Clarification by the Pennsylvania Supreme Court on the Recovery of Worker Comp Liens

The Workers Comp Carrier May Not Unilaterally Pursue Its Subrogated Lien Against the Tortfeasor Without Including the Injured Worker as a Plaintiff

In Liberty Mutual Ins. Co. v. Domtar Paper Co., ___ A.3d ___, 2015 WL 1888572, decided April 27, 2015, the Pennsylvania Supreme Court addressed the ability of a workers’ comp carrier alone to assert a claim to recover its lien against the third party tortfeasor, where the injured worker has not asserted a tort claim against the tortfeasor.  In Domtar Paper, the Supreme Court appeared to clarify its 2012 ruling in Frazier v. Workers’ Comp Appeals Board, 52 A.3d 241 (Pa. 2012). Frazier dealt with whether a workers comp lien could be asserted against a governmental agency as the tortfeasor, otherwise immune from liability.  Frazier’s Footnote 10 appeared to permit the employer (or workers comp insurer) to make its own claim for lien recovery against the tortfeasor where the injured plaintiff himself made no such claim:

While not directly implicated by this case, we note that normally in subrogation, the right of action lies in the injured employee, and the action for subrogation against the third-party tortfeasor is brought in the employee’s name.  Nonetheless, an “employer … is not to be denied his right of suit [in subrogation] because the employee does not sue [the third-party tortfeasor], but may institute the action in the latter’s name.” Scalise v. F.M. Venzie & Co., 301 Pa. 315, 152 A. 90, 92 (1930).

Frazier v. W.C.A.B. (Bayada Nurses, Inc.), 616 Pa. 592, 604 n. 10, 52 A.3d 241, 248 n. 10 (2012). Frazier reminded that the workers compensation statute provides that the workers comp carrier/employer is entitled to either subrogation or reimbursement:

In subrogation, the “insurer stands in the shoes of the insured” in attempting to recover what is rightfully owed to it from the third party tortfeasor . . . .  Thus, the employer/compensation insurer may step into the shoes of the claimant to recover directly against a third party tortfeasor.

Frazier, 52 A.3d at 248.  A reimbursement proceeding, on the other hand, “occurs only after settlement or award has been garnered by the injured employee from his third party tortfeasor,” in which event the “insurer has a direct right of repayment against the insured.”  Id.  (Generally, the usual course has been for the workers comp lien to be addressed by the reimbursement mechanism, in which the injured employee pursues his tort claim against the tortfeasor, from which recovery the workers comp carrier or employer is reimbursed for its payment of workers comp benefits, rather than for the workers comp carrier to proceed by way of a subrogation action in which the employer or workers comp insurer proceeded “as subrogee of” the injured worker.)

Domtar Paper, written by Supreme Court Justice Baer (who notably also authored Frazier), addressed “whether Section 319 [77 P.S. §671, which addresses the subrogation of the employer to the rights of the employee against the third-party tortfeasor] confers on employers or their workers’ compensation insurers a right to pursue a subrogation claim directly against a third party tortfeasor when the compensated employee who was injured has taken no action against the tortfeasor.”  2015 WL 1888572 at *1.  The Supreme Court held that “Section 319 does not permit employers/insurers to commence an action directly against the third-party tortfeasor.  Id. Domtar Paper appears to completely repudiate at least the Footnote 10 of its 2012 Frazier Opinion.

Justice Baer in Domtar Paper wrote that his opinion in Frazier, and the 1930 case upon which it relied, Scalise,

[do] not establish that Section 319 confers on an employer/insurer the statutory right to bring suit directly against a third-party tortfeasor to recover workers’ compensation paid where the injured employee has not sought recovery from the tortfeasor.  It is critical to note that in both Scalise and Frazier the injured employee (or his widow) filed suit against the third-party tortfeasor.  Thus, the Court was not faced with the present issue of whether the employer/insurer can sue the tortfeasor directly when the injured employee has not.  Rather, our decisions in Scalise and Frazier reaffirm that the right to sue a third-party tortfeasor lies in the injured employee and suggest, in dicta, that the employer/insurer could seek to enforce its subrogation right by filing an action against the tortfeasor in the name of the injured employee.  Even if this language is an accurate statement of the law, in this case, Liberty Mutual did not file the action against [the third-party tortfeasor] in the name of Lawrence [the injured employee], as required, but rather sued [the third-party tortfeasor] in its own right, simply noting its status as a subrogee.

2015 WL 1888572 at *7.

While distancing the Supreme Court’s own pronouncements in Scalise and Frazier as to the import of the insurer’s “absolute right” to subrogation, Justice Baer referred to Superior Court precedents, which “have spoken to the issue raised herein, and have consistently held that an employer/insurer has no independent right to sue a tortfeasor in the absence of the injured employee.”  Justice Baer considered Moltz v. Sherwood Brothers, Inc., 116 Pa. Super. 231, 176 A. 842 (1935) which according to Justice Baer emphasized that the tortfeasor’s wrongful act is “single and indivisible, and can only give rise to one liability,” 2015 WL 1888572 at *7, such that

only one action could be brought against a third-party tortfeasor for damages arising from the tort, and that the employer’s right of subrogation “must be worked out through an action brought in the name of the injured employee, either by joining the employer as a party-plaintiff or as a use plaintiff.”

Id., quoting Moltz, 176 A. at 843.  See also, Reliance Insurance Company v. Richmond Machine Company, 309 Pa. Super. 430, 455 A.2d 686, 690 (1983) (“[o]ur appellate courts have not hitherto construed Section 319 as providing the employer or its insurer with a cause of action against a third party in its own right.”); Whirley Indus., Inc. v. Segel, 316 Pa. Super. 75, 462 A.2d 800, 802 (1983) (“the action against the third-party tortfeasor must be brought by the injured employee.”). Whirley emphasized that the subrogation rights are the exclusive remedy against third-party tortfeasors in that the injured employee must sue the tortfeasor and then the employer’s insurer is subrogated to the employee’s claim.

Justice Baer observed in Domtar Paper that the workers’ compensation carrier seeking a reimbursement of its workers’ compensation benefits

offers no persuasive reason why this Court should stray from the Superior Court’s precedent in Moltz, Reliance and Whirley, which is consistent with this Court’s ruling in Scalise that the right of action against the tortfeasor is indivisible and remains in the employee who suffered the entire loss in the first instance.  We emphasize that in Pennsylvania, courts disfavor splitting causes of action and have frequently remained true to this maxim in the context of workers’ compensation subrogation.

2015 WL 1888572 at *9.

Justice Baer concluded that the right of action against a third-party tortfeasor under Section 319 remains in the injured employee, and that the right of subrogation of the employer or WC insurer under Section 319 must be achieved through a single action brought in the name of the injured employee, or joined by the injured employee.  The carrier’s action could therefore not proceed, because

• Lawrence, the injured employee, did not commence an action against the tortfeasor;

• nor was Lawrence named in the action filed by the workers comp carrier;

• Lawrence did not join the action filed by the workers comp carrier;

• nor did Lawrence assign his cause of action in tort to the workers comp carrier;

• nor did Lawrence file any action of his own against the tortfeasor.

Domtar Paper was decided on a 3 to 2 vote, with a dissenting Opinion by Chief Justice Saylor noting that the plaintiff was captioned as “Liberty Mutual Insurance Company, as subrogree of George Lawrence, Plaintiff.”  Such a styling, according to Chief Justice Saylor, is “a particularized means of bringing suit in the name of the use plaintiff,” by which he believed the action was properly positioned as having been brought in the name of the injured worker George Lawrence.  2015 WL 1888572 at *10. That would seem to be the case under standard subrogation cases that are so styled (that is, the name of the insurer, as subrogee for the injured insured that actually sustained the loss), but now such a styling is, without more, insufficient for purposes of the workers comp carrier’s effort to recover, on its own initiative, its lien from the tortfeasor.

The import of the Supreme Court decision is that while the subrogation rights of the workers’ compensation carrier remain putatively “absolute,” Domtar Paper in fact limits the workers comp carrier’s right to recover its paid benefits, for practical purposes, only to one of reimbursement rather than purely subrogation.  In short, in the absence of a claim made by the injured plaintiff personally against the tortfeasor, the workers’ compensation carrier must very carefully prosecute its claim to recover its paid benefits.  As far as concerns the presumably rarer instances when a workers’ compensation carrier unilaterally asserts its subrogation lien for paid workers comp benefits against a tortfeasor, that claim cannot succeed unless the injured plaintiff worker

• asserts his own claim (or commences his own action) against the tortfeasor;

• is named as a party plaintiff in the action filed by the workers comp carrier;

• joins the action filed by the workers comp carrier; or

• assigns his cause of action in tort to the workers comp carrier.

It bears noting that the proof of the torfeasor’s negligence, and that that negligence caused the injuries for which workers comp benefits were paid, must still be shown.  Brubacher Excavating v WCAB, 774 A.2d 1274, 1279 (Pa.Commw. 2001) (“Section 319 of the Act requires causation between the injury and the act or omission of a third party to facilitate subrogation.”), aff’d, 575 Pa. 168, 835 A.2d 1273 (2003); Edder v WCAB, 767 A.2d 617, 619 (Pa.Commw. 2001) (“in order to establish a right of subrogation the employer must show he is compelled to make payments by reason of the negligence of a third party.”).

Also, the statute of limitations on any claim against a tortfeasor runs to two years from the date of the injury, just as in a normal personal injury claim.  In other words, the workers comp carrier has no longer a time frame within which to assert the claim under the statute of limitations than the injured employee would have.

Please contact Tom Tyler of the firm Davis Parry & Tyler, P.C., should you have any comments or questions regarding these developments.