GEORGIA WORKERS' COMPENSATION SUBROGATION
THE NUTS AND BOLTS
By Jeffrey A. Daxe
Robert D. Ingram
Moore Ingram Johnson & Steele LLP
June 10, 2004

I. What Is Subrogation?

Subrogation is the legal term for the process that allows for the recovery of Workers' Compensation benefits by the insurer (or employer if self-insured) if a negligent third party is liable for those benefits. Subrogation usually occurs when an employee (Claimant/Plaintiff) is injured due to the wrongful acts of a third party (not the employer or co-worker), oftentimes a car wreck caused by a third party's negligence. The Workers' Compensation Act, O.C.G.A. § 34-9-11.1, provides that the insurer may recover its lien (the amount it has paid in medical, disability and death benefits) against the claimant (or liable third party in certain circumstances) if the employee is first wholly and completely compensated. Essentially, what this means, is that the insurer only has the right to subrogation recovery when the liable third-party has enough money or insurance coverage to completely compensate the injured employee.

II. How Does it Work?

A. Determine the Likelihood of the Employee Becoming Completely Compensated.
Suppose the injured employee was hurt in a car accident by a third party that ran a red light. The injured employee suffered a broken arm, missed a month of work, and settled the comp claim on a liability basis for $10,000. The Workers' Compensation insurer paid out a total of $20,000 in the settlement, medical benefits, and indemnity benefits; and that would be its total subrogation lien claim.

 

After investigation, it is determined that the liable driver of the car that ran the red light had $100,000 of liability insurance coverage. The employee's total medical specials and lost wages amount to $30,000 (because the total lost wages and bills will exceed the amount paid in workers' compensation benefits due to fee scheduling). Based on these numbers, there is most likely enough available coverage for the injured employee to be completely compensated by the negligent party's insurer. Because there would be enough money ($100,000) to fully compensate the injure employee for all damages ($30,000 plus pain and suffering) this would be a good case for pursuit of subrogation recovery.

B. Negotiate or File Suit.

 

The Workers' Compensation subrogation statute provides the procedural mechanism for presenting a subrogation lien claim. First of all, to give notice of the lien and to protect the lien, it is a good practice to notify the employee, his counsel, the negligent third party, his counsel, and his insurer, of the subrogation lien by certified mail (keep proof of receipt). Then, everyone has notice.

 

Most personal injury claims involve a two year statute of limitation. Both the employee and the insurer therefore have only two years to file suit against the negligent third party to protect their rights. All parties are free to negotiate a settlement without filing suit, and in fact, this is the most common practice. However, if negotiations fail or suit must be filed, the subrogation section of the Act provides the guidelines.

 

In order to file suit on its own behalf against the negligent third party, the insurer must wait one year. That is, the insurer can not file a lawsuit against the negligent third party until waiting one year to allow the employee the right to file the lawsuit first. If the year passes and the employee has not filed suit, then the insurer can file suit against the negligent third party for the recovery of its subrogation lien. The employee can then join in that suit if he so chooses. If the employee files suit against the third party, then the insurer can file a motion to intervene and can join in that suit. So long as a lawsuit has been filed, the insurer can intervene at any time, even before the first year passes. However, intervention or suit are the only true methods to protect one's lien, as simply sending the notice letters are legally ineffective (but do generally provide a sufficient deterrent to the claimant settling the case with the negligent third-party without workers' compensation involvement).

 

Sometimes it takes a very thorough investigation to determine the viability of a subrogation claim. And then, if there is a valid claim, the insurer must decide whether it wants to settle with the employee for a pre-determined amount and sit back and wait on a check; wants to join forces with the employee to share resources in pursuing the claim against the third party whose negligence injured the employee; or join the litigation by intervention but allow the employee's attorney to take the lead role. These decisions turn not only on the quality of representation you feel the employee's attorney can provide, but also how you feel the jury would react if they found out that the employee's bills had already been paid by the insurer.

 

III. Traps to Avoid/Tricks of the Trade.

The most common problem facing subrogation recovery is the "completely compensated" issue. This is a difficult area because there will be many cases where the liability insurance coverage is sufficient to allow for a full recovery, but the facts and circumstances of the case will make that unlikely. The best example of this is a fact pattern where the employee is contributorily negligent. Using the above example, suppose that the employee was speeding at over 80 mph on a city street. The accident occurred in the intersection after the other driver ran the red light. The employee shares the blame because he was driving so fast. In that circumstance, the judge will charge the jury that even if they find the red light runner at fault, they should reduce their award by the percentage they find the employee speeder at fault. Recent caselaw suggest that anytime the employee's award is reduced and he receives less than a full recovery (even if it is because he was partly to blame for his own injuries) then subrogation is likely prohibited.

Another trap for the unwary is settling the comp case on a no-liability stipulation basis. When the comp claim is settled on a no liability basis, the insurer is essentially saying that it is paying money to buy its peace, but nothing in the Compensation Act or its policy of insurance requires that it pay any money to the employee. No cases have decided this issue, but a good argument can be made that only benefits paid pursuant to the Act may be recovered by a subrogation action provided for in the Act. Therefore, when settling on a no-liability basis, be aware that you are probably forgoing subro recovery.

 

A third trap can be created by the employee who settles his tort claim and his spouse's consortium claim for a joint lump sum. When the employee groups his claim with the claim of another, and accepts a lump sum of money without specifying how much money is allocated to the claimant's claim, it is often impossible to argue that the lump sum has fully and completely compensated the employee. Proof is so difficult, because it is impossible to apportion the lump sum settlement into its various subcomponents. If the settlement is $100,000. You can argue that only $5,000 was for the spouse, but the employee can argue that $15,000 was for the spouse. Because these disagreements have no resolution, and the employer has the burden of proof regarding it's subro claim, subro recovery is only marginally successful when multiple party lump-sum settlements are involved. Therefore, if you ever suspect the possibility of a settlement that lumps the money for the employee's claim with the money of another, you should try to negotiate your own agreement with the employee first, which entitled the employer to recover it's lien on a percentage basis depending on the amount of the claimant's overall recovery.

 

Finally, one last trap is the ongoing comp claim when subro is finished. A death case provides the best example. In a death case with minor dependents, benefits will be paid slowly over time. If comp isn't settled, then the benefits can go on for twenty or so years. However, the subro recovery action must be filed before the two year statute of limitations, and that case will likely reach trial within two years of filing. So, in the subro recovery action you are left seeking recovery of only the first four years' worth of benefits - and under the best case scenario you recover every dollar you have spent (minus attorney's fees). However, that recovery is a drop in the barrel compared to the total lifetime exposure - and there is no chance of any recovery after the subro recovery action is concluded. Therefore, in a death or Catastrophic injury case, the only way for subro to provide a hope for a full recovery is to close comp by settling prior to the end of the subro recovery action.

 

IV. Conclusion.

By early analysis and concerted efforts at resolving open workers' compensation claims, a comp carrier or self-insured gives itself the best hope for a significant subrogation recovery with minimal attorney fee expenditure. However, the longer one waits to start the subro process, the higher the chance a claim will be settled lump-sum, other claimants will take any available insurance proceeds from the negligent party, or that crucial evidence will be lost (if the employee doesn't pursue the claim, then the comp carrier would need to have all evidence in support of liability against the third-party). Early intervention also usually makes the subro lienholder a player along with the other parties in settlement discussions; which is always of benefit when trying to recovery on these claims.

From a policy standpoint, subrogation is generally frowned upon by the courts because it is often viewed as taking money from the injured party, and instead giving it to an insurance company or a self insured corporation. Accordingly, the appellate courts of this state have narrowly construed the statute making it increasingly difficult for employers to prevail in subrogation actions. Recognizing these problems, Moore Ingram Johnson & Steele advises it's clients to investigate subrogation recovery actions early, and use the threat of intervention into the employee's tort action as a means of negotiating an agreement allowing the employer to recover on a percentage basis depending upon the amount of recovery which the injured employee ultimately receives by either verdict or settlement. We have found this strategy dramatically reduces attorney fees, and provides the employer with its best chance of receiving a favorable return on the money it spends in pursuing subrogation recovery.

 

Jeff Daxe is a litigation partner at Moore Ingram Johnson & Steele, specializing in workers' compensation subrogation, employment law, and complex business litigation. Robert Ingram is a partner at Moore Ingram Johnson & Steele, specializing in civil litigation with emphasis in workers' compensation, liability and commercial litigation.