Understanding the importance of subrogation strategies on third-party claims can save defendants in the workers’ compensation system large sums of money.

Scot A. Ginther

When an applicant is injured in a work-related auto accident, that often gives rise to a third-party claim that the workers’ compensation carrier can subrogate against. In this post, we will give you a basic primer about third-party claims and how subrogation works.

California third-party claims basics

In California, workers’ compensation is typically the exclusive remedy for employees injured on the job.

However, if a third party other than the employer is responsible for an injury, the worker may file a civil personal injury lawsuit for additional compensation. Circumstances that would give rise to a third-party claim would be if the injury was caused by a party that was not the employer or a co-worker, or another party’s negligence caused the accident.

A frequently occurring example would be a delivery driver injured in a motor vehicle accident caused by another motorist. The delivery driver would be able to file a workers’ compensation claim with the employer’s workers’ compensation carrier, and the driver could simultaneously file a third-party lawsuit against the other driver.

Subrogation scenarios aren’t limited to auto accidents. There are many scenarios where a third-party lawsuit may be viable under California law. For instance, sometimes the third party is a manufacturer that made a ladder with a product defect. On other occasions, the third party could be a property owner or contractor.

While this dual-claim approach can increase financial recovery for the injured worker, it also provides a mechanism for employers and their insurers to recover money paid on a workers’ compensation claim that was caused in whole, or in part, by third parties.

There are many complexities in third-party litigation that must be considered when seeking employer reimbursement and recovery against third parties.

Employer recovery methods

Generally, employers and their insurers have three primary means to recover benefits paid to injured workers:

• Direct lawsuit, where the employer sues the responsible party.
• Intervention, where the employer joins the applicant’s lawsuit to claim a portion of any settlement or verdict.
• Lien claim, where the employer asserts a right to reimbursement from the workers’ payout without active litigation.
• At the Workers' Compensation Appeals Board, a defendant can also file a petition for credit against any sum recouped by the applicant in the third-party litigation.

Each of these recovery methods has its own unique complexities, benefits and drawbacks, as well as timing considerations. It is important that every workers’ compensation case include an evaluation of the potential of a third-party recovery and, if it is determined that third-party liability exists, to take the appropriate steps as early as possible to obtain the best possible outcome, given the unique factual backgrounds of each case.

Settlement strategies

There are various settlement scenarios that might arise in third-party litigation, including:

• Global settlement, where the injured worker and the employer negotiate how to divide a lump-sum offer.
• Injured worker settlement, where the worker settles independently, leaving the employer to recover its lien separately.
• Employer settlement, where the employer negotiates directly with the third-party defendant to resolve its reimbursement claims.

In cases where the third-party recovery is low, a defendant can treat the credit against a third-party suit as a bargaining chip. Waiver of a credit can be useful.

One important caveat to keep in mind when considering recovery is the existence of employer fault or employer negligence.

If the employer was partially at fault, its reimbursement claim may be reduced proportionally, pursuant to the Witt v. Jackson rule that holds that an employer who contributed to an employee’s injury cannot recover full reimbursement.

This may significantly impact employer recovery and is an important early consideration in determining the best course of action for pursuing a third-party recovery.

Settlement timing, protections for employers

The timing of settlement in the workers’ compensation case and the third-party case do not always line up, and one case may settle prior to the other. This creates various settlement scenarios and important considerations for both the employer and its insurer, as well as the injured worker.

Sometimes, there is not a final workers’ compensation award, but the parties want to settle. In those situations, the employer and the injured worker may negotiate a lump-sum settlement in the third-party case that may or may not impact further reimbursement claims in the workers’ compensation case, depending on how the settlement is structured.

For example, a $30,000 injury settlement in a personal injury case could be split as follows:

• $10,000 goes to the personal injury attorney.
• $10,000 goes directly to the workers’ compensation carrier.
• $10,000 goes directly to the applicant, but the workers’ compensation carrier gets to assert a $10,000 credit against the workers’ compensation recovery.

In other cases, the WCAB sometimes issues a final award prior to resolution of the third-party case. In that scenario, the employer may continue the payment of benefits but seek a credit from the third-party recovery against the obligation to pay ongoing workers’ compensation benefits.

There are some protections for defendants that fail to timely and properly pursue their third-party rights.

For example, under LC 3860(a), a settlement or release is invalid unless both the employer and employee receive notice. This ensures that the employer can recover compensation paid or owed, along with any special damages, while allowing the employee to seek full damages.

Although an employee may settle a third-party lawsuit without the employer’s consent, he must provide notice, enabling the employer to seek reimbursement. Failure to notify before settlement may result in the employer suing for breach of duty or claiming a credit against future benefits.

The prevalence of online court dockets has made tracking down personal injury lawsuits somewhat easier. So, if a defendant believes a third-party suit has been filed and that the applicant did not give notice, we suggest that you investigate the dockets of the relevant state and federal jurisdictions for any third-party suits.

Takeaway

An assessment should be made in every new claim as to whether there is a potential for a third-party recovery and, if so, whether the specific facts of the case make it economically worthwhile to pursue. If a third-party claim might be viable, it is important to develop a plan of action on how to proceed and which type of recovery method should be utilized.

By taking a strategic approach to third-party claims, employers and insurers can mitigate financial losses while ensuring that injured workers receive appropriate compensation from all responsible parties.

Scot A. Ginther is a Partner at Bradford & Barthel’s Fresno location. This entry from Bradford & Barthel's blog appears with permission.