A federal court has asked the Maryland Supreme Court to sound off on an issue regarding the apportionment of attorneys’ fees and costs between a workers’ compensation insurance company and an injured employee following a large third-party settlement.

Lee R. Wickert

The facts are somewhat unusual (though they shouldn’t be) because in this case, the workers’ compensation carrier filed the third-party action and only later did the employee intervene into the pending third-party subrogation suit.

The ruling by the Supreme Court will have a profound effect on workers’ compensation subrogation in Maryland and could send a signal to workers’ compensation subrogation professionals around the country that Maryland presents a unique opportunity to subrogate aggressively and avoid throwing away a significant portion of its lien to the attorney for the employee.

The facts are straightforward. On Jan. 21, 2021, Taivon Giles was seriously injured in an automobile accident while employed by Wireless Buybacks. A truck driven by defendant David Marler, owned by Cumberland International Trucks Inc. and leased to International Marketing Group. Inc., collided with Giles, who filed a workers’ compensation claim on March 22, 2021. Trumbull Insurance Co., Wireless Buybacks’ workers’ compensation carrier, ultimately paid $5.35 million in Maryland workers’ compensation benefits to and on behalf of Giles.

On June 3, 2021, Trumbull filed a third-party subrogation action in Maryland federal court. In Maryland, a workers’ compensation carrier has the exclusive right to bring a third-party subrogation action against the third-party tortfeasor for a period of two months after the first award of compensation is made to the injured employee. It wasn’t until March 2022 that Giles’ personal injury attorney filed a “consent intervention” in the pending third-party case filed by Trumbull. Giles alleged causes of action and claims parallel to those that Trumbull had brought but specifically sought additional recovery in tort, beyond the large workers’ compensation lien. Trumbull’s subrogation counsel was hired on an hourly basis, and both Trumbull and Giles had separate counsel in the case for its duration.

On Oct. 24, 2023, Trumbull and Giles settled the underlying workers’ compensation claim between themselves for an annuity cost of $4,154,500.73. Trumbull’s lien, as of Nov. 13, 2023, was $5,344,194.91, comprising the amount Trumbull had paid in workers’ compensation benefits and associated costs as of that date. On Dec. 19, 2023, Trumbull and Giles reached a complete settlement with defendants in the third-party case for $5,994,196.66, with Trumbull receiving its lien amount ($5,344,194.91) and the remainder (approximately $650,000) going to Giles.

He retained his counsel under a contingent fee arrangement. This raised the question as to what, if any, payment of fees Trumbull owes Giles’ counsel pursuant to Section 9-902.

The general rule in Maryland under § 9-902(g) is that costs and fees are apportioned between the employee and the carrier in proportion to the amount received by each bears to the whole. When the carrier pursues a third-party action on its own and recovers an amount in excess of its lien, § 9-902 tells the carrier it should:

• Deduct from the excess amount its costs and expenses for the action.
• Pay the balance of the excess amount to the covered employee or, in case of death, the dependents of the covered employee.

When the carrier doesn’t file suit within the two-month exclusivity period following an award and the injured worker pursues the third-party action and obtains a recovery, § 9-902 says that the employee:

• First, may deduct the costs and expenses of the covered employee or dependents for the action.
• Next, shall reimburse the self-insured employer, insurer, Subsequent Injury Fund or Uninsured Employers’ Fund for:
•     (i) The compensation already paid or awarded.
•     (ii) Any amounts paid for medical services, funeral expenses or any other purpose under Subtitle 6.
• Finally, may keep the balance of the damages recovered.

Federal Judge Adam Abelson held a telephonic conference on Jan. 10, 2024, and an in-person hearing on May 10, 2024. On July 9, 2024, the judge dismissed the underlying causes of action in light of the parties’ settlement but retained jurisdiction over the fee dispute. The court also ordered Trumbull and Giles to file briefs on the fee issue and whether the question should be certified to the Supreme Court of Maryland.

Giles asserts that there is "no need to certify a legal question to the Supreme Court of Maryland,” and Trumbull contends that it is “no longer strongly advocating for a certification order” and is “comfortable leaving that decision to the sound discretion of this court." Judge Abelson concluded, however, that because the case presents several pure questions of undecided Maryland law, certification to the state Supreme Court was appropriate.

Giles’ counsel contends that his contingent fee should be calculated as a percentage of the full $6 million settlement, not just Giles’ $650,000 portion. He further contends that Trumbull “is required to pay” the bulk of his fee “pursuant to § 9-902(f),” which reads:

Court costs and attorney’s fees. (f) In an action brought by a covered employee or the dependents of the covered employee under subsection (c) of this section, the covered employee or the dependents of the covered employee, the self-insured employer, the insurer, the Subsequent Injury Fund and the Uninsured Employers’ Fund shall pay court costs and attorney's fees in the proportion that the amount received by each bears to the whole amount paid in settlement of any claim or satisfaction of any judgment obtained in the case.

Giles also argued that the amount Trumbull should be required to pay must be determined “in proportion to the amount it received in the settlement of this matter minus any percentage of the work performed by Trumbull’s counsel that actually aided in accomplishing the plaintiffs’ settlement.”

Trumbull, however, asserted that it should “retain its full lien amount realized in settlement,” and Giles’ counsel’s fee is limited to a portion of his $650,000 recovery in such percentage “consistent with his fee agreement with Mr. Giles.”

The Trumbull subrogation claim handler testified that he hired Trumbull’s counsel on an hourly basis and arranged for the filing of Trumbull’s claim “in advance of any claim filed by Mr. Giles,” with the goal of avoiding a contingency fee payment for the recovery of the employer’s statutory lien. This is what we have been preaching for years in an effort to avoid losing large portions of workers’ compensation liens.

Section 9-902 covers situations where the compensation carrier files third-party action within its two-month exclusivity period. If the carrier “recovers damages exceeding the amount of compensation paid or awarded and the amount of payments" for medical services or funeral expenses, it may “deduct from the excess amount its costs and expenses for the action” but then must “pay the balance of the excess amount to the covered employee or, in case of death, the dependents of the covered employee.”

If the carrier “does not bring an action against the third party within the two-month period," the employee inherits the right to bring the third-party action.

The statute also provides direction where the employee files first, indicating that he may “deduct the costs and expenses of the covered employee or dependents for the action,” then may “keep” amounts remaining after reimbursing the employer or insurer for compensation or other amounts already paid or awarded.

And where the employee files first, the statute provides that “court costs and attorney’s fees” shall be paid “in the proportion that the amount received by each bears to the whole amount paid in settlement of any claim or satisfaction of any judgment obtained in the case.”

Under an earlier version of § 9-902, the Supreme Court of Maryland (then the Court of Appeals) held that the carrier was not liable to pay any portion of the employee’s fees because there was no fee agreement between them. In light of Barrett, the legislature, with the obvious intent to make the carrier liable for a share of the counsel fees incurred by the employee, amended the statute to add what is now section 9-902(f).

Under Subsection (f), as noted above, when the employee files the suit against the third party, the carrier must pay its portion of the legal costs and fees in proportion to the percentage of the award they each received. However, this subsection explicitly applies only to “an action brought by a covered employee or the dependents of the covered employee.” The statute simply does not address allocation of legal fees when the carrier files the third-party action.

Judge Abelson certified the handling of this question to the Maryland Supreme Court. He asked justices to weigh in on how the apportionment of attorneys’ fees and litigation costs should be handled where it is the workers’ compensation carrier that initiates the third-party action in the two-month period of exclusivity that the statute gives it.

This is a case of great significance in Maryland because workers’ compensation carriers are normally advised by subrogation counsel to “beat the employee to the punch” and file a third-party action first in clear-cut cases of liability or cases where they have significant liens that would otherwise be exposed to massive reduction due to the apportionment of fees and costs.

We are hopeful that the Supreme Court will not reach beyond its authority of interpreting what the legislature has passed and will not judicially legislate by “making up” law that was not passed by the legislature, making the carrier responsible for paying fees and costs where it — and not the employee — was the driving force in filing the third-party action.

There is a good chance that the Supreme Court will leave things as they are, allowing Trumbull to recover its full lien without any obligation to hand over a significant portion to plaintiff’s counsel. But the court will likely also urge the Maryland legislature to address this possible “oversight” in the statute.

Until such time as the Supreme Court issues its opinion, workers’ compensation subrogation carriers should strive to engage subrogation counsel immediately upon receipt of any claim that may have third-party subrogation potential. There is a short two-month fuse, so claims and subrogation professionals alike must be on their toes and ready to recognize these opportunities.

Lee R. Wickert is a partner attorney with the Austin, Texas, office of the Matthiesen, Wickert & Lehrer law firm. This blog post is reprinted with permission.