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Pennsylvania’s Workers’ Compensation Act permits an employer to subrogate against uninsured motorist benefits awarded to a claimant under a policy held by someone other than the employer, the claimant or a co-employee, an en banc panel of the Commonwealth Court has ruled. Hannigan v. Workers’ Compensation Appeal Board involved a mechanic who was injured in an accident with an uninsured driver while operating a customer’s vehicle in the course of his employment. The injured worker, Garrett Hannigan, began receiving workers’ comp benefits after the November 1995 accident. But four years later, after Hannigan had recovered $275,000 in UM benefits under the customer’s auto insurance policy, his employer filed a petition for modification to assert its subrogation rights under Section 319 of the Workers’ Compensation Act. A 5-2 Commonwealth Court panel held that the employer was entitled to subrogation of the UM benefits. “We conclude that the language of Section 319, which provides that ‘the employer shall be subrogated to the right of the employe[e] . . . against such third party’ must be (and has been) construed by our appellate courts to include both direct recoveries from third-party tortfeasors as well as recoveries paid on behalf of or for the liability of that third party,” Judge Bonnie Brigance Leadbetter wrote for the majority. The ruling extended a line of cases permitting Section 319 subrogations of uninsured and underinsured motorist benefits awarded to workers under auto insurance policies held by their employers or co-employees. Two separate dissenters – Judge Bernard L. McGinley and Judge Rochelle S. Friedman – objected to the majority’s interpretation, arguing that it disregards the clear language of Section 319. President Judge James Gardner Colins, along with Judges Dan Pellegrini, Renee Cohn Jubelirer and Mary Hannah Leavitt, joined Leadbetter’s opinion. According to Leadbetter’s opinion, a workers’ compensation judge originally denied O’Brien Ultra Service Station’s modification petition and request for subrogation, finding that the customer’s insurance policy was intended to protect the vehicle owner and his passengers rather than the employer. On appeal, the Workers’ Compensation Appeal Board reversed this decision, allowing O’Brien to assert its subrogation rights. On appeal to the Commonwealth Court, Hannigan contended that O’Brien could not subrogate against benefits received under a policy the employer did not procure. The customer’s insurance policy in this case was not intended to benefit a third-party tortfeasor, Hannigan argued, but rather it was designed to protect the insured and his passengers from uninsured third parties. The court, however, disagreed with Hannigan’s contention that the purchaser of the UM insurance must determine the employer’s right to subrogation. Leadbetter explained that in City of Meadville v. Workers’ Compensation Appeal Board, the Commonwealth Court in a 2002 opinion concluded that an employer has a right to subrogation against UM or UIM benefits awarded to an employee under the employer’s auto policy. In so ruling, the Meadville court explained that UM and UIM benefits are intended to cover damages stemming from the fault of third parties. Assessing this case law, Leadbetter found that “the linchpins of our conclusion that the employer was entitled to assert its Section 319 right of subrogation were that such a result was contemplated by the statutory scheme in place and that the funds received from the motor vehicle carrier represented the damages the third-party tortfeasor would have paid had he been adequately insured.” This construction of Section 319 is further supported by the recent state Supreme Court’s 2002 ruling in Poole v. Workers’ Compensation Appeal Board, Leadbetter said. In that case, the justices decided that an employer could seek subrogation of a workers’ comp claimant’s legal malpractice settlement since it grew out of the botching of a third-party tort action involving the underlying work injury. “Clearly, in concluding that the employer was entitled to assert its subrogation lien against the claimant’s legal malpractice settlement, funds that were not derived directly from the third-party tortfeasor but represented that for which the tortfeasor was otherwise liable, our Supreme Court demonstrated its understanding that Section 319 does not limit subrogation to those funds received directly from the third-party tortfeasor,” Leadbetter wrote. In his dissent, McGinley took exception to the distinction drawn in a footnote in the majority opinion between Hannigan and American Red Cross v. Workers’ Comp-ensation Appeal Board, the 2000 decision in which the Commonwealth Court held that a workers’ comp carrier could not subrogate against a claimant’s recovery from his own insurance policy. In its footnote on American Red Cross, the majority observed only that that case did not change the result here since Hannigan involved an insurance policy held by someone other than the claimant himself. McGinley disagreed with this analysis, arguing that American Red Cross is applicable since Hannigan was a third-party beneficiary of the customer’s UM policy. Section 319 of the Workers’ Compensation Act provides a right to subrogation for recoveries based on the “act or omission of a third party,” McGinley said. In a separate dissent, Friedman also found that Section 319 should preclude subrogation of Hannigan’s UM recovery in this case. Moreover, she observed, under Commonwealth Court case law, subrogation is permitted only when it would “(1) prevent double recovery for the same injury by the claimant; (2) ensure that the employer is not compelled to make compensation payments made necessary by the negligence of a third party; and (3) prevent a third party from escaping liability for his negligence.” This three-fold test is not satisfied here, Friedman concluded, insofar as the majority’s result “would allow the uninsured tortfeasor to escape liability and would place the burden on the non-negligent insured.” Richard Kupersmith of Eisenberg Rothweiler Schleifer Weinstein & Winkler in Philadelphia represented Hannigan. “[The majority] have interpreted Section 319 of the act to fit their conclusion,” Kupersmith said. “There will be an appeal to the Supreme Court to clarify this issue once and for all.” Deborah Beck of Sand & Saidel in Philadelphia, who represented O’Brien Ultra Service Station, said that her client believes it is entitled to the bulk of Hannigan’s $275,000 in UM benefits. Beck noted that the fact pattern involved in the case is not likely to occur often. “It’s a nice result, but I don’t know how often [lawyers] are going to be able to throw around the Hannigan case,” Beck said. - Asher Hawkins contributed to this report. (Copies of the 25-page opinion in Hannigan v. Workers’ Compensation Appeals Board , PICS No. 04-1674, are available from The Legal Intelligencer . Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information. Some cases are not available until 1 p.m.)

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