SEPTA does not have to pay back the workers’ compensation of a woman who was injured on one of its buses in the course of her employment after the woman settled a tort claim with the public transit giant, the state Supreme Court has ruled, because of SEPTA’s sovereign immunity powers.

The opinion in Frazier v. Workers’ Compensation Appeal Board, decided unanimously by the state Supreme Court last month, examines Section 23 of Act 44 — granting state agencies immunity from subrogation claims — by considering the following question: What happens when a claimant collects workers’ compensation and then settles with a third-party state agency when that state agency meanwhile offered to indemnify the claimant if its employer went for subrogation?

For the high court, the answer was that SEPTA doesn’t have to pay any more than the $75,000 for which it settled with Lillian Frazier.

“The answer, in our view, is demonstrated in situations such as that presented here: where the Commonwealth structures a settlement that does not include workers’ compensation benefits within that agreement, and agrees to defend and hold harmless the claimant for any claims of subrogation or reimbursement,” Justice Max Baer wrote for the court.

In a 15-page opinion, Baer said such a reading of Section 23 gives effect to its provisions, it advances the benefits of sovereign immunity for state actors, and, finally, as long as settlements are properly structured, claimants would not receive double recovery of benefits.

Bayada Nurses, where Frazier worked, had a different take. Bayada had argued that, under Section 319 of Workers’ Compensation Act, it could properly recoup the $47,000 in benefits it paid to Frazier up until the point of her settlement with SEPTA.

SEPTA’s indemnification agreement with Frazier stated that if Bayada went after her to recoup any money, SEPTA would step in and foot the bill.

Nonetheless, the employer, along with its insurer, took the position that denying subrogation would nullify Section 23′s three main goals: avoiding double recovery, avoiding employers’ payment of injuries that are the fault of others, and, accordingly, holding third parties liable for their own negligence.

Baer addressed those points in turn, reiterating the mitigating effect of a properly structured settlement, pointing out that governmental entities do not fully escape liability as they would inevitably pay damages, and driving home the court’s view of Section 23′s legislative intent — protecting the state from an otherwise “absolute” right of subrogation for insurers.

“Evidently, the legislature felt it prudent to protect the public treasury despite the need to assist Pennsylvania’s ailing business climate,” Baer said. “Courts have commented that the judiciary should not interject equitable principles or exceptions into the statutorily authorized subrogation within the workers’ compensation scheme, as it should be left to the legislature to make the policy decisions surrounding those exceptions.”

“Here, with Section 23 of Act 44, the General Assembly, through duly passed legislation, did just that,” Baer added.

A workers’ compensation judge initially ruled in favor of Frazier, finding that Section 23 immunity apples to both subrogation claims from an employer against a government body and, additionally, settlement proceeds from a government party to an injured worker.

The Workers’ Compensation Appeal Board reversed, holding that immunity only extended to direct recovery actions against a governmental entity from an employer, their insurer or otherwise.

The Commonwealth Court, citing its decision in Fox v. Workers’ Compensation Appeal Board, affirmed in an unpublished memorandum opinion.

In Fox, according to Baer, a PECO Energy employee hurt his ankle in the course of employment and subsequently sued the city of Philadelphia, settling for $150,000 with, like Frazier, an indemnity clause.

PECO went for subrogation and the Commonwealth Court ruled in its favor, allowing the company to dig into the injured man’s settlement.

Following the instant case, Fox appears to be overruled.

Frazier had urged the court not to, as Baer said in a footnote, “blindly follow” the Fox decision as the Commonwealth Court did in her case because the Fox court did not view the issue from Frazier’s position.

According to Baer, Frazier argued the language in Section 23 stating the government shall “benefit from sovereign immunity from claims of subrogation or reimbursement from a claimant’s tort recovery” was controlling.

She argued that not only do direct actions against the state agency allow for immunity, but so too do those against claimants who recovered from a government party.

To interpret the law otherwise, Frazier argued in her Supreme Court brief, “‘renders commonwealth entities immune from direct claims for subrogation … while requiring them to factor the value of such claims into their settlements with tort claimants, [thus leading] to a manifestly absurd result which frustrates the purpose behind granting such immunity.’”

In other words, government entities would have to include in settlements amounts equal to subrogation liens they may face, Baer noted.

Leslie G. Dias, who is special counsel for SEPTA, called the case an “important victory” for SEPTA.

“The question actually becomes what can be presented as evidence at trial,” Dias said.

For example, if Frazier had gone to trial with SEPTA, there would be a question of whether the jury could be presented the workers’ compensation lien from Bayada, the attorney said.

What Frazier decided is that although a plaintiff would be able to present evidence of his or her medical treatment and pain and suffering at trial, Dias said the medical bills and work loss benefits would not be part of the evidence presented to the jury and could not be recovered.

John P. Dogum, of Martin Banks in Philadelphia, said that while the case reflects a win for injured workers, it also reflects a double win for the government.

“The case could not have settled with consideration of lien,” Dogum said.

“The import here is that ironically by extending governmental immunity you’re lessening the burden not only on the governmental party but also on the courts,” he added.

John F. Hayes II of Cipriani & Werner represented Bayada and declined to comment on the decision because he is filing a motion for reargument.

Ben Present can be contacted at 215-557-2315 or bpresent@alm.com. Follow him on Twitter @BPresentTLI.

(Copies of the 15-page opinion in Frazier v. Workers’ Compensation Appeal Board, PICS No. 12-1855, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •