Courts tackle subrogation of third-party claims

Several recent state high court rulings limiting or expanding insurers’ ability to subrogate third-party claims in workers compensation have clarified some issues in what remains a nuanced area of insurance law.

Just as comp varies by jurisdiction, subrogation of third-party claims — a process that prevents double recovery for injured workers and allows comp insurers to recoup claims costs — is also state-specific.

In some states, limits exist on what costs employers and insurers can recover through subrogation, and in others the process is less restrictive, experts say. 

In September, the Delaware Supreme Court reversed precedent, holding that employers and insurers can subrogate against benefits paid to an injured worker under an employer’s underinsured and uninsured motorist policy. 

In Horizon Services Inc. v. Henry, an employee injured in a vehicle accident sued for damages under the employer’s uninsured motorist policy. The employer sought reimbursement for prior workers comp payments from the proceeds paid to the employee.

A lower court determined the employer was barred from subrogating, but the high court reversed, overturning the 2013 decision in Simendinger v. National Union Fire Insurance Co. 

Experts said Delaware was unique in prohibiting employers from subrogating in cases where an employee recovered through a company’s uninsured motorist policy. 

In such cases, the policy acts as the third party when the at-fault motorist doesn’t have enough coverage to compensate the injured worker.

“The court in Delaware came to the right conclusion,” said comp defense attorney Barak Kassutto, with the Philadelphia firm Morgan, Aikens & Jackson PLLC. 

Mr. Kassutto said uninsured motorist coverage is in place to ensure the responsibility of a third party, and “that’s the entire foundation of subrogation.” 

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Prior to Horizon Services, workers injured in auto accidents were able to recover twice in Delaware under this scenario, which comp is designed to prohibit. 

“I’m not surprised that Delaware changed the way that was handled,” said Dennis Tierney, Norwalk, Connecticut-based national director of workers compensation claims for Marsh LLC. 

Meanwhile, courts in Ohio and Utah ruled on the types of recovery permitted through subrogation. 

Physician reviews 

In Thomas v. Logue, the Ohio Supreme Court in October held that costs borne by the Ohio Bureau of Workers’ Compensation — the state’s monopolistic comp insurer — stemming from a physician review of an injured worker’s claim were improperly subject to subrogation because the fees were unrelated to the workers’ medical treatment. 

Lamar Thomas was injured in an accident and sued the at-fault motorist. He received comp benefits but later sought to expand his claim to include an aggravation of preexisting conditions. 

The bureau hired a doctor to review Mr. Thomas’ medical records, and the doctor determined the additional conditions were degenerative and not work-related. 

The bureau through subrogation recovered from Mr. Thomas the fees paid to the doctor conducting the medical review, but on appeal the state’s highest court ruled the recovery improper. 

A bureau spokeswoman said the state Supreme Court has remanded the case to the Court of Claims, and the bureau is “unable to comment on pending litigation.”

Mr. Thomas’ attorney, David Steiger, of Karp Steiger LPA in Woodmere, Ohio, said the costs incurred to fight the claim should not have been subject to subrogation. He said subrogation to recover costs related to state-initiated physician reviews has long been a practice in Ohio. 

“I’ve been dealing with this issue for a number of years, and it just doesn’t seem right,” he said of the ruling that sets a precedent for future subrogation proceedings.

The doctor retained by the bureau wasn’t Mr. Thomas’ treating physician but was hired to provide a medical opinion, and was not paid on behalf of the claimant, Mr. Steiger said. 

Comp subrogation attorney Gary Wickert, president of Austin, Texas-based Matthiesen, Wickert & Lehrer S.C., said the Ohio ruling — which caught national attention — could create confusion. 

When adjusting a comp claim, there are various associated costs that don’t directly benefit the injured worker. These include case management costs, auditing fees, independent medical exam fees, functional evaluation charges, nurse case management fees and third-party vendor fees, so questions remain over which costs may be subject to subrogation in third-party recoveries, Mr. Wickert said.

Typically, costs related to medical benefits and lost wages are subject to subrogation when claimants recover through third-party litigation, but the Ohio ruling calls into question what other costs might be subrogated by a comp insurer, Mr. Wickert said.

While the Thomas ruling appears to set clearer standards for comp subrogation in Ohio, it is unlikely to have an effect elsewhere where insurers have attached similar fees to subrogation claims. 

“That is one of the difficulties with subrogation and making general statements,” said Steve Bennett, Washington-based vice president of workers compensation programs and counsel for the American Property Casualty Insurance Association. “Cases are extremely fact-specific and very state-specific.”

Debt collection

A September Utah Supreme Court decision involving workers compensation subrogation raises issues about the types of third-party recovery comp insurers may be entitled to recoup. 

The case, No. 210905514, involved a teacher injured by her students. While she received comp benefits, the employer’s comp insurer later asserted a right of subrogation over a separate settlement the teacher received in a lawsuit against a debt collector.

The teacher, who was unable to pay all of her medical bills, even with workers comp, sued over the debt collector’s harassment and recovered a settlement.

The comp insurer sought to subrogate to recover money paid out in comp benefits, but the teacher argued the settlement was for pain and suffering related to the debt collection practices and thus was not subject to subrogation. An administrative law judge agreed with the teacher. 

The school district appealed, but an appeals board has not yet weighed in because the underlying petition for permanent disability benefits was remanded to the state’s Labor Commission. 

While awaiting the commission’s decision, the district sued in district court claiming that it is entitled to subrogate the third-party settlement proceeds because the harms caused by the creditors were the same for which the district had paid the teacher benefits. 

The district court dismissed the complaint over the subrogation and the state Supreme Court affirmed the ruling, saying the courts were not able to rule on the subrogation because the Labor Commission still must resolve the issue of injury causation.