Wickert: Court Allows Subrogation Reimbursement From Employer for Intentional Act

Wednesday, June 14, 2017 | 0

Words matter.

Gary Wickert

On May 22, 2017, the Ohio Court of Appeals paid attention to the specific wording in the Workers’ Compensation Act and ignored the traditional definition given to the term “third party” in workers’ compensation subrogation settings.

In McKinney v. Omni Die Casting Inc., 2017 Ohio – 2949 (Ohio App. 2017), it held for the first time that a workers’ compensation carrier can seek reimbursement of benefits it has paid to an injured employee out of a “third party” tort recovery the employee receives from his or her employer based on an intentional act of the employer.

As a result, Ohio joins a small minority of states that allow subrogation and/or reimbursement from a tort recovery received by the employee from an employer that has committed an intentional act.

In every state, including Ohio, an employer is immune from suit for work-related accidents, thanks to the exclusive remedy rule. This rule immunizes the employer and leaves the employee with only a claim for workers’ compensation benefits.

Exceptions to the exclusive remedy rule exist in many states, some based on intentional acts, others on gross negligence and when a machine guard is removed. In Ohio, an employer can be liable in tort to an employee under § 3745.01 when the employer commits an “intentional tort.” The burden of proof is stiff, as the employee has to prove that the employer committed the act with the intent to injure and with the belief that the injury is “substantially certain” to occur.

In McKinney v. Omni Die Casting Inc., Zachary McKinney was injured while working on an aluminum die casting machine. McKinney filed a workers’ compensation claim and was paid $224,274.85 in benefits by the Bureau of Workers’ Compensation.

Ohio is one of the four monopolistic workers’ compensation programs in the country. (The others are North Dakota, Washington and Wyoming). It is a state agency, the BWC, rather than private carriers that insures the employers who are not self-insured.

McKinney filed an intentional tort claim against Omni, alleging spoliation and fraud against Omni and its vice president, Derek Lidderdale. The BWC filed a motion to intervene for subrogation. McKinney argued R.C. §§ 4123.93 and R.C. 4123.931 are not applicable in intentional tort cases and that Omni was not a statutory “third party” pursuant to the subrogation statutes. The trial court denied the intervention, and the BWC appealed.

On appeal, the BWC argued that Omni (the employer) was a “third party” and that it had a right to reimbursement. McKinney claimed Omni was not a “third party.” The Court of Appeals held that Omni was a “third party” and reversed the trial court’s order.

In setting forth the rationale for its decision, the court stated that § 4123.931 alone creates and defines the BWC’s rights of subrogation and reimbursement for payments of benefits in workers’ compensation claims. Under § 4123.931, the payment of workers’ compensation benefits:

"… creates a right of recovery in favor of a statutory subrogee against a third party, and the statutory subrogee is subrogated to the rights of a claimant against that third party. The net amount recovered is subject to a statutory subrogee’s right of recovery."

Section 4123.93(C) defines “third party” as an:

"… individual, private insurer, public or private entity, or public or private program that is or may be liable to make payments to a person without regard to any statutory duty contained in this chapter."

Section 4123.931(I) provides that the statutory subrogation right of recovery:

"… applies to, but is not limited to, all of the following … (3) amounts recoverable from an intentional tort action."

Therefore, the court reasoned, the BWC (and arguably any workers’ compensation carrier subrogating under the Ohio Workers’ Compensation Act) will be entitled to subrogation against and/or reimbursement from an employer whose intentional acts result in a compensable injury to an employee.

Notwithstanding the McKinney decision, in ordinary workers’ compensation parlance, the term “third party” has historically implied that the employee is the “first party,” the employer is the “second party" and anybody else who might be liable would constitute the “third party.” With that said, the Court of Appeals followed the rather specific language of the Ohio statute rather than legislating from the bench. Whether the Ohio legislature amends the statute to clarify that the employer is not a “third party” remains to be seen.

Workers’ compensation claims professionals and subrogation practitioners should be alert to their rights of recovery in Ohio when an employee recovers from the employer itself.

Gary Wickert is a partner with the Matthiesen, Wickert & Lehrer law firm in Hartford, Wisconsin. This blog post is reprinted with permission.