Recent court decisions have signaled the courts’ proclivity to prefer arbitration over full-fledged litigation when provisions in construction contracts are called into question. While the courts recognize a party’s constitutional right to a jury trial, the courts also lean strongly towards resolving disputes via arbitration as a matter of public policy, especially if a construction contract carves out arbitration as an alternative to litigation. Continue reading
In Beaufort Builders, Inc. v. White Plains Church Ministries, Inc., 783 S.E.2d 35 (N.C. Ct. App. 2016), the Court of Appeals of North Carolina addressed whether the economic loss rule barred the negligence claim of White Plains Church Ministries, Inc. (White Plains) against Charles F. Cherry (Cherry), the owner of Beaufort Builders, Inc. (Beaufort Builders). The court held that, because the economic loss rule would bar White Plains’ negligence claims against Beaufort Builders, White Plains could not pursue a third-party negligence claim against Cherry, individually.
In Severn Peanut Company, Inc. v. Industrial Fumigant Company, 807 F.3d 88 (4th Cir. (N.C.) 2015), the United States Court of Appeals for the Fourth Circuit (Fourth Circuit), applying North Carolina law, considered whether a consequential damages clause in a contract between the Severn Peanut Company, Inc. (Severn) and Industrial Fumigant Company (IFC) barred Severn and its subrogating insurer, Travelers Property Casualty Company of America (Travelers), from recovering over $19 million in damages that Severn suffered as the result of a fire and explosion at its Severn, North Carolina plant. The Fourth Circuit, rejecting Severn’s unconscionability and public policy arguments related to the consequential damages clause and finding that the economic loss doctrine barred Severn from pursuing negligence claims, affirmed the trial court’s judgment granting summary judgment in IFC’s favor.
In July of 2015, the North Carolina legislature amended N.C. Rule of Civil Procedure 26(b)(4), which governs expert discovery. The new rule becomes effective October 1, 2015 and applies to actions commenced on or after that date.
Under the old rule, parties can obtain discovery related to trial experts by issuing expert interrogatories. Parties can also, upon motion, obtain additional discovery, such as deposition testimony and, with respect to such additional discovery, the court may require the party seeking discovery to pay a fair portion of the fees and expenses incurred by the opposing party in obtaining this additional discovery from its expert.
Pursuant to North Carolina Rule of Civil Procedure 41(a)(1), a plaintiff, under certain conditions, can voluntarily dismiss his or her complaint and file a new action based on the same claim within one year after the dismissal. In Murphy v. Hinton, — S.E.2d –, 2015 WL 4081966 (N.C. App. July 7, 2015), the Court of Appeals of North Carolina considered whether the plaintiff, who voluntarily dismissed her wrongful death complaint without prejudice, could take advantage of Rule 41(a)(1)’s tolling provision and extend the statute of limitations for an additional year. The court, following Estrada v. Burnham, 316 N.C. 318, 341 S.E.2d 358 (1986), held that, in order to toll the statute of limitations, the original complaint must conform in all respects to the rules of pleading. The court also held that the plaintiff’s complaint failed to satisfy the notice pleading requirements of Rule 8(a)(1) because the plaintiff’s negligence claim failed to identify the duty that the plaintiff owed, failed to allege unreasonable conduct and otherwise failed to reference the essential elements of a negligence cause of action. Because the plaintiff’s complaint failed to comply with the “rudimentary notice pleading requirements of Rule 8(a)(1),” the court held that the plaintiff could not rely on Rule 41(a)(1) to extend the statute of limitations. Thus, the court affirmed the trial court’s order dismissing the plaintiff’s complaint based on the statute of limitations.
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).