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Supreme Court Decision Does Significant Damage to Work Comp Subrogation

By Gary Wickert

Tuesday, May 9, 2017 | 832 | 0 | 0 min read

In Nevada, when a workers’ compensation carrier is subrogated to the rights of the worker under § 616C.215(5), the carrier has a lien on the “total proceeds” of any third-party recovery.

Gary Wickert

Gary Wickert

 This is true whether the recovery is by way of judgment, settlement or otherwise. The statute is very clear on this point. For years, this meant that the carrier was entitled to subrogation and/or reimbursement from any third-party recovery, regardless of the elements of damages recovered. This is because courts are bound by the statutory language which gives the carrier a subrogation interest in the “total proceeds.” Breen v. Caesar’s Palace, 715 P.2d 1070 (Nev. 1986). In 1986, the Supreme Court issued a strong decision in Breen, which was likewise very clear on this point. Unfortunately, politics and judicial activism have appeared on the Nevada horizon as of late, putting this clear announcement in Breen and the clear dictate of the Nevada legislature into some question.

In what seems like a decision out of Bizarro World, on April 7, the Nevada Supreme Court in Poremba v. Southern Nevada Paving, 2017 WL 396094 (Nev. 2017) issued an opinion that minimized the value of a workers’ compensation carrier’s future credit after a third-party settlement or recovery. In every other state that provides for a future credit upon settlement of a third-party case, the carrier is relieved from making future medical or indemnity benefit payments until every cent of that recovery has gone to paying medical expenses or indemnity benefits that workers’ compensation would have paid but for the recovery and the resulting credit. As of April 7, this appeared to no longer be the case in the Sagebrush State.

In Poremba, the Nevada Supreme Court allowed the claimant’s “personal living expenses, such as mortgage payments and food for his family,” to reduce the future credit. The court said that Employers Insurance Co. of Nevada v. Chandler, 117 Nev. 421, 23 P.3d 255 (2001) did not specify how the claimant may exhaust the settlement funds. In essence, this allows the claimant to reduce the future credit by buying things. This is completely the opposite of how the statute anticipates the future credit working. According to the statute, the future obligation of the carrier (to pay medical and indemnity benefits) is reduced by the net amount of the third-party recovery. The statute doesn’t mean that the credit lasts until the employee has blown through his money. It means that the credit lasts until amounts spent by the claimant for things that the injured employee or his dependents are entitled to receive pursuant to the Workers’ Compensation Act exceed the amount of the credit.

The injured employee is not entitled to “personal living expenses, such as mortgage payments and food for his family,” under the Nevada Workers’ Compensation Act. Therefore, the credit should not be exhausted by paying for such things. The credit should be reduced only by any indemnity benefits and medical expenses related to the compensable injury that the employee would have been entitled to receive but for the future credit. Just because the employee’s personal living expenses exceed the amount of any indemnity benefits the employee would be receiving but for the settlement and the credit, it shouldn’t fall in the lap of the workers’ compensation carrier. The Supreme Court disagreed.

On Jan. 26, the Nevada Supreme Court reconsidered en banc its earlier decision in Poremba. It issued a new opinion which superseded its 2016 opinion. Poremba v. S. Nev. Paving, 369 P.3d 357 (Nev. 2016), reh’g denied (May 26, 2016), opinion superseded on Reconsideration by Poremba v. Southern Nevada Paving, 2017 WL 396094 (Nev. 2017).

Like its earlier decision, the 2017 en banc decision reversed and remanded the case to district court with instructions to hold a new hearing to determine:

“…what, if any, reimbursement an insurer is entitled to before it must provide additional workers’ compensation benefits; and (2) although an insurer may be entitled to reimbursement from the portion of settlement funds designated for expenses otherwise covered by workers’ compensation, an insurer is not entitled to reimbursement from the portion of settlement funds designated to compensate the injured worker for items outside the definition of “compensation” in NRS 616A.090, such as past, present, and future pain and suffering.”

This new announcement is a departure from the language of § 616C.215(5), which clearly provides that the carrier “has a lien upon the total proceeds of any recovery from some person other than the employer, whether the proceeds of such recovery are by way of judgment, settlement or otherwise.” Particularly troubling, not to mention confusing, in the en banc opinion is the following sloppy statement:

“We agree with the Tobin court and hold that because workers’ compensation insurance never compensates the injured worker for pain and suffering, an insurer is not entitled to reimbursement from any of the settlement funds that were designated for pain and suffering, or any other expense beyond the scope of workers’ compensation defined in NRS 616A.090.”

The Tobin v. Department of Labor & Industries, 187 P.3d 780 (Wash. Ct. App. 2008) decision referred to is a Washington Court of Appeals decision. This limitation on a workers’ compensation carrier’s reimbursement and subrogation rights appears to have been imported from another state, instead of following its own 1986 Supreme Court decision in Breen, in which the court minced no words when it stated that:

The prevailing rule in the United States has been to allow an employer to reach an entire award or settlement even where the non-economic damages have been segregated and identified…In interpreting their state workers’ compensation statutes, other courts have been influenced by language in the statute permitting the employer a subrogation right in the “total” proceeds. The Arizona Supreme Court held that an insurer’s lien extended to the employee’s entire third-party recovery, including items not covered by workers’ compensation, because the statute speaks of “total recovery.”… We similarly conclude that we are bound by the statutory language which gives an insurer a subrogation interest in the “total proceeds.” It is the legislature’s prerogative, not this court’s, to correct any injustice occasioned by a literal reading of the statute. The rules of statutory construction which enabled us to liberally construe NRS 616.560 with respect to the payment of pre-malpractice medical expenses and attorney’s fees and costs are not applicable here. With respect to this issue, there is no room for statutory interpretation; the language of the statute is plain and no legislative purpose would be served by deviating from the literal language. Breen v. Caesar’s Palace, 715 P.2d 1070 (Nev. 1986).

The new Poremba decision doesn’t even contain a reference to the court’s clear ruling on this issue in Breen. They seemingly pretend it doesn’t exist. It is unclear if this new “economic damages” limitation on reimbursement rights is applicable only to the calculation of a future credit or to past lien reimbursement rights as well. After confusing everybody with this statement, the court then moved on to the main holding in the case – because Chandler did not limit how the employee may exhaust settlement funds in order to reduce the carrier’s future credit, and, therefore, ruled that the future credit can be exhausted on family expenses, buying food, etc.

The Supreme Court in Poremba wasn’t done inflicting damage on carriers’ rights of subrogation in Nevada, however. It went on to say that, because the record was silent as to how Poremba’s settlement was to be allocated beyond the amount spent directly on medical expenses, it ordered the appeals officer to conduct an evidentiary hearing in which the parties may present evidence and call witnesses with regard to the settlement proceedings so that the appeals officer can make a factual determination as to how the remainder of the settlement was to be allocated and may only order reimbursement from the portion of the settlement allocated for expenses within the scope of workers’ compensation. It announced that, from this point forward, parties can expressly designate how settlement funds are to be allocated so that future evidentiary hearings are not necessary. This is a direct and undisguised green light to plaintiffs’ attorneys to gerrymander settlements by unilaterally disguising large portions of a settlement as non-economic damages which the Supreme Court now appears to be claiming are not subject to the carrier’s right of subrogation and/or reimbursement. Interestingly, Nevada’s Supreme Court justices are elected on a “non-partisan” basis.

This new decision underscores the absolute necessity of having active subrogation counsel involved in every step of a Nevada workers’ compensation subrogation claim. 

Gary Wickert is a partner with Matthiesen, Wickert & Lehrer in Hartford, Wisconsin. This column was reprinted with permission from the firm's blog.

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