Catherine Tanaka Surbeck has extensive experience representing plaintiffs and defendants in all aspects of workers’ compensation litigation and mediation...
Alan S. Pierce has served as chairperson of the American Bar Association Worker’s Compensation Section and the Massachusetts Bar...
Workers’ compensation lawyers may face extraordinarily complicated issues when dealing with third party settlements. Staying on top of current statutes and case law is crucial. In this episode of Workers’ Comp Matters, host Alan Pierce welcomes Cathy Surbeck to discuss subrogation and liens on third party settlements. Subrogation refers to instances where an insurance company steps into the injured worker’s shoes to sue a third party. They explain the variables involved in these matters and give specific examples of how processes differ in various states.
Cathy Surbeck practices in the area of workers’ compensation with the law firm of Freedman & Lorry PC in Philadelphia.
Workers Comp Matters
Subrogation and Workers’ Compensation Liens on Third Party Settlements
Intro: This is Workers Comp Matters, hosted by attorney Alan S. Pierce, the only Legal Talk Network program that focuses entirely on the people and the law in workers’ compensation cases. Nationally recognized trial attorney, expert, and author Alan S. Pierce is a leader committed to making a difference when workers comp matters.
Alan S. Pierce: Welcome to another edition of Legal Talk Network and Workers Comp Matters. My name is Alan Pierce. I am an attorney at Pierce, Pierce & Napolitano in Salem. We are a law firm that represents injured workers in workers’ compensation and related matters. And we are happy to bring you another edition of Workers Comp Matters with our guest today, Cathy Surbeck.
Before we get into our topic, I just want to give you a little background on our guest. Cathy Surbeck is an associate with the law firm of Freedman & Lorry PC in Philadelphia, Pennsylvania. She has extensive experience representing both claimants and insurers and employers in all aspects of workers’ compensation litigation, including mediation, appearing before the Workers’ Compensation Appeals Board, Commonwealth Court of Pennsylvania, drafting findings of fact, briefs to the workers’ comp judge and the Appeal Board.
She also is a member of the American Bar Association TIPS Section; that is the Tort Trial & Insurance Practice Section. She is the former Chair of the Workers’ Comp Committee or Section of TIPS. She is an active member in WILG, which is the Workers’ Injury Law and Advocacy Group. And she has been inducted in the College of Workers’ Compensation Lawyers as a Fellow, which is a very prestigious honor for somebody who has demonstrated excellence in the practice of workers’ compensation law and has had extensive experience.
So having said that, Cathy, I want to welcome you to Workers Comp Matters.
Catherine Tanaka Surbeck: Thank you Alan. I am looking forward to doing the show with you.
Alan S. Pierce: And the topic that we are going to talk about today is one that Cathy helped put together at a meeting of the ABA, American Bar Association midwinter meeting this past March in Florida, in conjunction with the College, and it was a discussion concerning a pretty important topic for those of us, no matter whom we represent in workers’ comp, which is subrogation and liens that a workers’ comp insurance company might have on the proceeds of any third party settlement or judgment.
But before we get into our topic, I want to thank our sponsor Case Pacer, practice management software dedicated to the busy trial attorney. To learn more, go to casepacer.com.
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Cathy, just so that we can get into this topic right from the get-go, subrogation is a legal term, how would you define it, how is it used in the field of workers’ compensation?
Catherine Tanaka Surbeck: So in the field of workers’ compensation what subrogation refers to is, if you are injured on the job and you have the right or the opportunity to sue a third party, other than your employer for this injury, and you recover out of that injury, for example, in the State of Pennsylvania the Workers’ Compensation Act states that you cannot recover twice for the same injury. In other words, you cannot collect workers’ compensation benefits for your injury and in Pennsylvania workers’ compensation benefits is defined as your wage loss benefits as well as your medical benefits, and also recover in a third party case for your pain and suffering as a result of this injury.
So what subrogation means in the State of Pennsylvania specifically is that the workers’ compensation carrier has a right to recover all of the monies that they paid out for your injury against your third party recovery.
Now, that’s limited to what they paid, less their pro rata share of the attorneys’ fees and costs for your third party.
Alan S. Pierce: Okay. So that’s going to acquaint us with a variety of concepts here. One is the inability of somebody injured at work to sue his or her employer, but the term third party is pretty much a term of art, so that generally speaking, third party represents some company or person other than the employer or a co-worker or the worker himself that caused the injury.
So there are 50 different state jurisdictions, not to mention other jurisdictions, like federal workers’ comp and railroad and some statutes where policemen or firefighters or other people that might be outside of the traditional workers’ comp system get some type of wage replacement.
Is it pretty universal across almost all jurisdictions that the company responsible for paying workers’ compensation benefits enjoys the subrogation rights to assert a lien on any third party recovery that might arise out of the same injury?
Catherine Tanaka Surbeck: Yes, it’s pretty universal across all 50 states that when we were preparing for our panel, we did an informal survey and that was the general consensus.
Alan S. Pierce: Yeah, I am going to be coming back to that survey in a minute and I will identify its origin because some of our listeners might want to take actually a look at a 50 state comparison of the different variables that go into what rights does an insurance company have in terms of money from a third party settlement; it does vary from state to state.
So before we leave the general topic in defining subrogation, it’s more than just the right of recovery by the insurance company, but subrogation, if you really get into the origin of the term, which I think goes back to Anglican Law or the English Court of Chancery, it’s the ability for somebody or some company to substitute for another.
And in certain situations, and Cathy, you can expand on this, if the injured worker himself doesn’t bring a third party action for whatever reason, the workers’ comp insurance company in bringing that action in its own name or in the name of the injured worker is doing it under the concept of subrogation. In fact, they are substituting the enforcement of their rights, which is reimbursement for the monies they have paid out.
So how does this work in Pennsylvania and/or other cases if the injured worker does not bring a third party claim or is late bringing a third party claim? In some jurisdictions I know the first entity, whether it’s a workers’ comp carrier or the injured worker to bring the claim, enjoy some rights that the other may not have in terms of prosecuting the case and division of the proceeds. So let’s talk a little bit about the insurance company taking the bull by the horns themselves.
Catherine Tanaka Surbeck: Okay. So what Alan is talking about is, in other words, the insurance company is stepping into the shoes of the injured worker, and most of the time the injured worker will pursue a third party on their own. There might be instances where they do not wish to pursue, for whatever reason. One of the — probably the most common ones is if it’s some kind of family relationship or family company, or a family, your boyfriend, your girlfriend, something like that.
But specifically for Pennsylvania though, if the injured worker does not choose to bring forward a third party case when it is available for them, the insurance company cannot step into the shoes of the injured worker in Pennsylvania to bring a lawsuit for themselves, and that is not by statute, but that has been ruled by case law.
Alan S. Pierce: So you are saying in Pennsylvania the insurance company cannot bring the action, it’s exclusive to the injured worker?
Catherine Tanaka Surbeck: Yes, in Pennsylvania it is exclusive only to the injured worker and that is by case law. The Supreme Court I believe ruled on that matter, that if the injured worker does not wish to bring forward a third party case, the workers’ comp carrier cannot step in their shoes, and/or if it is a self-insured, they cannot step in the shoes.
Alan S. Pierce: That seems to be a very minority view.
Catherine Tanaka Surbeck: Yes, I don’t know if any other state has that in place, and I took a glance at the survey that Alan and I referenced and I think that we are the only state, and in fact, this survey does not indicate that there is a right for the carrier to sue directly. It has changed.
Now, in Alabama, for example, once the statute of limitations expires for the third party, and in most cases a statute of limitations for bringing forward a suit with regard to a third party case, for example, a motor vehicle accident or a products case is usually two years, once the two year statute of limitations has expired in Alabama, the workers’ compensation carrier can bring a lawsuit in their own behalf up to six months after the expiration of the statute of limitations.
So in other words, if I was an injured worker in Alabama today and I got hurt, but I chose not to — and I got hurt because someone hit my car while I was performing the duties of my job and I chose not to bring forward a lawsuit two years from today, or March 29, 2021 and for the following six months, so that would put us what, April, May, June, July, August, September, up until September 28, 2021, the workers’ compensation carrier can bring forward a third party lawsuit on my behalf to recover what they had paid out in workers’ comp.
Alan S. Pierce: Now, you mentioned a very common scenario where this occurs is motor vehicle accidents, somebody driving a vehicle in the course of his or her employment, be it a company vehicle, their personal vehicle, a truck or whatever, if they are involved in a motor vehicle accident where another party is at fault, they would collect their workers’ comp benefits, which would be a percentage of their wages plus medical bills would be paid, and that is money that the insurance company pays, it becomes part of their lien, that total amount of money. Let’s say they paid $8,000 for lost wage benefits and another $6,000 of medical benefits, they have a lien of $14,000.
When the worker who was driving the car brings a claim against the car that struck her in the rear, they are seeking damages for additional monies, including pain and suffering. So let’s assume there is a $20,000 recovery in that lawsuit and that the workers’ comp insurance company has paid $14,000, who gets what?
Catherine Tanaka Surbeck: So if this happened in Pennsylvania, the workers’ compensation lien of $14,000 needs to be satisfied in total, less the pro rata share of the fees and cost.
So for example, if this was my firm, out of the $20,000 recovery for the motor vehicle accident, we would take 40% of that $20,000, which represents our fee. So that would be $8,000 in fees that we would deduct. And then let’s say we spent $100 in costs, that would be added to the $8,000, for a total of $8,100.
In Pennsylvania, in order to calculate the net recovery for the workers’ comp lien, we have a formula that has been set forth by the Bureau of Workers’ Comp that we put in all the numbers. So the $14,000 that the workers’ compensation carrier paid out, they don’t get it back dollar for dollar, because they have to take into account their pro rata share of the fees and costs that was expended to get the $20,000.
Alan S. Pierce: Yeah. So $14,000 is 70% of 20, so they would be responsible for 70% of the fees and costs on their recovery, and the insurer — the employee would bear the other share of costs.
Catherine Tanaka Surbeck: Yeah, yes.
Alan S. Pierce: Now, what happens, for example, if the injured worker is still collecting workers’ comp, so that the workers’ comp lien keeps growing even after the settlement, maybe medical bills were not closed by settlement, does the insurance company have a right to any of the monies the injured worker received in the third party settlement that was in excess of the lien going forward? Is there a formula for that?
Catherine Tanaka Surbeck: There is a formula for that, and that formula, again, in Pennsylvania has just changed by case law. The Supreme Court just ruled that in that scenario the workers’ compensation carrier is not entitled to a future credit against medical cost.
Alan S. Pierce: That is a distinctly minority view. In fact, it may be —
Catherine Tanaka Surbeck: The only view.
Alan S. Pierce: –one of only handful or maybe the only view, yeah, because pretty universal around the country, especially in Massachusetts, where of course I practice, in our case it’s called a Hunter Offset. Usually this provision to pay back monies from a third party settlement after the case is settled usually is a formula that’s devised either by statute or through case law. In Massachusetts we had the so-called Hunter case. If you go around the different jurisdictions, you can see that it’s a reference to either the statutes or the cases.
This is a good point to take a brief break and when we come back we will continue our discussion with Cathy Surbeck regarding workers’ comp liens and subrogation.
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Alan S. Pierce: And welcome back to Workers Comp Matters. This is Alan Pierce talking with Cathy Surbeck regarding workers’ compensation, subrogation and third party settlements.
When we left off we were talking about the ability of the workers’ comp insurance company after a third party settlement to reach some of the excess money the injured worker received.
I know in Pennsylvania you had mentioned the recent court decision limited the recovery rights to future medical benefits only, so that if injured worker had some future wage loss or indemnity benefits, those would not be captured after a third party settlement. Is that my understanding of this recent case in Pennsylvania?
Catherine Tanaka Surbeck: So the recent case in Pennsylvania only deals with future medical. If there is still — if the injured worker was still entitled to receive wage loss benefits, the workers’ comp carrier would still be able to capture some of that or I guess the excess from the third party, but not the medical.
Alan S. Pierce: Oh, they wouldn’t?
Catherine Tanaka Surbeck: Yes. And depending on the severity of the injury, the medicals could be very, very large, but they are not able to capture any of that.
Alan S. Pierce: Okay. So let’s sort of get back to the damages that a worker would incur, that would be civil damages as opposed to workers’ comp damages, which again are limited to a percentage of wage loss and medicals.
Typically, in a workers’ compensation claim and a third party injury, the injured worker may have a family member, either dependent children and/or a spouse, who might also be plaintiffs for their losses of consortium, and also as part of the damages that an injured worker might suffer outside of the workers’ comp system would be something that generically we call pain and suffering.
So how does the — how do the various states deal with taking let’s say a third party settlement of $100,000 and a workers’ compensation lien of $50,000, what are the obligations on the injured worker’s attorney to delineate how much of the $100,000 settlement is for family loss of consortium and for pain and suffering and how does that reduce the insurer’s recovery rights, the workers’ comp insurer’s recovery rights?
Catherine Tanaka Surbeck: Alan, that’s an excellent question, and that again is determined by which state you are in. Each state has specific either statute or case law that deals with this.
In Pennsylvania, my state, we do not apportion anything for loss of consortium or pain and suffering, the workers’ compensation carrier’s rights to the third party recovery is 100% and it’s a dollar-for-dollar credit, less their pro rata share that we talked about earlier.
For example though, if you are in a state like Georgia, which has a Made Whole statute, in that particular case, then arguably the workers’ compensation carrier does not have a subrogation lien because of the pain and suffering apportionment of that third party recovery.
In the State of Colorado, the lien is only recoverable against economic damages and not for pain and suffering.
So for example, if you have $100,000 settlement or recovery and it is found or apportioned that $50,000 of that is for pain and suffering, even though the workers’ compensation carrier might have already paid $100,000 in workers’ comp benefits, they would only be entitled to $50,000 of that, because $50,000 was non-economic damages.
Alan S. Pierce: In fact, you and I both know that half the job representing our clients, if we are representing the injured party, is to maximize their recovery on the third party case, and once we have that figure, either an award or a settlement negotiated with the claims adjuster or a policy limits payment, we then have to go back to the workers’ comp carrier and negotiate as best we can how much they get back, because our job obviously is not to recover 100% of the monies for the workers’ comp company, but to maximize our client’s recovery.
So that sometimes the harder part of resolving a third party claim after you get the money from the third party is negotiating how much of this is the loss of consortium, how much is it for pain and suffering, should there be an equitable reduction of the lien, does the law allow for that in the particular jurisdiction, so this can be extraordinarily complicated.
Catherine Tanaka Surbeck: Yes, it is. And I don’t know about your practice, but in my practice, my firm in addition to having a workers’ compensation practice, we also represent our clients in the third party matter. So in a sense it’s a little easier for me to negotiate these things because I have access to that information within my office.
So how do you handle that in your office? Do you refer out the third party cases?
Alan S. Pierce: It all depends. We sometimes have the workers’ comp component referred to us by the third party attorney, sometimes we do it in-house, and sometimes if it’s — especially if it’s a complex products liability case or a really catastrophic injury with all sorts of coverage and really complicated issues, we will refer it out to a firm that specializes in that type of area. But yeah, it is helpful if it is in the same firm, because you usually have a good handle on both the client as well as the workers’ comp insurer.
I think one thing that’s become apparent in our very brief discussion today is that, this really is an important topic and it varies from state to state and Cathy, you in your program a couple of weeks ago, among your materials I’m going to credit another law firm Matthiesen, Wickert & Lehrer. They are in Wisconsin, Louisiana and California. They put together a spreadsheet that starts with Alabama and ends with whoever the last state is Wyoming.
Catherine Tanaka Surbeck: Yeah.
Alan S. Pierce: We have all 50 states plus the District of Columbia, so there is 51 special blocks here and then across the line statutory reference exclusive, who can bring the third party, who can intervene? What happens with future credits, attorney’s fees and costs? This is an invaluable tool to any of you on the defense side, as well as those of us in the claimants. Well we might have a choice of jurisdictions. How would this — why would this be helpful to us if you had a Pennsylvania worker to know how it might be in another state?
Catherine Tanaka Surbeck: So for example, I can speak from personal experience. I had a truck driver, client, who got hurt in Pennsylvania, lived in South Carolina, but got injured in Georgia. So out of those three states, Pennsylvania workers’ comp provided the best workers’ compensation coverage for him, because Pennsylvania is a wage loss state, we have the highest calculation of his workers’ comp benefits in our state and also our medical is not as restrictive as some other states.
So in that particular case, and it never came down to him having to make a choice actually, because his employer chose to pay him Pennsylvania workers’ compensation benefits.
If the employer had chosen to pay him Georgia workers’ comp, I might have counseled him to move his case to Pennsylvania, because Pennsylvania benefits are better for him. But in that particular case, he was receiving Pennsylvania workers’ compensation benefits but had his third party case in Georgia.
Georgia is a made whole state, so what happened when he settled his third party case in Georgia, the workers’ compensation carrier in Pennsylvania could not file a lawsuit to assert the lien in Georgia against his third party. The way that they recovered some of their lien was to bring action in Pennsylvania. They did concede that they couldn’t receive any of the back due monies that they paid him under workers’ comp, but they made an assertion against the future workers’ comp that they would pay, because his settlement was in excess of whatever his lien was at that time.
So in that particular case, what we did was we preserved his whole settlement in the third party, because it was relatively significant and we negotiated settlement with the workers’ comp carrier so that they would forgo all of their future credit and then they paid him a small lump sum to wrap up his case and then he was able to sever his rights with his workers’ comp carrier.
Alan S. Pierce: Fascinating. For those of you who would like a copy and I’m taking the liberty of offering to disseminate this comparison of subrogation rights in all 50 states. You can find it at www.mwl-law.com, that is the Matthiesen, Wickert & Lehrer website or you could send an email to me and I can email you a copy. My email address is [email protected].
At this point, I think we’re going to conclude. Cathy, I know we’ve barely scratched the surface in all the permutations and wrinkles that could come up case-by-case when you do have an accident and somebody else other than the employer’s negligent and how you carve up the pie so to speak. But you’ve given us a good heads-up, a good start and the important thing here is you really have to know what your jurisdiction provides, what rights the insurance company has and what rights the injured worker has.
Any final words Cathy, before we wrap up?
Catherine Tanaka Surbeck: No, I just want to echo what Alan said that when you have a workers’ comp matter with a third party, to make sure that the attorney that represents you knows what is best for you as far as not just the workers’ comp, but also the third party, because as we discuss there are very many variables involved in this and we want — and our job is to maximize your recovery in total.
Alan S. Pierce: Okay. Well, thank you Cathy for joining us today, and for those of you who listen, thank you very much and we look forward to presenting our next show here on Workers Comp Matters on the Legal Talk Network. So thank you for listening and go out and make it a day that matters.
Outro: Thanks for listening to Workers Comp Matters today on the Legal Talk Network, hosted by attorney Alan S. Pierce, where we try to make a difference in workers’ comp legal cases for people injured at work. Be sure to listen to other Workers Comp Matters shows on the Legal Talk Network, your only choice for legal talk.
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