The struggle between insurance carriers and innocent injured claimants/plaintiffs very often does not cease when a settlement agreement or award has been obtained. Battles must be fought on additional fronts, as subrogation lienholders swoop in to assert their interests that have been placed on a file.
In cases involving both workers’ compensation and third-party liability actions arising from the same incident, it is almost inevitable that injured claimants and their counsel will have to deal with a subrogation lien asserted by the employer’s compensation insurance carrier. In many instances, a plaintiff/claimant may be able to negotiate a reduction (or complete waiver) of the lien. A recent decision of Pennsylvania’s Commonwealth Court, however, suggests that claimants and their representatives must formulate air-tight third-party settlement agreements detailing reduction or waiver of liens, or be subject to further lien obligations on future recovery and compensation.
On July 15, in the matter of Aminov v. WCAB (Ewell), 2013 Pa. Commw. Unpub LEXIS 553 (July 15, 2013), the Commonwealth Court affirmed a decision by the Workers’ Compensation Appeal Board further cementing the “absolute” rights of workers’ compensation insurance carriers to maintain their subrogation interests throughout all stages of third-party recovery. The claimant, Garri Aminov, was involved in a motor vehicle accident while in the course and scope of his employment in 2005.
Over the course of his workers’ compensation claim, the employer’s compensation carrier, Phoenix Insurance Co., paid out $230,908 in medical and indemnity benefits (representing Phoenix’s total subrogation lien interest). Aminov subsequently settled his underlying third-party case against the defendant tortfeasor driver (insured through Liberty Mutual) for $45,000. As typical, Aminov and Phoenix entered into a third-party settlement agreement, which said, in pertinent part:
“Claimant’s third-party recovery was $45,000. The amount available for satisfaction of the subrogation lien is $23,194. Defendant/carrier [employer] will accept $23,194 in full satisfaction of their subrogation lien.”
The agreement was properly executed and Phoenix was paid in accordance with the above provision. Aminov then proceeded on his underinsured motorist claim against the employer’s motor vehicle carrier, and recovered an amount in excess of Phoenix’s remaining lien (the actual amount of the UIM recovery was not disclosed; however, there is no dispute that it exceeded the workers’ compensation lien balance of $185,908). Phoenix got wind of the deal and asserted its remaining lien of $185,908 against the UIM recovery.
In refusing to pay further subrogation, Aminov relied on the language contained in the bureau’s third-party settlement agreement (the controlling document in this case)—specifically, the phrase “in full satisfaction of their subrogation lien.” (The claimant’s argument need not be detailed, as the agreement language purportedly speaks for itself.)
Phoenix countered with its own citation to the third-party settlement agreement form, which stated in its opening lines: “The parties herein have agreed to the following distribution of proceeds from Liberty Mutual, third party.” This portion of the agreement, the carrier argued, is proof that Phoenix waived its right to further subrogation exclusively from third-party proceeds generated by Liberty Mutual, notwithstanding additional recovery from other sources, including the UIM claim.
The WCAB found in favor of Phoenix, stating that Section 319 of the Workers’ Compensation Act mandates that an employer is automatically subrogated to an employee’s rights against third parties for compensable injuries.
On appeal, however, the court took a different approach, relying not on the Workers’ Compensation Act but the law of contracts (observing that the third-party settlement agreement was merely a contract created between Aminov and his employer’s compensation carrier governing repayment of Phoenix’s subrogation lien).
Starting from the foundation laid in Winfree v. Philadelphia Electric, 554 A.2d 485 (1989), that “the employer’s subrogation rights are statutorily absolute and may only be waived by choice,” the court first examined whether Phoenix’s execution of the aforementioned third-party settlement agreement contract served to waive subrogation in its entirety.
The court began its analysis by examining the “four corners” of the contract itself. Unlike the appeal board, the court did not find it necessary to decide which provision cited by the parties (“full satisfaction” or “distribution proceeds from Liberty Mutual”) it found more compelling. Rather, the court agreed with both parties, conceding that there could be more than one reasonable interpretation of the agreement, presenting ambiguity with regard to the “full satisfaction” language and subsequent UIM recovery. Thus, the decision followed, “where the contract terms are ambiguous and susceptible to more than one reasonable interpretation, the court is free to received extrinsic evidence to resolve the ambiguity,” as in Crawford v. WCAB (Centerville Clinics), 958 A.2d 1075 (Pa. Cmwlth. 2008).
Looking to the extrinsic evidence in this case was particularly damning to the claimant’s position. First, the court noted that attached to the third-party settlement agreement was a supplemental release that indicates, in pertinent part, that the release “is not intended to be a release of any claims claimant may have for future underinsured motorist benefits.”
The court was further swayed by correspondence sent from Phoenix to the claimant’s representatives on Sept. 29, 2010, just 34 days prior to execution of the third-party settlement agreement.
In that letter, Phoenix’s adjuster not only set forth the compromised amount that the compensation carrier would accept in third-party subrogation, but also noted in the last line: “Receipt of this partial lien recovery does not waive our rights to further potential recovery in the pending UIM claim.” The claimant’s counsel did not contest the UIM portion of that letter when he forwarded a check for the agreed-upon amount, along with the fully executed third-party settlement agreement on Nov. 2, 2010.
Tipping the scales in favor of the compensation carrier, the court found that the supplemental release and Sept. 29, 2010, letter not only offered extrinsic evidence tending to resolve the ambiguity contained within the four corners of the third-party settlement contract, but also provided clear evidence that the workers’ compensation carrier did not “waive by choice” its right to further subrogation as required in Winfree. Coupled with the conflicting language contained within the third-party settlement agreement, and in keeping with the Winfree standard, the court did not find that Phoenix abrogated its subrogation rights by choice, therefore entitling Phoenix to further recovery from Aminov’s UIM proceeds.
While at first blush, the court’s decision in Aminov appears to further cement employers’ “automatic” rights to subrogation, the court has also provided a framework for effecting a full and final waiver in the event that a compensation carrier will endorse such terms.
Clearly, the WCAB and Commonwealth Court will continue to construe subrogation disputes in favor of lienholders. Therefore, in cases where the carrier does in fact express a willingness to reduce or waive its lien for all present and future recovery, it will be wise to (1) craft any supplemental release to reflect an agreement for full and final waiver of all liens relating to the date of loss; (2) confirm via cover letter, email or other reproducible correspondence the carrier’s full and final waiver; (3) amend standard third-party settlement agreements by removing any ambiguous language that may be construed in favor of future subrogation rights; and (4) contest all reproducible correspondence that could create ambiguity as to the intentions of the parties in reducing and waiving subrogation liens.
In the event that a new insurance adjuster or supervisor attempts to reassert the company’s position when additional compensation is obtained, claimants must have eliminated all ambiguity in the subrogation agreement, leaving no question as to the choice of the insurance company to waive or reduce its total subrogation interest. In doing so, claimants will remain protected throughout all other sources of recovery and able to retain maximum compensation on underlying third-party and UIM cases.¢