Ala. Supreme Court Clarifies Work Comp Subrogation

Saturday, August 11, 2007 | 0

Alabama has a workers' compensation subrogation statute, which, at first blush, appears to be no different from the statues of many states.

Alabama Statute Section 25-5-11 provides that when an injury or death is caused "under circumstances also creating a legal liability for damages on the part of any party other than the employer," the worker can pursue workers' compensation benefits and simultaneously bring a tort action against the third party.

If damages are recovered in such a third party action, the workers' compensation carrier is entitled to be reimbursed for the amount of benefits paid in the past, including medical and vocational benefits paid by the carrier.

Recently, the carrier's right to recover benefits has been called into question. Section 25-5-11 reads, in pertinent part, as follows:

"... the employer shall be entitled to reimbursement for the amount of compensation theretofore paid on account of injury or death."

"The employer shall be entitled to subrogation for medical and vocational benefits expended by the employer on behalf of the employee."

In the statute above, the dispute over the carrier's right of recovery hinged on the difference on the words "reimbursement" and "subrogation." Before 1992, Section 25-5-11 allowed reimbursement only for "compensation," which the Alabama Supreme Court had concluded did not include medical expenses. Liberty Mutual Ins. Co. v. Manasco, 123 So.2d 527 (Ala. 1960). Therefore, although an employer could be reimbursed for any workers' compensation benefits or death benefits, it could not be reimbursed for medical benefits expended to care for the injured employee.

As a response, the Alabama Legislature amended the Act to provide for the reimbursement of compensation and benefits, but gave the employer only a right for "subrogation" for medical and vocational benefits. The use of the two terms "reimbursement" and "subrogation" was picked up on by plaintiff's attorneys looking for ways to avoid repayment of workers' compensation subrogation interests.

"Reimbursement" is generally the right to recover out of any third party recovery, monies which have been paid as workers' compensation benefits. However,"subrogation" refers to the legal right to pursue a third party responsible for injuries resulting in the medical and vocational benefits paid by the carrier.

Plaintiff's attorneys picked up on this language resulting in the 2007 Alabama Supreme Court decision of Trott v. Brinks Inc., 2007 WL 1300734 (Ala. 2007).

The case involved an employee's widow who brought a wrongful death action against a seatbelt manufacturer, alleging the seatbelt's failure caused her husband's injuries in a work-related truck rollover.

The workers' compensation carrier, Liberty Mutual, intervened in the federal court in which the suit was pending alleging an entitlement to be reimbursed for all of the benefits it had paid.

Liberty Mutual paid $415,098 in medical expenses as a result of the injury and death of the deceased employee, Ronald Trott. Liberty Mutual claimed that it was entitled to be reimbursed for both death benefits and medical expenses paid to Mrs. Trott from any amount recovered in the third party action.

Mrs. Trott agreed with regard to reimbursement of the death benefits (subject to a pro rata share of attorney's fees), but disputed the right of reimbursement for medical benefits paid on behalf of Mr. Trott before he died. Mrs. Trott and her attorneys maintained that recovery for medical expenses in a wrongful action is inconsistent both with the wording of Section 25-5- 11, and with the principles of subrogation.

In Alabama, the only recoverable damages in a wrongful death case are punitive damages intended to punish the tortfeasor for its actions, not to compensate the plaintiff.

They argued that medical expenses, such as those Liberty Mutual sought to recover, were compensatory in nature and were not recoverable by a plaintiff in a wrongful death action. Mrs. Trott and her attorneys argued that because she, as the representative of Ronald Trott's estate, could not recover damages from the third party for medical expenses, Liberty Mutual couldn't either.

Liberty Mutual argued that the workers' compensation subrogation statute gave it the right to be reimbursed out of any third party recovery, those benefits it paid on behalf of the worker.

The federal court certified the question for the Alabama Supreme Court, and the court rendered its decision on May 4, 2007.

The Alabama Supreme Court strictly construed the language of the statute. It held that an employer has a right to "reimbursement" of compensation and benefits.

As far as medical benefits are concerned, the statute clearly states something different. The court held that the employer only has the right to "subrogation" for medical and vocational benefits, and that the use of the two different terms -- reimbursement and subrogation -- is a distinction that they believe has a meaning. Therefore, because subrogation involves "stepping into the shoes" of the insured, and the insured in this case did not have the right to recover medical expenses, then neither did Liberty Mutual.

On the other hand, "reimbursement" is a broader term which implicates a simple repayment or indemnification. The court concluded that an employer is not entitled to be reimbursed for medical benefits from amounts recovered from a third party in a wrongful death action filed by an employer/decedent's personal representative.

Unfortunately, the Alabama Supreme Court assumed that the legislature, made up of primarily lay persons and non-lawyers, knew or fully understood the difference between reimbursement and subrogation.

While these terms are used interchangeably and conflated among the small percentage of the general population who understands the terms, in a strictly legal sense, they are different.

Rather than uphold the public policy behind the workers' compensation subrogation statute and allow recovery of medical expenses paid in a wrongful death action, the court tried to find a way to help the widow of the deceased employee, and as a result, has saddled us with bad and rather questionable subrogation precedent.

The legislative intent of Section 25-5-11 was to ease the burden of expense to the employee in bringing the third party action, to allow reimbursement of the carrier to hold down the cost of workers' compensation insurance to the employee public, and to ensure that someone other than the employer/carrier who is responsible for the injuries, bears the burdens of those injuries. Southern v. Plumb Tools, 696 F.2d 1321 (11 Cir. 1983) (Alabama was in the 11th Circuit in 1983).

The Supreme Court decision in Trott v. Brinks Inc. exponentially increases the cost of workers' compensation in cases of injuries resulting in deaths.

Either, the Legislature must amend its wrongful death statute to allow for recovery of medical expenses when a subrogated workers' compensation carrier brings the action, or, the Alabama Supreme Court must realize that the Alabama Legislature did not know the difference between subrogation and reimbursement when Section 25-5-11 was amended.

In fact, there is no rational basis for allowing reimbursement of one form of benefit payments, and only the lesser subrogation rights for recovery of the other. Anyone writing insurance and subrogation is urged to contact their legislators and lobby for either of these changes in order to remedy this defective and erroneous Supreme Court decision.

This column first appeared in the July newsletter for the clients of Matthiesen, Wickert & Lehrer, S.C.

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