Wickert: Mass. Supreme Court Ignores Wording of Work Comp Subrogation Statute, Intent of Legislature

Thursday, March 10, 2016 | 0

Since 1939, § 15 has provided that a workers’ compensation carrier receives first priority recovery from a third-party settlement or judgment. In particular, it provides that “the sum recovered” in the third-party action (also defined as the “gross sum received in payment for the injury…shall be for the benefit of the insurer, unless such sum is greater than that paid by it to the employee, in which case the excess shall be retained by or paid to the employee.”). English rarely gets clearer. The Massachusetts Legislature clearly intended to provide the carrier with a first money right of recovery. However, that hasn’t stopped Massachusetts’ highest court, with five of its seven members appointed by Democrat governors, from taking the advice of trial lawyers who wished it read otherwise.

In the February 12, 2016 decision of DiCarlo v. Suffolk Construction Co., Inc., 2015 WL 10045032 (Mass. 2016), the Massachusetts Supreme Judicial Court ignores the plain words “sum recovered” and “gross sum recovered in payment for the injury” contained in § 15 and holds that a workers’ compensation carrier is not subrogated to and/or entitled to reimbursement out of any part of the “gross sum recovered” which isn’t attributed to lost wages or medical expenses. The Court ruled that “damages for pain and suffering are not within a carrier’s lien.” Ignoring clear legislative intent, 77 years of judicial review, and with a brutal twisting of the English language itself, the Court has done what courts around the country tend to be doing with important rights of subrogation – writing law instead of enforcing it.

The DiCarlo case involved two separate cases and two employees, DiCarlo and Martin, who were injured in the course of their employment, collected workers’ compensation benefits, and then reached settlement agreements with third parties including damages for, among other things, their pain and suffering. Twin City Fire Insurance Company (Hartford) insured both employers and sought reimbursement under § 15 from the employees’ recoveries, including portions they unilaterally designated for pain and suffering. In DiCarlo’s case, the trial court rejected a settlement agreement providing that the insurer would not have a lien on the damages for pain and suffering, concluding that the insurer’s lien attached to DiCarlo’s entire recovery. DiCarlo appealed. In Martin’s case, the trial court approved a settlement agreement similar to the agreement rejected by the judge in DiCarlo’s case and the carrier appealed. On appeal, the trial court ruling was affirmed by the Appeals Court. Martin v. Angelini Plastering, Inc., 86 Mass. App. Ct. 1122 (2014). The DiCarlo trial court ruling was reversed by the Massachusetts Appeals Court in DiCarlo v. Suffolk Construction, 19 N.E.3d 431 (Mass. App. 2014).

In order to ignore the clear language of the statute, the Supreme Judicial Court had to build on bad precedent. It found that precedent in the case of Curry v. Great American Insurance Co., 954 N.E.2d 580 (Mass. App. 2011), review denied, 958 N.E.2d 530 (2011), a wrongful death case. In Curry, the employee died as a result of medical negligence following a work-related automobile accident. The parties agreed to an unallocated $300,000 settlement and Great American, the workers’ compensation carrier, filed a statutory lien to recover its workers’ compensation lien under § 15. The plaintiff’s estate filed a declaratory relief action seeking to have the lien declared invalid. A Superior Court judge allocated damages as follows:

• $100,000 Net future loss of earning capacity.
• $100,000 Conscious pain and suffering of deceased.
• $60,000 Loss of consortium to spouse.
• $40,000 Loss of consortium to emancipated son.

Of note, the insurer should have – but didn’t – contest the fairness of the allocation between the components of the third-party damages and there was not an argument that the allocation was wrongfully structured to gerrymander the settlement to avoid the lien and future credit. The carrier did argue that its lien extended to claims for consortium-like damages recovered under the Wrongful Death Act as well as to claims for the deceased worker’s conscious pain and suffering. A Superior Court judge ruled that the lien attached to neither. The Curry decision on appeal affirmed that damages in the third-party wrongful death action allocated to loss of consortium or conscious pain and suffering are not recoverable by a subrogated workers’ compensation carrier under § 15 because they are not monies received under the Workers’ Compensation Act. While Curry involved a wrongful death case and death benefits, it was only a matter of time before this new subrogation-avoidance argument would be used in non-wrongful death/personal injury cases as well, because the Court justified its decision by gratuitously adding, “…conscious pain and suffering was not a compensable injury under the workers’ compensation statute.”

The trial court in DiCarlo refused to allocate damages and limit the workers’ compensation lien, indicating that there were important distinctions which distinguish that case from Curry. For instance, the court noted that in Curry, the allocation of pain and suffering went to the widow – not the employee. Since § 15 clearly provides for allocation to family members, the DiCarlo trial court correctly pointed out that the loss of consortium allocation in Curry might have been proper, but an allocation between economic and non-economic damages in a recovery, which completely goes to the injured employee, would not be proper. The trial court noted that the Curry decision arose in the context of a medical malpractice/wrongful death action, and suggested that it should be limited to wrongful death cases and a workers’ compensation carrier’s reimbursement rights should not be defeated by a simple allocation to the plaintiff for pain and suffering. Superior Court Judge Frances McIntyre stated in the DiCarlo ruling that the Industrial Accident Board would likely agree. The DiCarlo trial court ruling also stated that Curry did not overrule the 1993 Massachusetts Supreme Court decision in Rhode v. Beacon Sales Co., 616 N.E.2d 103 (Mass. 1993). The Rhode decision held that “until an excess recovery exists, the entire recovery is for the insurer.” In DiCarlo, Judge McIntyre declared that Curry concerns damages allocated to family members – the only area that Rhode holds can be considered by the trial court. The Appeals Court in DiCarlo blindly followed the bad precedent of Curry. Interestingly, though the Appeals Court decision was 3-0, one judge wrote a lengthy concurrence which cites to the 5th edition of Gary Wickert’s book, Workers’ Compensation Subrogation In All 50 States. Associate Justice Peter Agnes wrote that he only joined in the result because of adherence to stare decisis. In his opinion, Curry was wrongly decided. He wrote:

Because this case involves an issue of considerable importance to the administration of justice, an outline of the reasons why a different outcome in this case should be reached may assist the Supreme Judicial Court or the Legislature.

But, it clearly didn’t assist the Supreme Judicial Court. In justifying its decision in DiCarlo, the Supreme Judicial Court said that it was simply following the precedent set in Curry. Instead of focusing on the sentence “the gross sum received in payment for the injury”, the Court focused on the word “injury.” The Court said that the word “injury” must be given the same meaning as when it is used in the first sentence of § 15 which read:

Where the injury for which compensation is payable was caused under circumstances creating a legal liability in some person other than the insured…

In an almost unbelievable leap of logic, the Court said that the word “injury” in this first sentence didn’t mean “all harms suffered by the worker”, but only harm for which compensation benefits were paid – i.e., lost wages and medical expenses. Their reading of the statute defies logic.

Interesting is the fact that at the end of the DiCarlo decision, the Court wrote:

Moreover, a settlement amount allocated entirely or in large part to pain and suffering will “be eyed by the court with a healthy dose of skepticism.

As a result, unless and until the Legislature fixes this questionable decision, Massachusetts law necessitates that carriers be aggressive in protecting their subrogation rights in a state where interventions are not freely granted without substantial justification. However, even in the absence of an intervention which is denied, courts will allow carriers to appear and dispute allocations which they feel are unjust.

As pointed out by Justice Agnes, the Curry decision amounts to a “strained reading” of § 15. Justice Agnes argued logically that, until the statute was amended to reflect a legislative purpose to the contrary, its clear language should be followed and adhered to. In 2015, House Bill 3457 was introduced into the Massachusetts Legislature proposing to change the language of § 15 by allowing a carrier reimbursement only for “the sum recovered attributed to damage elements for which compensation was paid.” That bill was scheduled for hearing, but never saw the light of day – a clear indication that it wasn’t what the Legislature intended.

The American Insurance Association, a national trade association representing approximately 325 major property and casualty insurance companies, filed an amicus curiae brief in support of the workers’ compensation carrier and so did the National Association of Subrogation Professionals. The Democrats on the Supreme Judicial Court turned a deaf ear to their appeals to a simple reading of the statute. Help may be on the way. Massachusetts uncharacteristically elected a Republican governor in 2014. Governor Charlie Baker will soon have an unprecedented opportunity to shape Massachusetts’ highest court by filling five vacancies on the seven-member court during his first term in office. Subrogation professionals should immediately begin looking for another case to appeal on this same issue.

Gary L. Wickert is a partner with Matthiesen, Wickert, & Lehrer, a national law firm that specializes in subrogation. This column was reprinted with his permission from the firm's blog.