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An employer’s right to subrogation from an employee’s third-party recovery is absolute, the Pennsylvania Supreme Court has ruled, making a firm restatement of the law and reversing the state’s Commonwealth Court. The majority did provide one narrow exception, saying that equitable principles could come into play if an employer has engaged in bad faith by trying to undermine the employee’s third-party action. But dissenting Justice Russell Nigro said that exception did not remedy the injustice perpetrated by the majority’s decision, which he said punishes an employee for an employer’s conduct. The employer in Thompson v. Workers’ Compensation Appeal Board (USF&G Co.) lost evidence that was crucial to the claimant’s third-party action. Five out of seven justices said the employer could still assert its subrogation right against the employee’s settlement. Justice Sandra Schultz Newman did not participate in the case. The claimant, John Thompson, was injured when the platform of a crane he was working on collapsed. An inspection uncovered that five faulty bolts on the crane caused the accident. The president of Craig Welding & Equipment Rental, William Craig, held onto the bolts after the inspection. Thompson began receiving compensation benefits. He brought a negligence and strict liability suit against the crane’s owner and manufacturer. Before the trial, Craig lost the bolts. An expert for USF&G testified at the trial that if the allegedly defective bolts were available they could have been examined to determine whether they were the original bolts and if they were of the right grade. The trial court judge granted the motion in limine of the manufacturer and owner to preclude evidence of Thompson’s lost wages and medical bills, finding they were prejudiced by the unavailability of the bolts. The attorney for the compensation carrier did not intervene in the motions in limine. The case settled for $300,000, excluding Thompson’s lost wage payments made by USF&G and medical bills. Craig Welding and USF&G petitioned to have Thompson’s benefits suspended and to enforce their subrogation rights to be reimbursed more than $100,000. A workers’ compensation judge granted the petition, and the WCAB affirmed. On appeal, the Commonwealth Court said the employer could not be reimbursed after it “ignored” the motion in limine. Commonwealth Court Judge Bonnie Brigance Leadbetter dissented, saying an employer’s right to subrogation, provided for in Section 319 of the Workers’ Compensation Act, is absolute, relying on the state supreme court’s 1989 decision in Winfree v. Philadelphia Electric. In Winfree, the justices said Section 319 gives an employer an absolute right to subrogation. Justice Ronald D. Castille, writing for the majority, also discussed Winfree in the supreme court opinion. He explained that in Winfree, the lower courts had denied the employer its subrogation right because it did not cooperate with the employee in a third-party negligence claim. But the supreme court in Winfree said the lower courts’ point of view did not make sense for the employer. “In evaluating the equitable estoppel claim, this court noted [in Winfree] that the employer’s actions had to be viewed in the context of the negligence action, since the employer had been joined there as a third-party defendant,” Castille said. “Since the employer and employee were in adversarial positions in that litigation, it was reasonable for the employer to be less than fully cooperative.” The simple fact that Winfree addressed equitable estoppel persuaded the Commonwealth Court to rule that an employer’s right to subrogation may be defeated by “the ad hoc weighing of factors inherent in the doctrine of equitable estoppel,” Castille said. But Castille said the Commonwealth Court was misguided. He said Winfree did not touch on the issue of whether the right to subrogation can possibly be circumvented by ad hoc equitable grounds “at all.” “Some discussion of the equitable estoppel claim was necessitated by the fact that the lower courts had actually accepted that argument,” Castille said. “That this court could have rejected the lower courts’ analysis outright as a matter of law, in accordance with the plain language of the statute, does not mean that our engaging and rejecting the analysis on the narrower terms presented amounted to an indirect approval of the statute that was at odds with our own earlier recognition that subrogation was generally absolute.” The finding that an employer’s right to subrogation is absolute is firmly grounded in the language of the Workers’ Compensation Act, Castille said. “When the General Assembly adopted subrogation as a statutory matter in the workers’ compensation context, it provided for no equitable exceptions that would eliminate the employer’s subrogation right,” Castille said. However, Castille did acknowledge that in certain circumstances, an employer could make a deliberate attempt in bad faith to undermine an employee’s third-party suit. That situation would lead to a different result, he said. “Accordingly, nothing in this opinion shall be construed as suggesting that subrogation would be appropriate in the face of deliberate, bad faith conduct on the part of the employer,” Castille said. “No showing of bad faith has been made here, however; thus, the employer’s right to subrogation remains absolute.” In the end, Castille said the case had to be remanded to the Commonwealth Court for a ruling on the question of whether the employer actually had a right to subrogation. Thompson claimed the settlement funds were designated as compensation only for his pain and suffering and for his wife’s loss of consortium claim. Therefore, Thompson argued, the settlement funds had no “identity” with the funds paid to him for his workers’ compensation claim. Castille said the Commonwealth Court did not address the issue at all and directed it to do so on remand. He also mentioned that the supreme court recently held in Darr Construction v. Workmen’s Compensation Appeal Board (Walker), that an employer has no subrogation right to an employee’s spouse’s recovery for loss of consortium. In his dissent, Nigro said the right to subrogation is subject to equitable principles and Thompson’s case illustrated precisely why that should be. “The result of the majority’s decision is that all parties, with the exception of [Thompson], benefit from Graig Welding’s conduct: [USF&G and Craig Welding] benefit by receiving their full subrogation rights, and the defendant tortfeasors benefited at trial since their liability was reduced by at least $113,000, if not substantially more,” Nigro said. “[Thompson], however, is forced to suffer a loss of $105,000 through no fault of his own.”

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