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ADVANCED CONCEPTS IN WORKERS’ ADVANCED CONCEPTS IN WORKERS’ COMPENSATION SUBROGATIONCOMPENSATION SUBROGATION

PRESENTED BY: MATTHIESEN, WICKERT & LEHRER, S.C.

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ADVANCED CONCEPTS IN WORKERS’ ADVANCED CONCEPTS IN WORKERS’ COMPENSATION SUBROGATIONCOMPENSATION SUBROGATION

PRESENTED BY: MATTHIESEN, WICKERT & LEHRER, S.C.

7/19/2010

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WORKERS’ COMPENSATION WORKERS’ COMPENSATION SUBROGATIONSUBROGATION

• History• Purpose

– Reduce Burden of Insurance on PublicP t D bl R– Prevent Double Recovery

– Place Ultimate Burden on Tortfeasor• Created By Statute• Entirely Dependent on State Law• Extra-Territorial Subrogation

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WORKERS’ COMPENSATIONWORKERS’ COMPENSATION

• Socialist Concept• Square Peg, Round Hole• No-Fault Concepts

R i l N F lt R i b t• Reciprocal: No-Fault vs. Reimbursement• Equitable Considerations Don’t Apply• Trend Toward Equity• Advantage: Employee• Need for Education & Training of Judges

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• Early Recognition of Subrogation• Prompt Action on Subrogation• Aggressive and Cost-Effective Pursuit

f S b ti

BUILDING BLOCKS OFBUILDING BLOCKS OFW/C SUBROGATIONW/C SUBROGATION

of Subrogation

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INVESTIGATION OFINVESTIGATION OFW/C CLAIMW/C CLAIM

• Course and Scope• Extent of Injury• Possible Claim Defenses

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THREE “LS” OF SUCCESSFUL W/C SUBROGATION INVESTIGATION

LIABILITY – Understanding Tort LiabilityLAW – Understanding Subrogation LawLABOR – Taking the time and using thetools at your disposal to fully uncovertools at your disposal to fully uncover,develop, and preserve third-party liability.

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SUBROGATION IS AN INVESTMENT

W/C SUBROGATION ANALYSISW/C SUBROGATION ANALYSIS

• Answer the following questions forevery claim:

– What are your SUBROGATION RIGHTS?– Which THIRD PARTIES can be sued?Which THIRD PARTIES can be sued?– How is a recovery ALLOCATED?– Are ATTORNEY’S FEES/COSTS owed?– Do we get a future CREDIT?

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SUBROGATION RIGHTSSUBROGATION RIGHTS• Depends Totally on Statute• Election by Worker• Who can bring third-party action?

Wh thi d t ti b b ht?• When can third-party action be brought?• Rights of Intervention?• Statutory Lien?• Rights lost if not protected in suit?• Examples of State Statutes:

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ALABAMA ALABAMA –– §§ 2525--55--1111

• Worker can pursue comp and 3P action.• Carrier has lien on 3P recovery.• Carrier has 6 months after SOL runs to file suit.• Carrier can’t file before SOL runsCarrier can t file before SOL runs.• Carrier may intervene into 3P action.

– If it can make “substantial contribution” to suit.• Worker can’t intervene into carrier’s suit.• Carrier can recover past AND future payments.

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WISCONSIN WISCONSIN –– §§ 102.29102.29

• Most Favorable Statute In U.S.• Carrier Or Worker May File 3P Suit

– Equal Voice In Prosecution Of Suit– Notice Must Be Given To Other Partyy

• Both Must Bring Suit Within 3 Year SOL• Worker Can Intervene After SOL• Carrier May Intervene Into 3P Action• Subrogated Party Must Be Made A Party• Carrier Can Recover Past and Future

Payments12

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THIRD PARTY LIABILITYTHIRD PARTY LIABILITY

• Recognizing Liability of 3P Tortfeasor• Exclusive Remedy Rule• Who can be sued?

C E l ?– Co-Employee?– UM/UIM Carrier?– Subcontractor?– Medical Malpractice?– Legal Malpractice?

• Examples of State Statutes:13

UTAH UTAH –– §§ 34:1534:15--4040

• Employer Immune– Parent Corporation of Employer Also Protected

• Co-Employee Immune– Unless Intentional ActUnless Intentional Act

• Carrier NOT Subrogated to UM/UIM Recovery• Carrier NOT Subrogated to Legal Malpractice• Carrier is Subrogated to Medical Malpractice

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INDIANA INDIANA –– §§ 2222--33--22--1313

• Employers and Co-Employee Immune– Even if act is intentional

• Carrier Subrogated to UM/UIM Policy• Carrier is Subrogated to Medical Malpractice• Undecided if Carrier Subrogated to Legal

Malpractice

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CALIFORNIA CALIFORNIA –– §§§§ 3850 3850 -- 38653865• Either Carrier or Claimant Can File Suit• Carrier Has Three Choices:

– Bring Action Directly– Join as Party Plaintiff– Allow Plaintiff to Prosecute and Then Urge Lien

• Notice of lien – Where Intervention Not Cost-Effective• Same Effect as Simply Giving Written Notice• Plaintiff Can Settle Around Carrier

• Complex Credit Issues– See “Navigating The Storm” Article at

www.mwl-law.com• Employer Negligence Issues

– Employer’s Credit Threshold16

EMPLOYER CONTRIBUTIONEMPLOYER CONTRIBUTION

• Minnesota, Illinois– Kotecki Contribution; Lambertson Contribution

• Alaska, et. al. – Only If Employer 100% at Fault• Arizona, California, Kansas, Texaso a, Ca o a, a sas, e as

– Proportional Reduction (If Verdict)• Idaho

– Contribution Bars Subro; Lien Offsets Recovery• New York – Only If “Grave Injury”• Utah – Only If Contribution is 40% or More

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ALLOCATION OF ALLOCATION OF THIRDTHIRD--PARTY RECOVERYPARTY RECOVERY

• How and when does carrier recover lien?• Does carrier recover past AND future payments?• Is there a special formula used?• Does employer’s negligence reduce recovery?Does employer s negligence reduce recovery?• Will “Made Whole Doctrine” be applied?• Subrogated to all elements of damages?

– Economic vs. Non-Economic• Examples of State Statutes:

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ARIZONA ARIZONA –– §§ 2323--1023 (C)1023 (C)• Carrier Has Lien On Any Recovery

– Even Extends To Loss Of Consortium Recovery• Carrier’s Lien Reduced By Proportionate Share of

Employer’s Negligence– Only If There Is Jury Verdict/Not Settlement– Carrier May Challenge % of Employer’s Negligence

• Carrier Must Approve Settlement• Carrier Does Not Act In Bad Faith By Refusing To

Approve Settlement

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GEORGIA GEORGIA –– §§ 3434--99--11.111.1

• Made Whole Doctrine Is Codified– Contribution Not Considered Re: “Made Whole”

• Must Request Special VerdictOth i C ’t T ll If W k M d Wh l– Otherwise Can’t Tell If Worker Made Whole

– Court Hearing May Be Required– Burden of Proof Is On Carrier

• No Subrogation If Benefits Paid In Foreign State

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EVALUATING W/C SUBRO FILESEVALUATING W/C SUBRO FILES

• Liability– Comparative Fault / Contributory Negligence– Look At Law of State Where Suit To Be Filed

• Cost / Fees– Correct Fee Structure– Likely Costs / Experts’ Fees, Etc.

• Correct Subrogation Strategy– Notice of Lien– Intervention– Prosecute independently– Subrogation Counsel

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ATTORNEY’S FEES/COSTSATTORNEY’S FEES/COSTS

• Can Plaintiff’s Attorney Recover Fees? • Can Plaintiff’s Attorney Recover Costs?• Recover Fees Based On Past Only?• Recover Fees Based On Future Payments?• Recover Fees Based On Future Payments?• Which Costs Can Be Recovered From Carrier? • What If Carrier Has Active Subro Counsel?• Example Of State Statutes:

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Arizona: No Attorney’s Fees OwedArkansas: Carrier Must InterveneCalifornia: Court May Apportion If Carrier Is

Actively Represented

ATTORNEY’S FEES/COSTSATTORNEY’S FEES/COSTS

Actively RepresentedColorado: If Carrier Acts On Own – No FeesIllinois: Pro-Rata Up To 25%Tennessee: If “Active Participation”, Then Fees

Are ApportionedWisconsin: Formula Followed - No Fees Owed

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TYPICAL THIRD-PARTY DISTRIBUTION

(Texas Law - $10K Lien)

• $ 90,000 Gross Recovery P= $53K

• - 30,000 Fees (P Atty) INS= $6,700+53c

• $ 60,000 Net Recovery Atty= $30K

• - 6,667 Lien (less 1/3 Fee) $90K

• $ 53,333 Net Recovery to P (Credit)

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RECOVERY OF ATTORNEY’S RECOVERY OF ATTORNEY’S FEES BY CARRIERFEES BY CARRIER

• Statute provides that carrier beapportioned part of fees if it joined in“pressing” action (Wisconsin).C t MUST ll t f t INS• Court MUST allocate some fees to INSwhen Subro Attorney “participate.

• Attorney’s fees recovered means 100%recovery by carrier.

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FEES RECOVERED BY CARRIEFEES RECOVERED BY CARRIERR(Wisconsin Law - $10K Lien)

• $ 90,000 Gross Recovery P= $50K

• - 30,000 Fees (20-P, 10-INS) INS= $20K+30c

• $ 60,000 Net P Atty= $20K

20 000 1/3 P• - 20,000 1/3 to P $90K

• $ 40,000 Subject to Lien• - 10,000 Carrier Reimbursed• $ 30,000 Net Recovery to P (credit)

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IF CARRIER PROSECUTES 3P ALONEIF CARRIER PROSECUTES 3P ALONE(Wisconsin Law - $10K Lien)

• $ 90,000 Gross Recovery P= $30K

• - 30,000 Fees to INS INS= $40K+30c

• $ 60,000 Net P Atty= N/A

• - 20,000 1/3 to P $90K

• $ 40,000 Subject to Lien• - 10,000 Carrier Reimbursed• $ 30,000 Net Recovery to P (Credit)

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FUTURE CREDIT/OFFSET

Connecticut: No Credit-Must Recover FuturePayments Out of Recovery.

Georgia: No Future Credit.Texas: Credit For Entire Recovery By WorkerTexas: Credit For Entire Recovery By WorkerWisconsin: Fees Off Top; 1/3 To Worker (No

Credit); Balance To Carrier; If Any Left, ItConstitutes Credit.

Document Your Credit With Comp Commission

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CREDITS / ADVANCESCREDITS / ADVANCES

• Purpose and Function Generally• Often More Important Than Lien• Failure To Properly Document• Every State Applies Credit DifferentlyEvery State Applies Credit Differently• Waiver• Settlement of Third-Party Cases

– Allocation of Damages– Proper Retention of Future Credit– Proper Documentation / Forms

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CALCULATING FUTURE CREDITSCALCULATING FUTURE CREDITS

• Typical Calculation

$120,000 3P SettlementLess 40,000 Atty’s Fees / CostsLess 40,000 Atty s Fees / Costs

80,000 Net RecoveryLess 30,000 Lien Reimbursement

$ 50,000 Worker’s Net Recovery (Credit)

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FUTURE CREDIT TIPSFUTURE CREDIT TIPS

• Do NOT Sign Release Unless It PreservesFuture Credit

• Be Careful When Settling W/C ClaimsB S ifi Ab t P t Li / F t• Be Specific About Past Liens / FutureCredit Totals and Outstanding Bills

• Watch Out for Gerrymandering• Always Document Your Credit With

Appropriate Commission / Agency

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ALABAMAALABAMA

• Miller Formula (Elements of DamagesAllocated By Court)— Calculate “Net Recovery”

Divide “Net Recovery” by Value of 3P Case— Divide Net Recovery by Value of 3P Case— Multiply Actual Future Benefits by Fraction =

“Gross Future Medical Expense Credit”— Reduce This By Carrier’s Pro Rata Share of

Attorney’s Fees (Fitch Formula) = “Net FutureMedical Expense Credit”

— Must Document on Form WC-432

WISCONSINWISCONSIN

$900,000 3P SettlementLess 300,000 Attorney’s Fees / Costs

600,000 Recovery L 200 000 1/3 t W k (N C dit)Less 200,000 1/3 to Worker (No Credit)

$ 400,000 Net Recovery 250,000 Past Lien Reimbursement150,000 Net to Worker (Credit)

MUST FILE FORM WKC-17033

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FLORIDAFLORIDA

• Manfredo Formula – Applies When No Full Recovery By Plaintiff– Ratio of Net Settlement To Full Value– Court Determines Full Value of CaseCourt Determines Full Value of Case– Carrier Reduces Future Benefits By This

PercentageFile Form DFS-F2-DWC-4 If No Ct. Approval

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GEORGIAGEORGIA

• Statute Reads:“Insurer’s recovery under this sectionshall be limited to the recovery of theamount of benefits paid under thisamount of benefits paid under thischapter…” § 34-9-11.1

• No Future Credit• “Payable Under This Chapter” Issue

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ILLINOISILLINOIS• Employer Liability for Contribution

– Separate Subro and Limited to Past Lien and FutureLiability (Kotecki Cap)• Baltzell v. R&R Trucking, 554 F.3d 1124 (7th Cir. 2009)

– Waiver of Kotecki CapD f P V di t Th S k C t ib F E l– Def. Pays Verdict Then Seeks Contrib. From Employer

– Employer Contributes Pro Rata To Defendant– “Fresh Money” Liability or Credit To Defendant?– Contribution Liability vs. Reimbursement Less 25%– LaFever v. Kemlite Co., 706 N.E.2d 441 (Ill. 1998)– Need For Employer Defense Counsel

• Future Credit – 75% of PCV Paid to Carrier– Future Benefits Paid at 25%

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INDIANAINDIANA

• Statute Reads:“When there is third party settlement theliability of the carrier to pay furthercompensation shall terminate…”

• But It Doesn’t Mean What It Says– Smith v. Champion Trucking, 901 N.E.2d 260

(Ind. App. 2009)– No Credit When Recovery Is Before Award and

Is Less Than Anticipated Benefits

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IOWAIOWA

• § 85.22(1) Does Not Provide For CreditWhen Worker Prosecutes 3P Action

• § 85.22(2) Allows Carrier To Take CreditWhen Carrier Prosecutes 3P Action

• Courts Read Credit Rights Into § 85.22(1)• WARNING: Carrier Must File Notice of Lien• WARNING: § 85.35 Settlement of a

Contested W/C Claim Bars § 85.22(1)Subrogation and Credit Rights

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CALIFORNIACALIFORNIA

• § 3858 Carrier Gets Credit For Net Recovery– Medical Malpractice Exception– Workers’ Compensation Board – Jurisdiction

• No Employer Negligence – Simply Take CreditE l N li Fil P titi F C dit• Employer Negligence – File Petition For Credit– File In Civil Case If Possible (WCAB Prejudice)

• When Third-Party Case Settles – 3 Choices– Recover Lien and Enter C&R of Comp Claim– Recover Past Lien and Stipulated Credit Amount– P Contests Everything – Trial Ct. Decides Employer

Negligence In Trial And Decides Lien Reimb and Credit39

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CALIFORNIA (CONT’D)CALIFORNIA (CONT’D)• If Case Settles, Trial Court Out of Picture

– Workers’ Compensation Appeals Board (WCAB)– Not Good Option For Carrier

• Threshold of Employer Negligence$1 Million Verdict X 20% ER Negligence = $200K– $1 Million Verdict X 20% ER Negligence = $200K

– Lien Is Reduced by Employer Negligence– Next, Credit Reduced by Employer Negligence– Carrier Must Meet Threshold Before It Gets Either!

• Common Mistake: ER Negligence = No Credit– Credit Delayed Until Threshold Met– Continue Making Benefit Payments Until Then

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CALIFORNIA HYPOTHETICALCALIFORNIA HYPOTHETICAL

FACTS$340,000 3P Settlement

75,000 Workers’ Compensation Lien194 000 Net Recovery To Worker194,000 Net Recovery To Worker

25% Employer Negligence (Judge)$500,000 Value of 3P Case

(Judge or WCAB Decide)

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CALIFORNIA SOLUTIONCALIFORNIA SOLUTION• Employer’s Threshold = $125,000

($500,000 x 25%)• Employer’s Future Credit = $69,000

($194K Net Recovery - $125K)• Credit Delayed Until Threshold Met

– Carrier Must Contribute Additional $125K Before It CanStart Claiming Credit

– Southern Cal. Edison Co. v. WCAB (1997)• Goal = Reach Stipulation With P Attorney• Settlement vs. Jury Verdict

– Total Tort Damage Determination– Employer Negligence %

• Subrogation Counsel Necessary – P Can Settle Around42

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CREDIT SUMMARYCREDIT SUMMARY

• Credit Rights Vary Greatly Among States• Know The Law• When In Doubt – Document Your Credit• Know When Subrogation Counsel Involvementg

Will Save/Increase Recovery• Be Aware of Problem States

– Illinois, Minnesota, California, etc.• Beware of Waiver of Past Lien To Close Out

Pending Compensation Claim– Stepping Over Dollars To Pick Up Dimes

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OTHER W/C SUBRO ISSUESOTHER W/C SUBRO ISSUES• Discovery – Protecting Claim File• Experts – Product Liability Law• Hiring Subro Counsel? Intervention?• Conversion of Subrogation MoniesConversion of Subrogation Monies• Settlement When Claim Is Open • Borrowed Servant Doctrine• Dual Capacity Doctrine• Indemnity• Construction Litigation…

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W/C SUBROGATION INW/C SUBROGATION INCONSTRUCTION SETTINGCONSTRUCTION SETTING

• History• General Contractor/Subcontractor Liability• AIA Contracts• Waivers of Subrogation• Statutory Employer Status• OCIP – “Wrap-Around Policies”• Investigation of Construction Losses

SEE CHART FOR SUMMARY OF ALL 50 STATES ON WWW.MWL-LAW.COM

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EXTRAEXTRA--TERRITORIAL TERRITORIAL SUBROSUBRO

• Definition: Any effort to subrogate outsidethe boundaries of the state where benefitsare being paid (“enabling state”).

• More common than 20 years ago• More common than 20 years ago• National/Global Economy• Is primarily concerned with which state’s

subrogation laws apply (enabling state’s orforum state’s).

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COMP CLAIMS INVOLVING COMP CLAIMS INVOLVING MULTIPLE STATES MULTIPLE STATES

• Issues/Variables To Be Considered:– Where was Claimant hired?– Where will Claimant file claim?– Where was Claimant injured?j– Where is Employer principally located?– Where is third-party lawsuit filed?– Where is tortfeasor located?

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THIRD PARTYCONSIDERATIONS

• Worker usually won’t consider subrogation rights– Unless a lawyer is looking ahead to 3P action– May choose state which limits subrogation

• Example:TX k i j d i GA Y ’ th l– TX worker injured in GA. You’re the lawyer:

– Should worker choose GA or TX benefits?• GA benefits - Claimant has right to file suit for 1 yr• GA benefits – Made whole rule codified• TX benefits - “First money” right of recovery• GA benefits – Plaintiff’s attorney can recover costs• TX benefits - No subro rights if 3P suit in GA!

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WHICH STATE’S SUBROWHICH STATE’S SUBROLAWS APPLY?LAWS APPLY?

• 1. LEX LOCI DELECTI (The Place Of The Wrong)– Applies Law Of Forum State (Accident Occurred)– Is The Minority Rule – Only 12 States

• 2. LARSON RULE (Restatement §185)2. LARSON RULE (Restatement §185)– Applies Law Of Enabling State (Benefits Paid)

• 3. MOST SIGNIFICANT CONTACTS– Applies Law of State With Most Significant

Relationship To the Incident– Is Majority Rule – Replacing Lex Loci

• 4. LEX FORI (Law of Forum – If Different from No. 1)

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CONFLICTS PROCEDURECONFLICTS PROCEDURE

• Determine All the Variables/Factors.• Determine Subro Law of Both States.• Is There a Conflict?

– Conflict = Difference In Laws Results In TwoDifferent Outcomes

• If There Is a Conflict, Apply the Conflict Ruleof The Forum State (Where Suit Filed).

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EXAMPLE #1EXAMPLE #1

• 1. DETERMINE THE VARIABLES/FACTS– Employee Injured In Car Accident In GA With

Third Party Who Has Minimum Limits– Employer Is Based In Wisconsin– Employee Resides In Wisconsin– Benefits Paid Under Wisconsin Act – Suit Filed In Georgia– Employee Settles Case But Is Not Made Whole

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EXAMPLE #1EXAMPLE #1

• 2. DETERMINE LAW OF BOTH STATES– Both States Allow For Subrogation– WI Subro Law Allows Recovery If Not Made Whole

GA Subro Law Requires Claimant Be Made Whole– GA Subro Law Requires Claimant Be Made Whole– GA Law Requires Carrier To Prove Made Whole

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EXAMPLE #1EXAMPLE #1

• 3. IS THERE A CONFLICT?– Under WI Law = Carrier Makes Partial Recovery– Under GA Law = Carrier Recovers Nothing

CONCLUSION: DIFFERENT OUTCOMESTHERE IS A CONFLICT!

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EXAMPLE #1EXAMPLE #1

• 4. APPLY CONFLICT RULE OF FORUMSTATE (STATE WHERE SUIT IS FILED)– Georgia Conflict Rule = Lex Loci Delecti

(Law of State Where Loss Occurred = GA)(Law of State Where Loss Occurred = GA)– Outcome = No Recovery For Carrier

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EXAMPLE #2EXAMPLE #2

• 1. DETERMINE THE VARIABLES/FACTS– Employee Slips And Falls At Work In Illinois– Employee’s Work Related Injury Is Worsened

Due To Medical Malpractice In IllinoisDue To Medical Malpractice In Illinois– Employer Is Based In Iowa– Employee Resides In Iowa– Benefits Paid Under Iowa Law – Suit Filed In Illinois

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EXAMPLE #2EXAMPLE #2

• 2. DETERMINE LAW OF BOTH STATES– IL law allows for subrogation recovery

in medical malpractice cases.– IA law does not allow for such

subrogation.

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E X A M P L E # 2E X A M P L E # 2

• 3. IS THERE A CONFLICT?– Under IA Law = Carrier Cannot Recover– Under IL Law = Carrier Can Recover

CONCLUSION: DIFFERENT OUTCOMES THERE IS A CONFLICT!

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EXAMPLE #2EXAMPLE #2

• 4. APPLY CONFLICT RULE OF FORUMSTATE (STATE WHERE SUIT IS FILED)– Illinois Conflict Rule = Larson Rule (Apply

subrogation law of state paying benefits)g p y g )

Result: Carrier Cannot Subrogate Against Medical Malpractice Recovery.

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“Listen. Understand. That Terminator isout there. It can't be reasoned with, itcan't be bargained with...it doesn't feelcan t be bargained with...it doesn t feelpity of remorse or fear... and itabsolutely will not stop. Ever.”

The Terminator - 1984

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ADVANCED CONCEPTS IN WORKERS’ ADVANCED CONCEPTS IN WORKERS’ COMPENSATION SUBROGATIONCOMPENSATION SUBROGATIONPRESENTED BY: MATTHIESEN, WICKERT & LEHRER, S.C.