Reimbursement of Worker’s Comp Auto Injury by Whom?

GrantandGrant logoToday’s Guest Blog was written by Cari Small Grant & Blake Orner, of Grant & Grant Attorneys.

closeup of bandaged arm with blue wrecked car

The open Worker’s Compensation (WC) file on your desk concerns an Injured Employee who, in the scope of his employment, was involved in an automobile collision with a driver who was either uninsured or underinsured. With inadequate insurance of the adverse driver and comparative fault and “made whole” arguments, is reimbursement of the WC lien realistic for the WC carrier?

In addition to the tortfeasor’s (the individual who committed a wrongful act that injured another) assets or lack thereof to satisfy the Injured Employee’s damages, the uninsured (UM) and underinsured motorist (UIM) provisions of the automobile policies of both the Employer and the Injured Employee can be tapped to satisfy the damages for the Injured Employee.

Are the UI and UIM provisions of these automobile policies a resource in order to reimburse the worker’s compensation lien?

The interpretation by Indiana courts, as well as courts in most other jurisdictions, of “other person,” language provided in worker’s compensation statutes, impacts the limitation as to whom the Injured Employee may sue for his injury. Clearly, “other person” is the tortfeasor. But because the Employee who was injured is not limited to the tortfeasor’s auto insurance and other assets, but also has available to him the UM/UIM policy from both the Employer and his own automobile policy, some courts have expanded WC lien recovery beyond the tortfeasor.

In Ansert Mech. Contrs. v. Ansert, 690 N.E.2d 305 (Ind Ct. App. 1997) (trans. denied), an Injured Employee was involved in an automobile collision with adverse driver who was insured for $100,000.00 with State Farm. State Farm paid Injured Employee its policy limits and then Injured Employee sought additional damages from Employer’s UIM policy (Federal Insurance). Federal Insurance paid an additional $900,000.00 under its UIM policy to the Injured Employee.

The Court held that the Employer’s UIM policy was available to pay damages to the Injured Employee even though the Employer is not an “other person” as defined by the WC statutes for the purpose of determining against whom a lawsuit may be filed.

Can the WC carrier seek reimbursement from the Employer’s UIM policy when the Employer owns both policies and, by the worker’s compensation law, cannot be sued for the injuries of an employee?

Relying on case law from another jurisdiction[1] and the public policy behind the lien provision of the Indiana WC statute, the Ansert court held: [P]ayments made to an injured employee under a UIM policy would constitute payment for ‘damages’ such that an employer or worker’s compensation carrier is entitled to a lien on those proceeds. Id. At 310.

Since the Ansert decision, Indiana has considered whether or not the Employee’s UM/UIM policy could be considered “other person” for purposes of worker’s compensation lien recovery. In Pinkerton’s Inc. v. Ferguson, Pinkerton involved an Employee in an automobile collision with an uninsured motorist. The WC carrier appealed the trial court’s ruling that the WC carrier was not entitled to a lien against the Employee’s UM settlement from his own personal auto insurance policy. The appellate court affirmed, holding that the Injured Employee’s UM policy does not fall within the meaning of “other person” in contrast to the Employer’s UM/UIM policy.

The Pinkerton court reasoned that the public policy supporting the WC statutory benefits would be ignored if the Employer could recover its lien from the damages paid by the Injured Employee’s own UM carrier. Therefore, in Indiana, a WC carrier can recover from the Employer’s UM/UIM policy, but not the Employee’s UM/UIM policy. Other States (e.g., Texas, Pennsylvania) follow a similar line of reasoning for the recovery of the WC lien from the Employer’s UM/UIM policy.

The significance of these cases is that even if the third party tortfeasor is uninsured or underinsured, it may not foreclose a WC carrier from recovering all or a portion of its lien from the Injured Employee’s recovered damages. Only if the payment of the Injured Employee’s damages arises from his own UM/UIM insurance carrier is the lien recovery barred; however, if the damages are paid through the UM/UIM provision of the Employer’s automobile policy, the WC carrier has recourse to seek collection of its lien from this source.

Other States (e.g., KY, IA, MN, CA, FL) have held that recovery of the WC lien can only be made against the tortfeasor and not against any payment made to the Injured Employee by means of a contractual obligation, i.e., UM/UIM benefits from any source.

Of course, there are exceptions to the exceptions. Even when courts have found that the WC lien can be recovered from sources other than the tortfeasor, auto carriers are issuing policies with language that excludes its UM/UIM provisions as a source of reimbursement for a WC lien.[2]

Even if the open WC file on your desk only allows recovery of the WC lien from the underinsured tortfeasor, either because of the laws of the State where the lien arises or the policy language of the UM/UIM provision of the Employer’s policy, there is still an argument that the WC carrier can raise for recovery from the underinsured tortfeasor.

Many state legislatures have passed “made whole” statutes that provide that subrogation recovery is diminished in the same proportion as the insured’s recovery is diminished. SEE Indiana Code § 34-51-2-19.  In determining the percentage of a lien that should be diminished, Courts have looked at several factors including, but not limited to, the limited availability of insurance to compensate the Injured Employee.

But if additional money damages are available to the Injured Employee by way of the UM/UIM provisions of the Employer’s auto policy or the UM/UIM provisions of the Employee’s policy, an argument can be raised that those monies fully compensate the Injured Employee so that the tortfeasor’s limited resources can be paid to the WC carrier to reduce or pay its lien. [3] Clearly, the amount of coverage for all parties, the amount of damages suffered by the Injured Employee and the amount of the WC lien are factors to this argument. However, where the WC carrier cannot look to reimbursement from sources other than the tortfeasor, the Injured Employee, faced with reimbursing a WC, is limited in raising the “made whole” argument when he has insurance money from a UM/UIM policy in addition to money from the tortfeasor.

As case law from multiple jurisdictions shows, the personal injury bar is working diligently to narrow the definition of “other person” in order to preclude WC carriers from asserting liens against their client’s (Injured Employee) settlements or judgments. As subrogation professionals, this “made whole” argument can level the playing field and keep avenues of recovery open for subrogating WC liens.

In summary, just because the tortfeasor in an automobile collision is uninsured or underinsured does not mean that the adjuster should close the file and not attempt to recover the WC lien. Several points need to be explored:

1.) does the State wherein the lien arose allow for recovery against the UM/UIM policy of the Employer?

2.) is recovery of the worker’s compensation lien limited to the tortfeasor only?

3.) does the language of the UM/UIM policy bar recovery of a WC lien from the UM/UIM proceeds paid to the Injured Employee?; and, finally,

4.) are there enough funds, from whatever source, that the WC carrier can seek reimbursement from the tortfeasor and avoid the “made whole” argument often raised by the Injured Employee?

Digging just a little deeper than “the tortfeasor in the auto collision had no insurance” could result in a nice recovery for the worker’s compensation carrier.

  [1] Travelers Companies v. Liberty Mutual Ins. Co., 670 A.2d 827 (Vt. 1995).

[2] Walkup v. Wabash National Corp., 702 N.E.2d 713 (Ind. 1998).

[3] This argument obviously cannot be made against the uninsured tortfeasor who has no assets.

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Categories: claims insurance, Guest Blogs, Insurance, Insurance defense, NL Insider, subrogation

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