Intro to Subrogation Law in Workers' Compensation Context
- Subrogation Basics;
- Who Is the Subrogor or Subrogee?
- Whether To Become a Party Or Lien Claimant
- Where To Look For Subrogation Potential
- Common Incidents/Injuries Involving Potential Subrogation
- Importance of & How to Preserve Evidence
- Barriers to Subrogation
Workers' Compensation Subrogation BasicsSubrogation rights arise the worker's injury is caused by a 3rd party (not the employer or co-worker) and someone other than the person or party at fault pays damages resulting therefrom (e.g., the injured worker's employer.)
The injured worker (known as a "claimant" in subrogation) is injured and the employer or carrier pays for medical or indemnity benefits and then seeks reimbursement from the at fault third party defendant
Cal. Labor Code Sections 3850 through 3865 governs wc subrogation - which says an insurance carrier can only recover on benefits paid that were not the result of the employer's negligence.
Employer and employee sue third party defendant; Jury verdict is against defendant in the amount of $300,000; Jury finds employer 1/3 at fault; Jury finds employee 1/3 at fault; Jury finds third party 1/3 at fault; Carrier can only recover any sums paid over the first 66% (2/3) of the $300,000 - no money back until carrier pays over $200,000. So, if the carrier only paid $90,000 they recover zero.
Who Is the Subrogor or Subrogee?Subrogation means one person or party stands in the place of another. For purposes of the carrier's subrogation rights: Employer = Subrogor; Subrogee is the wc carrier; Another way to say this is: The party whose debt has been paid (usually an insured), is known as the "subrogor", while the party who has paid the debt (usually the insurance company), is known as the "subrogee". Enforcement of rights of subrogation means the carrier or the self-insured employer files a lawsuit/complaint against the responsible third party. If the injured worker files suit before the carrier or employer, then the carrier or employer is entitled to file as follows: a concurrent (separate) lawsuit (if the SOL has not run) against the responsible party to seek reimbursement for compensation paid to or on behalf of the injured worker; or join that suit (intervention in state court/joinder in federal court); If two suits are filed you will want to consolidate to share costs of litigation
Whether To Become a Party Or Lien Claimant OnlySee if you need to intervene in or join a pending case already filed; perform a search on the court website in the county of accident or county where the injured worker resides using the injured workers' name; if you find an ongoing case you need to intervene or file a lien in that case. If you are merely a lien claimant you can't participate actively in the case; If you want toactively participate in the case and discovery or guide discovery and settlement negotiations - then file suit or intervene/join, if not, ride coattails of claimant's counsel. Lien claimants can't participate in motions, discovery, trial and may be settled around. Claimant has to prove his damages but can't submit medicals and indemnity he was paid for by carrier/employer as part of his damages claim - no double recovery; if you get lucky and get a default judgment - taking a default judgment is not the end of the battle - you then have to perfect your rights to collect and enforce judgment by: Completing steps to record judgment lien? Getting and serving the defendant with a court order demanding that defendant submit to oral deposition (ORAP) as to assets available for payment of the judgment? Taking the deposition for assets information.
Where To Look For Subrogation PotentialPotential third-party involvement can be found in the following sources: Employer's and Doctor's First Reports of Injury; Employee and Supervisor Reports of Injury; Traffic Collision reports; Statements of employee and/or witnesses;Photos of warning signs in area where incident occurred or on machinery; Manuals and warnings issued by manufacturer or seller of products to the purchaser/employer or third party defendant; ; Subsequent injury to same body part in non-industrial accident; ; Key is to ask the right questions when speaking with employer, employee, witnesses. When you get the file initially ask yourself who caused the accident and if it is someone other than the employer or employee or if it is a product or thing, then you have subrogation potential. Potential means you still have to determine if it is worth the cost of litigation to recover the lien amount - factors that go into that include amount of lien, risk of employer or employee being held comparatively negligent or partly liable, litigation costs, how much of a fight you expect from third party defendant, difficulty in proving liability of third party such as witness or evidence availability. The case information may change as you further investigate and new subrogation potential may be revealed later in the case or you may decide to dismiss the case - you can avoid this usually by asking the right questions early on.
Common Incidents/Injuries Involving Potential Worker's Compensation Subrogationvehicle accidents, shipping/cargo accidents/damage; slip, trip and fall due to defective premises, dangerous condition on premises; employee hit by flying object or struck by piece of equipment; defects in machinery, safety guards/switches/protection or other products; negligent installation and repairs by third parties; negligent/defective construction, repair, maintenance; failure to warn; manufacturing defects; design defects; strict product liability (looks at the product to see if inherently dangerous); involvement of dangerous chemicals or other substances (e.g., asbestos, lead, food contamination/poisoning); subsequent non-industrial injury to same body part as industrial injury
Importance of & How to Preserve EvidenceBefore any lawyer is involved, the claims person is key in getting the evidence from the employer, employee, scene and should tell the insureds in advance how to handle evidence gathering and protection of scene/evidence at time of incident so your attorney has it to use in negotiation or trial: Documents - e.g., driver's licenses, safety manuals, training manuals, policies and procedures manuals, contracts, other licenses and certifications, product or property rental agreements/leases/bailments, additional insured endorsements/certificates, insurance declarations pages, identity of third party carrier and policy limits; Identify repair persons who handled repairs and/or maintenance on mechanism of injury prior to date of incident and records showing when they last repaired the item (if in employer's files get them early on); Is your insured a staffing agency with a special/general employment relationship with the employer where the claimant was working when injured ? If so - get that contract for indemnity provisions, rights, obligations - find out who controlled the work performed. Photos; Statements from employee, witnesses and employer; Manuals; Contracts; property owner, general and subcontractor information; leases; Safety meeting sign-in sheets; Certifications of operators of heavy equipment; Safety training manuals or course completion certificates; Actual pieces of the mechanism of injury - such as: The vehicles involved - often means you have to pay for storage of vehicle since third party carrier or auto carrier will want to sell for salvage value and it will be destroyed and unavailable for expert inspection; contaminated food (here it must be refrigerated immediately so defense can't claim it is not good evidence b/c spoliation occurred after injury); defective machine, equipment or parts - get them now - people change things around; ; photos at time of incident because these items can be altered.
Recovery/Reimbursement/CreditHotly disputed area - none of the fifty states' laws enunciate precisely which payments or costs paid by a compensation carrier constitute "compensation" that is recoverable. The result is an ongoing debate over what can and can't be included in a carrier's lien for recovery purposes. Most judges in California do NOT allow med-legal, case management, UR (or attorney fees unless by contract)
Cal. Labor Code Sec.3852 states: Any employer who pays, or becomes obligated to pay compensation, or who pays, or becomes obligated to pay salary in lieu of compensation; or who pays or becomes obligated to pay an amount to the Department of Industrial Relations pursuant to Section 4706.5, may likewise make a claim or bring an action against the third person. In the latter event, the employer may recover in the same suit, In addition to the total amount of compensation, damages for which he or she was liable including all salary, wage, pension, or other emolument paid to the employee or to his or her dependents. Cal. Labor Code Section 3856(c) provides: The workers' compensation carrier is entitled to recover in the same third party lawsuit with the employee, the total amount of its expenditures for "compensation" and any other special damages, such as salary, wage, pension or other emolument paid to the employee. California Labor Code Section 3207 defines "compensation" as:
"[C}ompensation under this division and includes every benefit or payment conferred by this division [Division IV - Cal Labor Code Sections 3200 et seq] upon an injured employee, or in the event of his or her death, upon his or her dependents, without regard to negligence." Clearly allowed: medical and hospital expenses (Cal. Labor Code Sections 4600-4608) - disability payments for lost wages/loss of earning capacity (i.e., salary in lieu of compensation) (Cal. Labor Code Sec.4650-4663) ;death benefits, funeral costs (Cal. Labor Code Sec. 4700-4709) Section 4706.5 sums to DIR (death of worker with no survivor entitled to dependency benefits);resulting from a compensable injury;Gray area your attorney will argue for but may not be able to win:case management costs/medical-legal expenses (Cal. Labor Code Sec 4620-4628) - arguably recoverable as the use of such process is now mandated by California law. Cal. Labor Code Sec. 4610, such as:medical bill audit fees;nurse caseworker fees;copying costs (one judge in Torrance allowed this for one set of medicals and indemnity documentation only and multiple parties);Also in gray area:interest (Cal. Labor Code Sec. 5800). rehabilitation benefits (Cal. Labor Code Section 4635-4647), penalties - arguably recoverable as mandated by Division IV (Cal Labor Code Section 3200 et seq. NOTE: California law does not directly support recovery of these gray area items because they are not a "benefit" or "payment conferred on an injured employee" or paid to the employee and thus judge may not allow; but - the Code does require mitigation of damages, and one Court of Appeals decision does allow a plaintiff to recover the cost of mitigation efforts as a recoverable item of damages. Kleinclause v. Marin Realty Co., 94 Cal. App.2d 773 (1949).not binding
Barriers To Subrogation RecoveryBARRIERS TO SUBROGATION:
1) Employer/employee negligence can limit or preclude recovery; 2) Statute of Limitation;3) Size of lien small compared to cost of litigation; 4)The Privette Doctrine, Padilla case and Seabright case and their progeny; 5) a signed contract between a staffing agency and its client creating a general/special employer relationship barring suit under Cal. Ins. Code Section 11663.