Chapter 13 subrogation in workers’ comp
Subrogation in Workers’ Comp
Sometimes when a compensable work injury occurs, the employee also has and makes a claim against a third party for that recovery. This happens when the third party violates safety rules (or is negligent) and injures the employee. For example: driving while working and someone rear-ends the employee; ice or hole on another’s property creates dangerous conditions and resulting injury for employees visiting that property on the clock; physician treating a work injury commits medical malpractice and further injures or newly injures the worker. When this occurs the employer, the insurer is entitled to get some of the money back it paid the worker from the money the worker gets from the third party. This is called subrogation.
The rights and recovery calculation for subrogation is contained in Missouri Revised Statute section 287.150., which provides, in part:
Where a third person is liable to the employee or to the dependents, for the injury or death, the employer shall be subrogated to the right of the employee or to the dependents against such third person, and the recovery by such employer shall not be limited to the amount payable as compensation to such employee or dependents, but such employer may recover any amount which such employee or his dependents would have been entitled to recover. Any recovery by the employer against such third person shall be apportioned between the employer and employee or his dependents using the provisions of subsections 2 and 3 of this section.
This portion of the statute is intended to protect the interests of the employer in the event that the claimant is injured during a workplace accident that was the result of the negligence of a third party that is not a co-employee. The employer’s liability in workers’ compensation will be subrogated by the amount of the settlement against the third party by the following formula:
Employer’s Subrogation interest=
[(Total benefits paid in workers’ compensation)/(total civil judgment)]
(Civil judgment-attorney’s fees)
Third Party Civil Cases
If a person is injured in the course and scope of their work, they have a claim under Missouri’s Workers’ Compensation Act. As a general rule, it is usually better to settle the workers’ compensation case, and then settle the civil case. Mo. Rev. Stat. § 287.150 gives the employer and/or its insurance carrier a subrogation interest in the claim against the third-party tortfeasor for recovery of paid compensation benefits. That lien is determined by a formula first set forth in Ruediger v. Kallmeyer Brothers Service, 501 S.W.2d 56 (Mo. banc. 1973), and later codified.
Workers’ Compensation Liens
Just like with other liens, even once the compensation lien has been reduced by Ruediger, an attorney may also wish to try to negotiate the compensation lien down to an even lower amount to facilitate settlement and/or maximize her client’s recovery. If the civil case is settled before the compensation case, the entire amount of the civil settlement will be a setoff in the workers’ compensation case, and may swallow any recovery – as workers’ compensation benefits are usually lower. Note, however, each case is different and those differences may necessitate tactics different than the general recommendation to resolve the compensation case first.
Notably, workers’ compensation liens only attach to recovery from third party tortfeasors. A work comp subrogation lien does not apply to uninsured or underinsured insurance proceeds. Uninsured and underinsured coverage is a contractual right of the injured party which with an insurance company, is not a recovery against the third-party under Missouri Statute or interpretive case law. Barker v. Palmarin, 799 S.W.2d 117 (Mo. App. 1990), See Barker v. H&J Transporters, Inc. 837 S.W.2d 537 (Mo. App. 1992).
To determine the amount of the work comp lien:
- Total amount paid in Worker’s Compensation: ________________
- Total amount paid in civil claim: ________________
- Divide line 1 by line 2: ________________
- Take line 2, subtract attorney’s fees and costs: ________________
- Multiply line 3 times line 4: ________________ = subrogation amount owed
Other Things To Know About Subrogation
The result of that equation must be paid out of the civil recovery back to the employer. A few more important points about subrogation:
1. The Work Comp claim must settle first. And this is better for your client.
2. The attorney fee is taken out of the subrogation claim. The employer’s subrogation interest is reduced if your contract provides that all expenses apply to both the workers’ compensation and the civil claim – and they are to be paid from the civil claim. A higher fee in the civil claim reduces the
3. The Employer/Insurer’s subrogation interest includes the amount paid in medical.
4. A spouse’s loss of consortium settlement arising out of the third-party claim can be protected from subrogation. The Court of Appeals approved a third-party wrongful death settlement where $2,000.00 was for the Claimant’s death count and $166,000.00 was for the pre-death loss of consortium claim of Claimant’s widow. See Bridges v. Van Enterprises, 992 S.W.2d 322 (Mo. App. S.D. 1999). Be certain that any independent settlement is proportionate and reasonable or you may run the risk of subrogation applying to the proceeds of that settlement. In the Bridges case, the settlement was equitable because the Claimant died after 2 ½ years in a coma and left a spouse and nine-year-old child.
5. When calculating subrogation, comparative fault must be determined by the trier of fact, and a settlement for an amount less than a verdict DOES NOT annul the findings of comparative fault. Kerperien v. Lumberman’s Mutual Casualty Co., 100 S.W. 3d 778 (Mo. Banc 2003). Comparative fault, once found, factors into the calculus, regardless of whether or not the agreed-upon settlement occurs after the jury verdict. The Employer’s subrogation interest is determined by the amount actually received in the third-party action, not the amount of the judgment. The court set out the formula to be used per Mo. Rev. Stat. §287.150.3:
1. Calculate the employee’s net recovery:
Gross Recovery (GR) – Attorney’s Fees (AF) – Expenses (E) = Net Recovery (NR)
2. Determine the ratio contemplated in the statute:
Employer’s Payment (EP) / Total Amount Recovered or Total Damages (T) = Ratio (R)
3. Apply the ratio to the net recovery to determine subrogation amount:
(NR) x (R) = Amount Due to the Insurer
In Kerperien, the total amount recovered at trial was $2,500,000. The postverdict settlement was $1,175,000. The jury found comparative fault. The Court
found the correct calculus was as follows:
$1,175,000 (GR) – $470,000 (AF) & $31,505.80 (E) = $673,494.20 (NR)
$116,192.53 (EP) / $2,500,000 (T) = .04647701 (R)
Step Three – Amount Owed to the Insurer
$673,494.20 (NR) x .04647701 (R) = $31,302
When a tortfeasor’s insurer is insolvent, any insurer who has paid a claim that would ordinarily entitle it to subrogation will not be reimbursed by MIGA (Missouri Property and Casualty Insurance Guaranty Association) and no one may recover the subrogation amount from the tortfeasor of the insolvent insurer under section 375.776.2 R.S.Mo.
Sometimes, the civil claim can be used to incentivize the workers’ compensation insurance company to increase the value of the workers’ compensation settlement. Sometimes less should be taken in a work comp settlement in exchange for a reduction or elimination of the work comp subrogation claim.