When the direct door to a subrogation recovery closes, the reimbursement door remains open.
The United States District Court for the Northern District of Illinois, construing Indiana law, recently clarified the distinction between workers’ compensation subrogation rights and workers’ compensation lien rights. Workers’ compensation subrogation professionals should always keep this critical difference between direct subrogation and reimbursement in mind when evaluating any claim. Continue reading
By: Robert M. Caplan, Fabianna Pergolizzi and Brett N. Tishler
The Superior Court of New Jersey, Appellate Division, recently held, in N. J. Transit Corp v. Sanchez, No. A-0761-17T3, 2018 N.J. Super. LEXIS 168 (December 4, 2018), that pursuant to N.J.S.A. 34:15-40(f) (Section 40) of New Jersey’s Workers’ Compensation Act (WCA), workers’ compensation carriers have, without question, the independent right to seek reimbursement from negligent tortfeasors for economic damages. The court’s ruling cleared up years of confusion regarding the scope of recoverability of workers’ compensation subrogation liens. As noted by the court, a carrier’s workers’ compensation lien is NOT affected by New Jersey’s verbal threshold and no-fault statutes. Continue reading
On November 21, 2018, the Pennsylvania Supreme Court, in a 5-4 decision, reversed the Superior Court stating a right of action in Pennsylvania remains with the injured employee. Specifically, the court held that “unless the injured employee assigns her cause of action or voluntarily joins the litigation as a party plaintiff, the insurer may not enforce its statutory right to subrogation by filing an action directly against the tortfeasor.” Continue reading
On June 19, 2018, the Pennsylvania Supreme Court decided Whitmoyer v. WCAB (Mountain Country Meats), No. 52 MAP 2017, 2018 Pa. Lexis 2995. The decision reversed longstanding Pennsylvania law and the Commonwealth Court’s decision. The net result of this decision: an insurer can no longer assert a future credit on projected medical benefit payments when settling a third-party case. However, insurers may continue to assert a future credit on indemnity payments. Continue reading
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.
Pennsylvania has maintained its own peculiar brand of strict products liability law ever since the Supreme Court decided Azzarello v. Black Bros. Co., Inc.[1] in 1978. Maligned by many as “absurd and unworkable,”[2] if “excessively” orientated towards plaintiffs,[3] Azzarello’s unique approach to the Restatement (Second) of Torts § 402A (1965)[4] has recently been judicially consigned to the dustbin of history.
In Tincher v. Omega Flex, Inc.,[5] decided on November 19, 2014, the Pennsylvania Supreme Court expressly overruled Azzarello leaving in its place a new alternative standards approach to proving a Section 402A claim. An injured worker or subrogated insurer[6] must still prove that the seller, whether a manufacturer or a distributor, placed the product on the market in a “defective condition unreasonably dangerous to the consumer.”[7] But now, under Tincher, a plaintiff must use either a “consumer expectation test” or a “risk-utility test” to establish that criterion.[8]
Of the many issues potential strict products liability litigants are left to ponder after Tincher, one of the most basic—and possibly overlooked—issues is “When should it apply?” Specifically, if a case were filed months or even years before Tincher was decided, and it remains pending, will Azzarello’s approach to Section 402A govern the case, or does the new Tincher approach apply?
Doctrinally, this issue is framed in terms of “retroactive” versus “prospective” application. The Pennsylvania Constitution neither mandates nor forbids retroactive or prospective application of a new decision.[9] The decision to apply a new rule of law is within the complete discretion of the court.[10] And although Pennsylvania courts generally apply the law in effect at the time of an appellate decision, affording parties whose cases are pending the benefit of changes in the law, they may deviate from this approach to further the interests of justice.[11] A “sweeping rule of retroactive application” has never been the law of the Commonwealth.[12]
The decision to apply a new rule of law retroactively or prospectively is generally informed by the tripartite Chevron[13] test, which the Pennsylvania Supreme Court adopted in 1977 in Schreiber v Republic Intermodal Corp.[14] Under the test, Pennsylvania courts consider: (1) whether the decision establishes a new principle of law; (2) the merits of the rule in question, its purpose and effect, and the potential impact of retroactive effect on its application; and (3) the equities involved as the case may be.[15]
In Tincher, the Supreme Court never reached this decision. It sent the issue of how to apply its new alternative standards approach to Section 402A back to the trial court.[16] Fortunately there are other sources of guidance on the issue. For example, certain voices of the Court in cases leading up to Tincher, including particularly that of the Commonwealth’s new Chief Justice, consistently favored a “purely prospective” move away from Azzarello.[17]
In Bugosh v. I.U. N. Am., Inc., for example, Chief Justice (then Justice) Thomas G. Saylor stated that, in favoring a prospective move away from Azzarello, “a predominant consideration is the settled expectations of those with accrued causes of action and a present entitlement to resort to the civil justice system.”[18] “Azzarello has been with us for too long,” then Justice Saylor added, “and too much settled jurisprudence has evolved around it, for it to be retroactively displaced without profound impact on vested entitlements.”[19]
If Tincher should apply only prospectively, i.e., not retroactively on cases that were pending when Tincher was decided, is there a cut-off point at which litigants’ “settled expectations” would no longer be spoiled by retroactive application? What about for causes of action which accrued before November 19, 2014, during Azzarello’s reign, but for which a lawsuit has not yet been commenced? Is this one of the issues the Pennsylvania Supreme Court, in its parting remarks in Tincher, intended to “develop within the proper factual context against the background of targeted advocacy?”[20]
Many questions remain post-Tincher. It is clear that the Azzarello decision made Pennsylvania one of the most favorable jurisdictions in the country to pursue strict product liability claims. Azzarello is no longer the law and Tincher now provides the framework for the new landscape which needs to be navigated. This framework is in its infancy and is malleable, providing litigants with a tremendous opportunity to shape the new law to advance their respective interests favorably in the strict product liability claims arena.
[1] 391 A.2d 1020 (Pa. 1978).
[2] John M. Thomas, Defining “Design Defect” in Pennsylvania: Reconciling Azzarello and the Restatement (Third) of Torts, 71 Temp. L. Rev. 217, 217 (1998) (citing James A. Henderson, Jr., Products Liability, 2 Corp. L. Rev. 246, 248 (1979)).
[3] Ellen Wertheimer, Azzarello Agonistes: Bucking the Strict Products Liability Tide, 66 Temp. L. Rev. 419, 420 n.9 (1993) (citing Sheila L. Birnbaum, Unmasking the Test for Design Defect: From Negligence [to Warranty] to Strict Liability to Negligence, 33 Vand. L. Rev. 593, 637 (1980)) (“[S]ome commentators take issue with what they view as Azzarello’s excessive orientation towards plaintiffs.”).
[4] “One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if (a) the seller is engaged in the business of selling such a product, and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.”
[5] 104 A.3d 328 (Pa. 2014).
[6] The issue of whether a subrogated insurer has a direct right of recovery against a third party tortfeasor is currently pending before the Pennsylvania Supreme Court. Liberty Mut. Ins. Co. v. Domtar Paper Co., 92 A.3d 809 (Pa. 2014). An opinion is expected sometime this year, although vacancies on the Court may delay a ruling.
[7] See Edward A. Jaeger Jr. and William L. Doerler, Pennsylvania’s Supreme Court Clarifies Pennsylvania’s Strict Liability Standard, The Subrogation Strategist (Jan. 15, 2015), available here.
[8] See id. (“In other words, plaintiffs may prove a defective condition by showing either that (1) the danger is unknowable and unacceptable to the average or ordinary consumer, or that (2) a reasonable person would conclude that the probability and seriousness of the harm caused by the product outweigh the burden or costs of taking precautions.”) (internal quotation omitted).
[9] Blackwell v. Com., State Ethics Comm’n, 589 A.2d 1094, 1098 (Pa. 1991).
[10] Com. v. Grant, 813 A.2d 726, 738 (Pa. 2002) (subsequent history omitted) (citing Blackwell, 589 A.2d at 1098).
[11] Bugosh v. I.U. N. Am., Inc., 971 A.2d 1228, 1242 (Pa. 2009) (Saylor, J., dissenting, in which Castille, C.J., joins) (citations omitted). See also Blackwell, 589 A.2d at 1100 (quoting Gibson v. Com., 415 A.2d 80, 84 (Pa. 1980) (“The prime impetus behind th[e] occasional willingness not to give a decision full effect is the concern that a novel decision will unfairly prejudice those formerly advantaged by the old rules.”).
[12] Blackwell,589 A.2d at 1099.
[13] Named after Chevron Oil Co. v. Hudson, 404 U.S. 97 (1971).
[14] 375 A.2d 1285 (Pa. 1977).
[15] Bugosh, 971 A.2d at 1243 (Saylor, J., dissenting, in which Castille, C.J., joins) (internal quotations and citations omitted).
[16] Tincher v. Omega Flex, Inc., 104 A.3d 328, 410 (Pa. 2014).
[17] See, e.g., Bugosh, 971 A.2d at 1241 (Saylor, J., dissenting, in which Castille, C.J., joins) (“I am on record as favoring prospective movement [away from Azzarello], and I remain of that position today, for the reasons I previously have stated.”) (citation omitted); Phillips v. Cricket Lighters, 841 A.2d 1000, 1012 (Pa. 2003), disapproved of by McGonigal v. Sears Roebuck & Co., 2009 WL 2137210 (E.D. Pa. July 16, 2009) (Saylor, J., concurring, in which Castille, C.J, and Eakin, J., join) (arguing for move away from Azzarello, “at least on a prospective basis”).
[18] 971 A.2d at 1242-43.
[19] Id. at 1243.
[20] Tincher, 104 A.3d at 410.
In a decision handed down yesterday,[1] the Appeals Court of Massachusetts upheld the vitality of Curry v. Great Am. Ins. Co., 954 N.E.2d 580 (Mass. App. Ct. 2011), which limits workers’ compensation insurers’ lien recovery rights. Under Curry, damages for conscious pain and suffering as well as for loss of consortium are not reimbursable to the insurer under G.L. c. 152, § 15.[2]
Such injuries, according to the Curry court, “are not compensable injuries,” and “entirely independent and distinct from the personal injury claims of the employee.”[3] For the court in Curry, “the primary goal of the workers’ compensation statute is wage replacement,”[4] which would obviously prevent an insurer’s lien from attaching to an employee’s damages for pain and suffering, among other injuries.
The Appeals Court in DiCarlo v. Suffolk Const. Co., 2013 WL 9854065 (Mass. App. Ct. Nov. 6, 2014) declared that Curry continues to be the “binding precedent” in Massachusetts, and, as such, “compensation for pain and suffering [is] not subject to the. . . insurer’s lien.”[5]
In DiCarlo, the injured worker suffered serious personal injuries as a result of an accident while working as an electrician at a construction site. He was out of work for two and one-half years and collected workers’ compensation benefits for his medical expenses ($48,431.16) and lost wages ($233,387.95) from his employer’s insurer. In March, 2007, pursuant to G.L. c. 152, § 15, the worker filed a third party action against the general contractor and owner of the property where the injury occurred.
The worker amended his complaint to add a loss of consortium claim on behalf of his wife. The parties participated in mediation and settled the worker’s lawsuit for $100,000, which was to be paid by the insurer of the defendants and third party defendant. Since the parties in DiCarlo reached a settlement, the lower court judge conducted an evidentiary hearing in which she allowed counsel to inquire of the worker and his spouse, as to their claims for pain and suffering and loss of consortium, respectively.[6]
The worker’s settlement proposal requested that approximately 35 % of the settlement be awarded to him for his pain and suffering, approximately 35 % be awarded to his wife for her loss of consortium, and approximately 30 % to the insurer to satisfy its lien, with each portion again assigned a pro rata share of the attorney’s fees and costs.[7] By contrast, the insurer proposed that it should receive no less than 90 % of the settlement and that no more than 10 % be awarded to the worker’s wife if the court found her claim for loss of consortium supported by the evidence.[8] The lower court judge in DiCarlo made detailed findings of fact in which she found the worker and his wife “to be credible in every particular,” and sided with the worker’s proposed allocation of the third party settlement proceeds.[9]
For the time being, Curry remains the law of Massachusetts. In the context of a settlement, this means that workers’ compensation insurers must move for a Superior Court judge to conduct an evidentiary hearing, just like in DiCarlo, to determine the merits of an injured worker’s proposed allocation limiting the pool of funds to which an insurer’s lien may attach.
Still, a rift in the Massachusetts court system appears to be growing increasingly wider, manifest in the impassioned concurrence in DiCarlo. Agreeing with the majority’s opinion in DiCarlo, “based solely on the doctrine of stare decisis,”[10] Judge Peter W. Agnes Jr. expressed concerns about whether Curry was decided correctly. To support his position that “the entire recovery is for the insurer,”[11] Judge Agnes directed to the DiCarlo majority’s attention a slew of Massachusetts Supreme Judicial Court opinions decidedly inconsistent with Curry.
[1] DiCarlo v. Suffolk Const. Co., 2013 WL 9854065 (Mass. App. Ct. Nov. 6, 2014).
[2] 954 N.E.2d at 582-84.
[3] Id. at 583-84 (citation and internal quotation omitted).
[4] Id. at 584 (citation omitted).
[5] 2013 WL 9854065 at *3.
[6] Id. at *2.
[7] Id. at *2 n.10.
[8] Id.
[9] 2013 WL 9854065 at *2.
[10] The doctrine of stare decisis means that courts should follow their own precedent.
[11] 2013 WL 9854065 at *4 (Agnes, J., concurring in result only) (citing Rhode v. Beacon Sales Co., 616 N.E.2d 103, 106 (Mass. 1993) (emphasis in original).
The North Carolina workers’ compensation subrogation statute does not permit employers or their compensation insurers to claim a “future credit” against future exposure.1 In this respect, North Carolina departs from the classic rule in the overwhelming majority of jurisdictions.2
Despite this minority position as to future credit, however, the North Carolina Workers’ Compensation Act does require courts to consider workers’ compensation insurers’ future “exposure” when determining if and how much of the insurer’s lien will be paid back.3 An insurer’s future exposure represents just one of the many factors courts are bound by statute to consider when determining the appropriate amount of the insurer’s lien.4
But let’s take a step back. The process of determining the appropriate amount of the insurer’s lien generally involves two layers of analysis. The process, naturally, is commenced at the time a third party settlement is reached or judgment is awarded.5
Settlement or judgment in hand, the injured worker and the insurer are encouraged to agree on how to reimburse the insurer’s lien.6 But if mutual agreement breaks down, either the worker or the third party tortfeasor can petition the appropriate Superior Court judge to determine the insurer’s recovery, after an opportunity for all parties to be heard on the merits.7 Under the latter scenario, the insurer’s consent is irrelevant since the Superior Court judge decides the issue.8
The first layer of analysis for the judge is determining the lien amount, “whether based on accrued or prospective workers’ compensation benefits[.]” If any benefits have been paid at the time of the settlement or judgment, the judge takes a snapshot to determine the lien amount.10 An insurer’s future exposure for purposes of this first layer of analysis is, therefore irrelevant, unless at the time of the settlement or judgment, for whatever reason, benefits have not yet been paid.
An insurer’s future exposure only becomes relevant in the second layer of analysis, whereby the judge takes the lien snapshot and determines how much of the lien, if any, will actually be paid back.11 At this level of analysis, judges weighing the subsection (j) factors are given virtually unassailable discretion to either reduce or eliminate an insurer’s lien,12 “even if the result is a double recovery for the plaintiff.”13
There is, of course, no magic mathematical formula for the trial court to consider in making its lien reimbursement determination.14 The exercise of discretion simply requires the court to “make a reasoned choice, a judicial value judgment, which is factually supported.”15
If a workers’ compensation insurer has only paid minimal benefits, but has tremendous future exposure, it would stand to reason that the insurer should be able to secure full reimbursement of its lien.16 This is only fair since the insurer’s future exposure will go, as a matter of law, unreimbursed. But if the worker’s injuries are catastrophic, and the worker has to self-fund a decades-long life-care program, for example, one would be hard-pressed to find a North Carolina judge willing to exalt an insurer’s lien over the worker’s personal, financial obligations.
Thus while there is no future credit in North Carolina, the court’s obligation to consider a workers’ compensation insurer’s future exposure may, depending on the factual circumstances, serve as a safeguard against unfair lien reduction or outright elimination.
1 N.C. GEN. STAT. § 97-10.2.
2 See, e.g., Bailey v. Reliance Ins. Co., 94 Cal.Rptr.2d 149, 153 (Cal. Ct. App. 2000) (observing that under CAL. LABOR CODE §§ 3858 and 3861 subrogated workers’ compensation insurer was “entitled to a credit against future benefits based on the amount the third parties paid” to injured worker).
3 See N.C. GEN. STAT. § 97-10.2(j) (“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, . . .”).
4 See id. at 97-10.2(j) (listing lien reimbursement factors).
5 See Leggett v. AAA Cooper Transp., Inc., 678 S.E.2d 757, 760 (N.C. Ct. App. 2009) (“[Section 97-10.2(j)] grants limited jurisdiction to the superior court to determine the amount of the employer’s lien in the event the employee receives compensation from a third-party judgment or settlement.”).
6 N.C. GEN. STAT. § 97-10.2(h).
7 Id. at § 97-10.2(j). Curiously, as one federal district court reviewing the North Carolina Workers’ Compensation Act has observed: “There is no provision in § 97-10.2(j) recognizing a separate cause of action by an employer to determine the subrogation amount, and no North Carolina state court cases have addressed the ability of an employer to bring a separate cause of action in state court pursuant to this provision. Thus, there appears to be an unresolved question of state law. . . .” Safety Nat. Cas. Ins. Corp. v. City of Burlington, 2006 WL 399675, *5 (M.D.N.C. 2006).
8 See id. (“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. . . .”) (emphasis added).
9 Id. at § 97-10.2(j).
10 Compare Johnson v. Southern Indus. Constructors, Inc., 495 S.E.2d 356, 359 (N.C. 1998) (Lake, J., for the majority) (“[The] wording [of N.C. GEN. STAT. § 97-10.2(j)] clearly indicates that the comparison between the compensation benefits paid and the judgment is to be made at the precise time the “judgment is obtained.”), with id. at 362 (Frye, dissenting) (“The carrier’s right to subrogation does not cease to accrue at the precise moment that the judgment is obtained. Rather, it continues as to all benefits to be paid in the future by the employer under award of the Industrial Commission. It is therefore inequitable to deny the existence of that component of the subrogation claim. . . .”) (emphasis in original).
11 See, e.g., Wynter v. County of Wake, 2011 WL 2462669, *5 (N.C. Ct. App. 2011) (concluding that Superior Court properly considered workers’ compensation insurer’s future exposure to determine that such insurer was entitled to full reimbursement of its subrogation lien).
12 See N.C. GEN. STAT. § 97-10.2(j) (providing Superior Court judges catch-all “just and reasonable” discretion when determining lien reimbursement). See also Leggett v. AAA Cooper Transp., Inc., 678 S.E.2d 757, 761 (N.C. Ct. App. 2009) (citation omitted) (“The trial court may reduce or completely eliminate a workers’ compensation lien if warranted by the facts, and this Court may not interfere absent an abuse of discretion.”).
13 Estate of Bullock v. C.C. Mangum Co., 655 S.E.2d 869, 874 (N.C. Ct. App. 2008) (citation omitted).
14 In re Biddix, 530 S.E.2d 70, 71 (N.C. Ct. App. 2000).
15 Cook v. Lowe’s Home Centers, Inc., 704 S.E.2d 567, 570 (N.C. Ct. App. 2011) (quoting Allen v. Rupard, 397 S.E.2d 330, 333 (N.C. Ct. App. 1990)).
16 See generally Wynter v. County of Wake, 2011 WL 2462669 (N.C. Ct. App. 2011).
By: Edward A. Jaeger, Jr. and William L. Doerler
In Conway v. Cutler Group, Inc., — A.3d –, 2014 WL 4064261 (Pa.), the Supreme Court of Pennsylvania addressed the question of whether a subsequent home buyer can recover from a home builder pursuant to the builder’s implied warranty of habitability, a warranty that protects those who purchase a newly constructed home from latent defects. Concluding that a builder’s warranty of habitability is grounded in contract, the Court held that a subsequent purchaser of a previously inhabited home cannot recover damages from a builder-vendor based on the builder-vendor’s breach of the implied warranty of habitability. The Court’s decision leaves unanswered the question of whether a purchaser who is also the first user-purchaser of a new home can pursue a breach of warranty action against a builder with whom the purchaser is not in privity of contract.
In Conway, the Cutler Group, Inc. (Cutler) sold a new home to Davey and Holly Fields. The Fields subsequently sold the home to Michael and Deborah Conway. After the Conways discovered water infiltration problems in their home, they filed a one-count complaint against Cutler, alleging that Cutler breached its implied warranty of habitability. In response to the Conways’ complaint, Cutler filed preliminary objections, arguing that the warranty of habitability extends from the builder only to the first purchaser of a newly constructed home. The trial court sustained Cutler’s preliminary objections based on the lack of contractual privity between the parties and the Conways appealed the trial court’s decision. On appeal, the Superior Court reversed, stating that the implied warranty of habitability is based on public policy considerations and exists independently of any representations by the builder, and even in the absence of an express contract between the builder and the purchaser. Cutler appealed the Superior Court’s decision to the Supreme Court.
To address the question of whether the implied warranty of habitability extends to a subsequent purchaser of a used residence, the Court discussed the history of the implied warranty of habitability in Pennsylvania. As stated by the Court, the Court adopted the implied warranty of habitability in the context of new home sales to reject the traditional doctrine of caveat emptor (buyer beware) because the purchaser of a new home justifiably relies on the skill of the developer. Thus, as between the builder-vendor and the buyer, the builder should bear the risk that the home he builds is habitable and functional. In adopting the doctrine, the Court noted that the doctrine is rooted in the existence of a contract – an agreement of sale – between the builder-vendor and the buyer.
Although the Superior Court extended the doctrine to subsequent purchasers of a used residence on public policy grounds, the Supreme Court concluded that the question of whether the implied warranty of habitability should be extended to the subsequent purchaser of a used residence is a matter of public policy for the General Assembly, not the Court, to decide. Although the Court recognized that courts have the power to formulate public policy in the clearest cases, the Court found that the issue before it did not present such a case. Thus, the Supreme Court declined to extend the implied warranty of habitability beyond its current formulation, a formulation that requires privity of contract between the parties.
In reaching its decision, the Supreme Court distinguished the facts of the Conway case from the facts in Spivack v. Berks Ridge Corp., 586 A.2d 402 (Pa. Super. 1990), the case on which the Superior Court based its decision. In Spivack, the plaintiffs purchased a “yet-to-be-constructed” condominium from a developer, who was a separate and distinct entity from the builder/general contractor of the condominium. After finding deficiencies in the condominium, the plaintiffs sued the builder/general contractor based on a breach of the builder’s warranty of habitability. The Superior Court held that, where a builder knows or should know that a home’s first purchaser will not be its first user, the builder’s implied warranty must, necessarily, extend to the first user-purchaser. Thus, as stated by the Conway Court, the warranty of habitability adopted in Spivack applies only in circumstances where the first purchaser never used or occupied the home. This was not the situation that the Court addressed in Conway.
In holding that the implied warranty of habitability does not extend to a subsequent purchaser of a used residence, the Court declined to rule on the propriety of the Superior Court’s analysis in Spivack. Thus, despite the fact that the Supreme Court declined to extend the implied warranty of habitability to used home buyers who are not in privity with the builder-vendor, an injured party who falls within the Spivack fact pattern – as the first user-purchaser of a new home – should continue to assert implied warranty of habitability claims against his or her builder/general contractor. Ultimately, however, whether a first user-purchaser who is not in privity with the defendant builder will succeed on his or her implied warranty of habitability claim is, based on the analysis in Conway, an undecided question.
For more information regarding this alert, please contact Ed Jaeger (215.864.6322 / jaegere@whiteandwilliams.com) or Bill Doerler (215.864.6383 / doerlerw@whiteandwilliams.com).
In Michigan, an employee’s entitlement to compensation for injuries sustained in a motor vehicle accident is governed by both the Workers’ Disability Compensation Act of 1969, MICH. COMP. LAWS ANN. § 418.801 et seq., and Chapter 31 of The Insurance Code of 1956, MICH. COMP. LAWS ANN. § 500.3101 et seq., commonly referred to as the “no-fault act.” Polkosnik v. United Canada Ins. Co., 421 N.W.2d 241, 242 (Mich. App. 1988).
PIP1 benefits payable arising from a motor vehicle accident in Michigan include, principally, (1) medical benefits unlimited in amount and duration, and (2) 85% of lost wages for up to three years. See DEPARTMENT OF INSURANCE AND FINANCIAL SERVICES, Brief Explanation of Michigan No-Fault Insurance. As of October 2013, lost wages are capped at $5,282 per month. Id. Such benefits constitute an injured worker’s “economic loss.” See generally Wood v. Auto-Owners Ins. Co., 668 N.W.2d 353, 355 (Mich. 2003).
Michigan’s no-fault legislation is no different than other no-fault legislation in regard to its purpose: The automobile insurer pays without any right of reimbursement out of any third party tort recovery. Sibley v. Detroit Auto. Inter-Ins. Exch., 427 N.W.2d 528, 530 (Mich. 1988). Moreover, just like in New York, for example, “where benefits are provided from other sources pursuant to state or federal law, the amount paid by the other source reduces the automobile insurer’s responsibility.” Id. at 530.
Under the Michigan no-fault act, an employee’s entitlement to workers’ compensation benefits is set off against her PIP benefits, thereby reducing the PIP insurer’s liability for payment. Polkosnik, 421 N.W.2d at 242. Thus, if a motorist is injured in a motor vehicle accident while operating the vehicle in the course and scope of her employment, the compensation insurer covering the motorist substitutes as the primary payor of the benefits to which the injured motorist is entitled under the no-fault act. See generally Mathis v. Interstate Motor Freight Sys., 289 N.W.2d 708 (Mich. 1980). See also Great Lakes Am. Life Ins. Co. v. Citizens Ins. Co., 479 N.W.2d 20, 24 (Mich. App. 1991) (“Although a workers’ compensation carrier is not a no-fault insurance carrier, it nevertheless “stands in the shoes” of a no-fault carrier. . . .”).
PIP insurers are entitled to reimbursement out of a motorist’s third party recovery “only if, and to the extent that, the tort recovery includes damages for losses for which [PIP] benefits were paid.” Workman v. DAIIE, 274 N.W.2d 373 (Mich. 1979). In other words, subrogation is only possible for economic damages, since PIP does not provide coverage for noneconomic damages like pain and suffering, for example.
But such subrogation is limited to several circumstances set forth in MICH. COMP. LAWS ANN. § 500.3116. Dunn v. Detroit Auto. Inter-Ins. Exch., 657 N.W.2d 153, 158 (2002). “It is now clear that an insurance carrier responsible for no-fault benefits may realize reimbursement from an insured’s third-party tort claim only in the following situations: (1) accidents occurring outside the state, (2) actions against uninsured owners or operators, or (3) intentional torts.” Citizens Ins. Co., 479 N.W.2d at 23 (citation omitted).
Since workers’ compensation benefits substitute for no-fault benefits otherwise payable in the event of a motor vehicle accident, a workers’ compensation carrier’s subrogation rights “are coextensive with those of the no-fault insurer whose liability it replaces and are thus limited to cases where there is tort recovery for basic economic loss.” Great Am. Ins. Co. v. Queen, 300 N.W.2d 895, 897 (Mich. 1980). Thus, a compensation insurer’s subrogation rights are limited to the same three exceptions enumerated in MICH. COMP. LAWS ANN. § 500.3116. And, like PIP insurers, workers’ compensation insurers are generally not subrogated for noneconomic damages—i.e., pain and suffering. Citizens Ins. Co., 479 N.W.2d at 23-24.
Unlike PIP insurers, however, workers’ compensation insurers are entitled to subrogation under an exception not available to PIP insurers: “When the carrier pays benefits which do not substitute for no-fault benefits, because they exceed no-fault benefits in amount or duration, it should be treated like all other workers’ compensation carriers and be entitled to reimbursement out of any third-party recovery.” Queen, 300 N.W.2d at 897 (emphasis added). The determination of whether a workers’ compensation carrier’s payments “exceed” PIP benefits otherwise payable “involves a factual question.” Bialochowski v. Cross Concrete Pumping Co., 407 N.W.2d 355, 360 (Mich. 1987) (subsequent case history omitted).
One Michigan appellate court has stated that “[a]ny weekly workers’ compensation benefits paid beyond that three-year period cannot properly be regarded as a substitute for benefits under the no-fault act.” Hearns v. Ujkaj, 446 N.W.2d 657, 659 (Mich. App. 1989). Thus, such benefits are recoverable in subrogation under the Queen exception. Allowing subrogation for such benefits “would work no discrimination” against motor vehicle accident victims who happen to be injured in the course or scope of employment because reimbursement is permitted only for benefits which other motor vehicle accident victims do not receive. Queen, 300 N.W.2d at 897.
Other Michigan courts have continued to apply the Queen exception to scenarios in which the compensation insurer sustains a loss that exceeds the PIP threshold in either, or both, the time and quantity set forth in the no-fault act. Identifying when theQueen exception might apply to a given state of facts is critical for ensuring that a compensation insurer can exploit the exception. It is critical that counsel be sought whenever a set of facts appears to introduce an intersection between two or more statutory schemes—such as Michigan’s Workers’ Disability Compensation Act and no-fault act—so that every opportunity for a recovery can be properly vetted and pursued.
Robert M. Caplan is Counsel with White and Williams LLP and Workers’ Compensation Subrogation Team Leader. In addition to litigating and trying cases, Rob is a frequent lecturer at national and regional conferences held by the National Association of Subrogation Professionals (NASP) where he has been a Track Leader for the Workers’ Compensation Subrogation Track. Rob can be reached at caplanr@whiteandwilliams.com and 215.864.7012.
