.C. 328, 404 S.E.2d 864 (1991)(requiring findings of fact and conclusions of law). Finally, all kinds of deals can be struck between the employer and the plaintiff/employee to compromise the lien voluntarily, including payment of additional funds by the employer or appropriate reduction of the lien amount in exchange for a clincher agreement or other concessions. The plaintiff/employee would need to carefully consider such options for their advantages and disadvantages. Generally, settlements involving payment of workers' compensation benefits need to be approved through the North Carolina Industrial Commission. A petition should be filed asking the Industrial Commission to approve the settlement, and detailing the contents of the settlement including the amounts to be paid and by whom, the attorneys to be paid and by whom, and any other concession or consideration involved in the settlement. The Industrial Commission will also need a description of the incident in question as well as information pertaining to the extent of injuries. The settlement as to the lien by the workers' compensation insurer should be confirmed in writing. The plaintiff's attorney should attach a copy of the fee contract and also identify the litigation costs and expenses. As previously noted, the statute restricts recovery of attorneys' fees to one-third of the third-party settlement. The mailing address at the Industrial Commission for approval of settlement with workers' compensation liens is: Tracy Weaver, North Carolina Industrial Commission, 4333 Mail Service Center, Raleigh, North Carolina 27699-4333. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.