Recent Court Challenges Could Signal a Change for Special Arbitration

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Special Arbitration, a long-existing, highly efficient and cost-effective venue for resolving workers’ compensation subrogation liens, is being challenged as an appropriate forum in which to resolve lien disputes. As a result, Special Arbitration may soon be an unavailable forum for workers’ compensation insurance carriers and employers in some states.

Arbitration Forums, Inc. (AF) is a not-for-profit organization founded in 1943 by the insurance industry for the purpose of successfully resolving disputes among its member organizations. Within AF, the Special Arbitration Forum (Special Forum) resolves workers’ compensation subrogation claims against potentially responsible third parties that do not exceed $250,000.00.

Bringing workers’ compensation subrogation claims in the Special Forum has many benefits including:

  • the cost is a fraction of litigating a case in court;
  • each matter is decided by knowledgeable arbitrators;
  • decisions are rendered in a fraction of the time it takes to litigate a claim in court; and
  • final decisions are binding and proceedings can be initiated with little-to-no participation from the injured worker.

However, like most arbitration forums, the authority AF has over its members is based on the members’ agreement and not on an external body of law. Accordingly, issues arise when jurisdictional issues and arbitration awards from the Special Forum contradict benefit states’ workers’ compensation statutes. Recently, there have been challenges to AF’s ability to decide disputes amongst its signatory members in the Special Arbitration arena.

In a recent Wisconsin case, Erie Insurance Exchange (Erie) filed a workers’ compensation subrogation matter in AF against a member company, EMC Property & Casualty Company (EMC), to recoup its lien within the jurisdictional limits. EMC asserted several affirmative defenses, including arguing that the Wisconsin Circuit Court, not AF, was the proper forum to decide the matter. AF ruled in Erie’s favor, rejecting EMC’s jurisdictional arguments and permitting the Special Forum action to proceed.

In response, EMC filed a declaratory judgment action in Wisconsin Circuit Court, arguing that, under §102.29 of Wisconsin’s workers’ compensation statute – which requires the inclusion of the injured worker in any subrogation action in the state – Wisconsin’s Circuit Court has exclusive jurisdiction over the matter and, thus, is the proper forum.

This matter remains pending but is troubling because, if successful, EMC will have subverted the very arbitration process it submitted to via a contractual obligation. Leaving the potential merits of the underlying case aside, this case highlights an attempt by a member company to try and get an additional “bite at the apple.” If EMC is successful, the court’s decision could seriously hinder the use of AF in Wisconsin and other states that, like Wisconsin, have statutes which include the injured worker in the language of the statute despite being written solely to protect the carriers’ lien reimbursement. In order to overcome jurisdictional challenges like the one raised by EMC, insurers should argue that the court’s analysis in Williams v. Capital Hospice, 783 S.E.2d 67 (Va. App. 2016), further discussed below, not the analysis advocated by EMC, is the proper analysis.

In Williams, Companion Insurance Company (Companion) sought arbitration against Victoria Insurance Company (Victoria) for reimbursement of a workers’ compensation lien arising from benefits paid as the result of an automobile accident. In contrast to the Erie matter, in Williams, the injured worker sought to collect a portion of the workers’ compensation lien award recovered by Companion from Victoria pursuant to Virginia’s workers’ compensation statute. The Virginia Workers’ Compensation Commission agreed. However, on appeal, the Virginia Court of Appeals held that the workers’ compensation carrier was entitled to keep the full amount of the arbitration award.

In so holding, the Virginia Court of Appeals found that the statute cited by the injured worker did not contemplate the approval of an arbitration award by the Commission or a court of competent jurisdiction, first because the injured worker’s tort rights were maintained and the arbitration award for lien reimbursement had no impact on the third party rights of the worker. Moreover, the court found that the injured worker had no interest in Companion’s lien. This well-reasoned decision by the court is instructive and should be used as a blueprint not only for fee based disputes but also in forum contests like that found in the Erie case in Wisconsin and any other jurisdiction that seeks to marginalize or eliminate the use of AF.

Virginia’s workers’ compensation reimbursement framework remains subrogation-friendly with regard to AF. The compelling issue to be determined is whether a Special Forum award to a workers’ compensation carrier will be upheld on judicial review where, arguably, AF’s jurisdiction or its award is inconsistent with the carrier’s right to recover under an individual state’s particular workers’ compensation statute.

In summary, the Williams decision offers a positive framework for courts in different jurisdictions to analyze challenges to AF’s jurisdiction and arbitration awards AF makes to workers’ compensation carriers in third party subrogation cases. If the Williams approach is followed, Special Arbitration will remain a long term, viable solution for member carriers to pursue the resolution of lien claims up to $250,000.00. However, despite the fact that the fundamental purpose of workers’ compensation subrogation statutes is lien reimbursement to the carrier, in jurisdictions where workers’ compensation subrogation statutes include language purporting to provide heightened protections to injured workers, we expect, as in the Erie case, additional challenges.

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