Arizona High Court Says Nebraska Law Prevents Absolute Assignment of Injured Worker’s Third-Party Claim

Dueling Statutes: Which State’s Subrogation Law Should Apply?

Variables within America’s mobile economy often produce complex choice of law issues, particularly when it comes to employer/insurer subrogation interests. For example, some states (e.g., Arizona), provide for absolute assignment (to the employer/insurer) of the injured worker’s cause of action against negligent third parties if the worker fails to file suit within a specified time period [see Ariz. Rev. Stat. § 23-1023(B)/one year], while others do not [see Larson’s Workers’ Compensation Law, § 116.01, et seq.]. Illustrating the complexity of balancing the choice of law issues, the Supreme Court of Arizona recently held that in as much as workers’ compensation benefits had been paid pursuant to Nebraska law, that state’s subrogation rules—not those for Arizona—controlled whether a worker, who sustained injuries in a work-related Arizona vehicle crash, had an interest in a last-minute, third-party action filed—in an Arizona trial court—by the employee against an allegedly negligent driver [Jackson v. Eagle KMC L.L.C., 431 P.3d 1197 (Jan. 2, 2019)].

Background

Jackson, a South Carolina resident, was employed as a semi-truck driver for a Nebraska company. Jackson’s employer contracted with an Arizona company, Eagle KMC, LLC (“Eagle”), to provide Jackson with additional driver’s training. Jackson sustained serious injuries when, during a training session that took place in Arizona, an Eagle driver (“Hender”) rolled the semi-truck in which Jackson was riding as a passenger.

In February 2016, a few days before Arizona’s two-year statute of limitation expired [see Ariz. Rev. Stat. § 12-542(1)], Jackson filed a personal injury action against Eagle, Hender, and Werner Enterprises (the registered owner of the semi-truck). Under Nebraska workers’ compensation law, Jackson added the Nebraska employer as a party defendant.

Eagle, Hender, and Werner sought to dismiss the action, arguing that under Ariz. Rev. Stat. § 23-1023(B), Jackson’s entire cause of action had been assigned to the Nebraska employer and that, accordingly, Jackson had no legal interest in the action. The trial court agreed and granted summary judgment in favor of the primary defendants.

Court of Appeals Decision

On appeal, the issue was which state’s law applied. If Nebraska law applied, Jackson would have retained her legal interest; unlike Arizona, Nebraska has no automatic assignment provision [see Neb. Rev. Stat. § 48-118]. The Arizona Court of Appeals reversed the trial court[see Jackson v. Eagle KMC LLC, 244 Ariz. 224, 418 P.3d 997 (App. 2018), finding that § 23-1023(B) did not apply to Jackson’s claim because her workers’ compensation benefits were adjudicated and paid in Nebraska and, therefore, the law of Nebraska governed subrogation, lien, and assignment rights in the action.

Precedent—Plus Larson—Supports Court of Appeals Decision

Citing, inter alia, an earlier decision by the state’s court of appeals, Quiles v. Heflin Steel Supply Co., 145 Ariz. 73, 77, 699 P.2d 1304 (App. 1985), and Larson’s Workers’ Compensation Law, § 144.02, the Court stressed that the law of the state in which compensation is paid should govern employee claims against third-party tortfeasors. The Court added that to the extent that there was any ambiguity in the situation—after all, A.R.S. § 23-904(C) had been enacted in 2009, after Quiles—legislative history supported the high court’s construction. The Court stressed that nothing in that history indicated the statute was intended to affect third-party claims. Rather, the legislative history showed that the statute’s purpose was to address the payment of workers’ compensation benefits for workers who may be eligible to receive benefits in Arizona and another state. § 23-904(C) did not abrogate the rule set forth in Quiles, which the high court here specifically approved.