Texas Court Stresses Comp Carrier is Entitled to Full “First Money” in Worker’s Third-Party Tort Settlement

Reiterating that aTexas workers’ compensation carrier is entitled to the “first money” an injured worker recovered in a third-party tort action—here, settlement of a medical malpractice claim—and stressing further that until the carrier is paid in full, the worker has no right to the settlement money, a Texas appellate court affirmed, in relevant part, a trial court’s order requiring an injured worker’s attorney to pay over to the workers’ compensation carrier the entire amount of a medical malpractice settlement—$270,000—less one-third as attorney’s fees [Stevenson v. Texas Mut. Ins. Co., 2022 Tex. App. LEXIS 3292 (May 13, 2022). The appellate court added, however, that the trial court should also have required the carrier to pay its proportionate share of the non-attorney’s fee expenses associated with securing the malpractice settlement.

Background

Stevenson suffered a workplace injury in June 2013, which was exacerbated by negligent medical treatment he received on December 23, 2013. Texas Mutual, the workers’ compensation carrier for Stevenson’s employer, paid workers’ compensation benefits to and on behalf of Stevenson for his injuries. In January 2015, Stevenson sued his health care providers for negligence.

Beginning on April 29, 2016, Texas Mutual sent several letters to Stevenson’s counsel. In its letters, it asserted its subrogation rights pursuant to the Texas Workers’ Compensation Act. In each of the letters, Texas Mutual made the following statement:

The total amount of the workers’ compensation lien from June 30, 2013 through December 23, 2013 is $27,519.40.

In each letter, Texas Mutual also communicated the total amount of workers’ compensation benefits that had been paid. For example, a letter sent January 22, 2018 indicated that Texas Mutual had paid $318,551.33 to date. The letter also included the statement as to the period from June 30, 2013 through December 23, 2013, the date the negligent treatment was performed.

Stevenson settled his medical negligence case on January 25, 2018, for $270,000. On February 1, 2018, Texas Mutual sent another letter to Stevenson’s counsel indicating that as of that date, it had paid a total of $318,551.33 less $27,519.40—the amount paid before the malpractice—for a net lien equalling $291,031.93.

Texas Mutual filed a petition in intervention to recover its subrogation lien. Stevenson countered that the trial court should limit Texas Mutual’s recovery to $27,519, before deductions for attorney’s fees and expenses to Stephenson’s counsel.

Subrogation Hearing

Following a hearing, the trial court found Texas Mutual’s subrogation interest was $291,031.93, that it was entitled to first-money recovery of its subrogation interest, that its subrogation interest exceeded the value of the medical malpractice settlement, and accordingly, that Texas Mutual was entitled to recover $270,000, less one-third allocated to attorney’s fees. The trial court ordered Stevenson’s counsel to pay $180,000 from the settlement funds to Texas Mutual. Stephenson appealed, contending that the trial court failed to properly apportion the settlement proceeds and that Texas Mutual’s recovery be limited to no more than $27,519.40.

Appellate Court’s Opinion

The appellate court initially observed that the state’s supreme court had repeatedly stated that an insurance carrier is entitled to recover all benefits paid to an injured worker out of the “first money” the worker recovers from a liable third party [citing Exxon Mobile Corp. v. Insurance Co. of Am., 568 S.W.3d 650, 651 (Tex. 2019) (citing Tex. Lab. Code Ann. §§ 417.001-.002)]. Accordingly, Texas Mutual was entitled to the first money Stevenson recovered in the medical malpractice action, and until Texas Mutual was paid in full, Stevenson had no right to the settlement money.

Here, stressed the court, the settlement amount ($270,000.00) did not exceed the amount of Texas Mutual’s subrogation interest as determined by the trial court ($291,031.93). Texas Mutual was, therefore, entitled to the full amount of the settlement minus payment of attorney’s fees and expenses, pursuant to Tex. Lab. Code Ann. § 417.003(a) [emphasis added]. Under the statute, a reasonable attorney’s fee generally may not exceed one-third of the carrier’s recovery.

Proportionate Share of Expenses

The appellate court concluded that the $90,000 attorney’s fee was appropriate, but the trial court should also have ordered Texas Mutual to pay a proportionate share of expenses from its recovery.

Carrier Was Not Estopped from Recovering Full Amount

The appellate court acknowledged that Stevenson’s argument—that Texas Mutual was estopped from seeking to recover more than $27,519.40 of the settlement proceeds. According to Stevenson, Texas Mutual consistently represented the amount of its subrogation lien to be $27,519.40, and “the settlement that was reached with the healthcare providers was based on that amount.” Stevenson contended that only after the case was settled did Texas Mutual come back, demanding subrogation well in excess of even the amount of the settlement. The appellate court disagreed.

The appellate court said that at no time had Texas Mutual indicated its total subrogation interest was $27,519.40. In each correspondence, Texas Mutual had merely segregated the amounts it had spent before the medical malpractice occurred and the amounts of the outlay thereafter.

Based on the foregoing, the appellate court reversed the trial court’s order insofar as it incorrectly relied upon Tex. Lab. Code Ann. § 417.003(a), i.e., to the extent that it did not order Texas Mutual to pay a proportionate share of the expenses. It remanded the case for such a determination. In all other respects, it affirmed the trial court’s order.