With subrogation, is an injured worker left paying the price?

The Pennsylvania Constitution provides the fundamental right of legal redress, to every person who has suffered an injury at the hands of a negligent party. The right of a remedy is a legal linchpin of the state constitution, and often the most contentious.

Related: Workers’ comp vs. personal injury: Understanding the differences is essential

When the injury occurs at work, the Pennsylvania Workers’ Compensation Act (the act) compensates for lost wages and medical benefits; within a no-fault system.

Giving up the right to sue employer

A hundred years ago, the act was enacted so that injured workers were guaranteed these workers’ compensation benefits, in exchange for giving up the right to sue their employer. A supposed grand bargain between employees and employers was struck for more certainty and a more expedited process of recovery than the tort system could provide to both parties.

Although one cannot file a tort claim against their employer, these injuries frequently occur due to the negligence of a third party. This then gives rise to the legal doctrine of “subrogation.” An injured worker does not lose the right to sue a negligent party, but statutory language within the act provides that a workers’ compensation carrier (carrier) can subrogate against all monies recovered from a third-party case, including noneconomic damages. This right is automatic and absolute in Pennsylvania.

Carrier may employ its subrogation rights

Subrogation is a common law doctrine developed to prevent double recovery and ensure that the party at fault, rather than an innocent party, be held responsible for the injury, as in Dale Manufacturing v. Bressi, 491 Pa. 493, 496,421 A.2d 653, 654 (1980). As an illustration, the workers’ compensation insurance carrier pays an injured worker lost wages and medical benefits.

The same injured worker, then receives a third-party recovery, which includes loss of wages, medical benefits and noneconomic losses, such as damages for pain and suffering. The workers’ compensation insurance carrier then may employ its subrogation rights.

Equitable?

In Pennsylvania, the carrier is entitled to subrogate the amount of the third-party recovery, reduced pro rata by costs and fees, even though some of the damages are for noneconomic losses. In other words, the carrier is paying wage loss and medical benefits for the work injury, yet they get money back for all damages paid, such as pain and suffering. Equitable? No, that math does not add up.

Subrogation lays its common law roots in the equitable principle of fairness. Section 319 of the act does not fit the common law doctrine, but rather was created by the Pennsylvania Legislature to allow a carrier to expressly receive a recovery, not subject to any equitable exceptions or limitations. This current application of subrogation is withdrawing from the balance of the grand bargain and reversing the principle of equity while promoting unjust enrichment.

Humanitarian purposes

The current application of Section 319  is unjust and does not promote the humanitarian purposes of the act. The statute, as applied, does not serve the purpose of providing compensation for an injury, and deprives the worker from the benefit of the grand bargain. This pattern of unlawful taking from the injured worker is depriving them the constitutional right to remedy against a negligent party while lining the pockets of the workers’ compensation carrier.

Challenges to unfair subrogation statutes that do not implement the grand bargain have been successful in other states. Citing the grand bargain, in 2001, the Supreme Court of Ohio struck down its workers’ compensation subrogation statute, see Holeton v. Crouse Cartage, 748 N.E.2d 1111 (Ohio 2001).

The ‘grand bargain’

Under the previous system in Ohio, an injured worker would have to pay subrogation based on estimated future payments. If it turned out the future payments were less than estimated, the carrier would keep the amount paid, resulting in a “taking” from the injured worker. The formula to determine the estimated amount also allowed the carrier to recover monies for things that were not paid for under the workers’ compensation structure, resulting in a windfall for the carrier.

The Holeton court ultimately forced the state’s legislature to revise the state’s subrogation statute to be more in tune with the grand bargain and to prevent a carrier from receiving a double recovery.

Pennsylvania is ‘making progress’

Pennsylvania is making progress. In a true victory, on June 19, the Pennsylvania Supreme Court unanimously reversed a longstanding law that allowed a carrier to assert a future credit on projected medical benefits when an injured worker settles a third-party case in Whitmoyer v. Workers’ Compensation Appeal Board (Mountain Country Meats), No. 52 MAP 2017 (Pa. June 19, 2018).

Prior to Whitmoyer, when an injured worker settled the third-party case, after payment of the net subrogation lien, the carrier, who remains responsible for payment of future medical expenses, would be entitled to a future reimbursement rate, or credit on the medical benefits paid, against the balance of the recovery. Meaning, the injured worker would have to pay, in cash, a certain percentage of the cost of future medical treatment related to the injury, until the recoupment of the lien was complete.

The Whitmoyer court observed that the term “installments of compensation” as used in Section 319 of the act, providing that “any recovery against such person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employee, his personal representative, his estate or his dependents, and shall be treated as an advance payment by the employer on account of any future installments of compensation,” applies only to future wage loss payments, not future medical expenses.

Whitmoyer changed the landscape of subrogation, erasing the carrier’s right to subrogate future medical expenses, since they are not “installments of compensation.”

Accrued subrogation lien

Perhaps the most important aspect of the holding, is the court’s view of the excess sum of a third-party recovery and what encompasses an accrued subrogation lien. “After the satisfaction of accrued subrogation lien, which encompasses ‘compensation’ payments made by the employer toward both disability benefits and medical expenses prior to the to the third-party settlement, the General Assembly intended the excess recovery to be paid to the injured employee and to be treated as an advance payment only on account of any future disability benefits.”

Notice the two phrases used to define “compensation” in the court’s decision: disability benefits and medical expenses. The court does not go so far as to say that noneconomic damages are not part of a net lien recovery, but as throughout the act, noneconomic damages are never mentioned, or defined as compensation.

Perhaps the decision in Whitmoyer will be a springboard to a future challenge to the current scheme of subrogation recovery against noneconomic damages. One can hope.

Related: Subrogation claims put insurers in the policyholder’s shoes

Maureen “Morty” Cassidy (mcassidy@pondlehocky.com) is an attorney at Pond Lehocky Stern Giordano. She focuses her practice on workers’ compensation. Opinions expressed are the author’s own.