PA Employer’s Right to Subrogation is “Absolute”
Acknowledging that a trial court in a declaratory action had fixed the injured employee’s total damages in his third-party tort claim at almost $2 million, designating $1,500,000 of that total amount for the employee’s pain and suffering, and noting further that the third-party defendant’s insurance carriers had paid over $150,000—the limits of two liability policies—into escrow for a determination of the employer’s subrogation lien, the Commonwealth Court of Pennsylvania held the employer’s subrogation interest in the proceeds was “absolute” [Kamp v. Green Acres Contr. Co. (Workers’ Comp. Appeal Bd.), 2022 Pa. Commw. LEXIS 10 (Jan. 21, 2022). Since the employer’s outlay for workers’ compensation benefits exceeded the $150,000 held in escrow, all the funds (after payment of litigation expenses) had to be paid over to the employer. The Court was not persuaded by the employee’s argument that Section 319 of the Workers’ Compensation Act was unconstitutional.
Background
Claimant suffered a work injury on April 21, 2016, when he was struck by a motor vehicle while performing road work. In June 2018, a WCJ approved a compromise and release (C&R) agreement between Claimant and his employer, under which Claimant received a lump sum payment of $80,000 in exchange for waiving any future right to specific loss benefits for disfigurement under Section 306(c)(22) of the Act. The employer remained liable for Claimant’s ongoing wage loss and for medical expenses directly attributable to the work injury. It specifically reserved its right to subrogation under Section 319 of the Act for payment of any and all workers’ compensation benefits paid to Claimant.
Third-Party Negligence Claim
The third-party tortfeasor responsible for the car accident that caused Claimant’s work injury held two insurance policies with a combined liability limit of $150,000. After rejecting settlement offers from the two insurers in the amount of their respective policy limits, Claimant filed a declaratory action in a state trial court against the employer, the third-party tortfeasor, and the two insurers, seeking a determination of damages caused by the work accident. Following an evidentiary hearing, the trial court issued an order in which it determined that Claimant's damages totaled $1,894,877.98, broken down as follows:
- $1,500,000 was designated for Claimant’s pain and suffering;
- $99,618.85 for lost wages, of which Employer paid $65,662.91;
- $16,997.42 for lost pension contributions; and
- $100,000 for permanent disfigurement.
Employer’s Proposed Distribution
Thereafter, Claimant received payment in the amount of each insurer’s liability limit, for a total recovery of $150,000, placing the funds in an escrow account. The employer’s proposed third-party settlement agreement (TPSA) allocated Claimant’s entire third-party recovery to its accrued workers’ compensation lien, resulting in a net subrogation lien in the amount of $99,735.12, after deduction of litigation costs.
Claimant’s Proposed Distribution
Claimant's TPSA recommended a distribution of proceeds based on the employer’s proportional share of the damages calculated by the trial court. According to Claimant, the employer’s accrued workers’ compensation lien in the amount of $327,861.85, represented 17.3 percent of the $1,894,877.98 in damages set forth in the trial court’s order. Therefore, Claimant asserted that Employer’s subrogation interest was limited to 17.3 percent of Claimant’s actual third-party recovery, minus Employer’s share of the litigation expenses, resulting in a net workers’ compensation lien of $17,150.54.
Additionally, Claimant challenged Section 319 of the Act as unconstitutionally granting the employer a subrogation interest in Claimant’s entire third-party recovery, including damages that were unrelated to Employer’s payment of compensation under the Act.
WCJ’s Decision
The WCJ concluded that no legal authority existed to support the calculation method proposed in Claimant’s TPSA. The WCJ found that the employer had an accrued workers’ compensation lien in the amount of $327,861.85, and Claimant’s litigation expenses totaled $50,863.92. After deducting Claimant’s litigation expenses from his $150,000 third-party recovery, the WCJ found that the employer had a net subrogation lien in the amount of $99,136.08. The WCJ declined to address the constitutional issues Claimant raised, as they were beyond the scope of his authority.
Board Affirms
The Board affirmed, holding as well that Section 319 of the Act represented no constitutional impediment.
Commonwealth Court: Claimant’s Contentions
The Commonwealth Court noted that Claimant had not challenged the legitimacy of Section 319’s purpose, which in part seeks to relieve an employer from the financial burden caused by the actions of a third-party tortfeasor. Claimant also agreed that Section 319 achieves this purpose Claimant countered that the statute worked “too well,” that it granted the employer an “unfettered” right to recover against a claimant’s third-party settlement, regardless of the relationship between the damages awarded and the benefits paid by an employer under the Act. He continued that because Section 319 had effectively abrogated his right to recover damages incurred as a result of the work injury, Section 319 violated his constitutionally protected right to “recover and retain” property, in contravention of Article I, Section 1 of the Pennsylvania Constitution, without due process of law.
Commonwealth Court’s Decision
The Court rejected Claimant’s argument that Section 319 was constitutionally infirm because it worked too effectively at shifting the financial burden of an employee’s work injury from the innocent employer to the negligent tortfeasor. It added that Pennsylvania courts had repeatedly held as absolute an employer’s right to subrogation under Section 319, and Claimant had not presented a compelling argument for overturning this jurisprudence.
The Court noted that, as the employer had pointed out, the amount of Claimant’s actual third-party recovery reflected the limits of the third-party tortfeasor’s insurance policies. Section 319 of the Act neither implicitly nor explicitly limited the amount a claimant might recover from a third-party tortfeasor. It merely granted an employer the right to subrogate a claimant’s recovery to the extent the employer has paid benefits under the Act. As already discussed by the Court, one purpose of Section 319 was to ensure that an employer was not required to pay for the negligence of a third party; the subrogation rights entrenched in Section 319 were reasonably related to accomplishing that purpose.
Thomas Decision
The Commonwealth Court indicated it was not inclined, as had been argued by Claimant, that it should distinguish this case from the decision by the Pennsylvania Supreme Court in Thompson v. Workers’ Comp. Appeal Board (USF&G Co.), 781 A.2d 1146, 1152-54 (Pa. 2001)(Thompson II), in which the Court held that an employer’s right to subrogation under Section 319 was “absolute” and not subject to “ad hoc equitable exceptions.” Because Section 319 did not violate the state Constitution, the Supreme Court’s holding in Thompson II and other precedent governed the disposition of the case; the employer’s right to subrogation was absolute.