ILNews

DTCI: Worker's comp liens in third-party suits

Back to TopE-mailPrintBookmark and Share

DTCI-Das-SoniaOn May 27, 2010, the Indiana Supreme Court issued a decision that has affected the manner in which worker’s compensation liens are handled in third-party litigation. In The Travelers Indemnity Co. of America v. Jarrells, 927 N.E.2d 374 (Ind. 2010), Jarrells sustained a serious injury that arose out of and in the course of his employment with LeMaster Steel Erectors, a subcontractor on a construction site. Travelers, the employer’s worker’s compensation carrier, paid benefits in excess of $66,000 to Jarrells or on his behalf. Jarrells filed a civil suit against another subcontractor and the general contractor on the construction site for the same accident for which he received worker’s compensation benefits.

Pursuant to Indiana Code § 22-3-2-13, there was no dispute that Travelers held a statutory lien for worker’s compensation benefits paid. That statute states, in part:

Whenever an injury or death, for which compensation is payable under chapters 2 through 6 of this article shall have been sustained under circumstances creating in some other person than the employer and not in the same employ a legal liability to pay damages in respect thereto, the injured employee, or his dependents, in case of death, may commence legal proceedings against the other person to recover damages notwithstanding the employer’s or the employer’s compensation insurance carrier’s payment of or liability to pay compensation under chapters 2 through 6 of this article. In that case, however, if the action against the other person is brought by the injured employee or his dependents and judgment is obtained and paid, and accepted or settlement is made with the other person, either with or without suit, then from the amount received by the employee or dependents there shall be paid to the employer or the employer’s compensation insurance carrier, subject to its paying its pro-rata share of the reasonable and necessary costs and expenses of asserting the third party claim, the amount of compensation paid to the employee or dependents, plus the medical, surgical, hospital and nurses’ services and supplies and burial expenses paid by the employer or the employer’s compensation insurance carrier and the liability of the employer or the employer’s compensation insurance carrier to pay further compensation or other expenses shall thereupon terminate, whether or not one (1) or all of the dependents are entitled to share in the proceeds of the settlement or recovery and whether or not one (1) or all of the dependents could have maintained the action or claim for wrongful death.
(Emphasis added).

The statute further states:

If the injured employee or his dependents shall agree to receive compensation from the employer or the employer’s compensation insurance carrier or to accept from the employer or the employer’s compensation insurance carrier, by loan or otherwise, any payment on account of the compensation, or institute proceedings to recover the same, the employer or the employer’s compensation insurance carrier shall have a lien upon any settlement award, judgment or fund out of which the employee might be compensated from the third party.
(Emphasis added).

Jarrells notified Travelers of the civil action he filed. (Ind. Code § 22-3-2-13 also requires the employee or his dependents to notify the employer or the employer’s compensation insurance carrier of an action against a third party, within thirty days after the action is filed.) When Travelers learned of Jarrells’ civil suit, it notified Jarrells of the amount of its lien, but it did not intervene in Jarrells’ civil suit. (Ind. Code § 22-3-2-13 specifically grants the employer, within ninety days after receipt of notice of suit from the employee or his dependents, the right to join in the action upon motion to the court so that all orders of the court after hearing and judgment shall be made for his protection. Interestingly, although Ind. Code § 22-3-2-13 specifically mentions rights of the employer’s compensation insurance carrier in all other respects, the statute is silent as to whether the right to join the third-party action is also available to the employer’s compensation insurance carrier.) At trial, Jarrells presented evidence of the worker’s compensation benefits paid and testified that if he recovered in the lawsuit, he might have to repay Travelers for payments it made.

In Jarrells, the trial court gave the following jury instruction, which closely mirrored the pattern jury instructions:

If you find that Jerry Jarrells is entitled to recover, you shall consider evidence of payment made by some collateral source to compensate Jarrells for damages resulting from the accident in question. In determining the amount of Jarrells’ damages, you must consider the following type of collateral source payments:

Payments for worker’s compensation

In determining the amount received by Jarrells from collateral sources, you may consider any amount Jarrells is required to repay to a collateral course and the cost to Jarrells of collateral benefits received. Jarrells may not recover more than once for any item of loss sustained.

(Emphasis added). The final instruction on collateral-source payments did not explicitly and unmistakably state that any award will be deemed to include a set-off for worker’s compensation payments, such that Jarrells need not make a separate repayment of that benefit to Travelers from his award.

Following trial, a jury returned a verdict of $925,000 for Jarrells, which was reduced to $508,750 for comparative fault. In Jarrells, the jury did not specifically indicate whether its award included the amount Jarrells might be required to repay to Travelers.

After Jarrells notified Travelers of the judgment, Travelers demanded repayment of a reduced amount of worker’s compensation benefits paid (reduced to account for comparative fault), less a pro rata share of Jarrells’ attorneys’ fee. Jarrells refused to pay Travelers, claiming that the jury had already reduced the award by the amount of the worker’s compensation benefits and that the award should not be further reduced after judgment. Travelers argued that the jury had fixed damages on the assumption that Jarrells would have to repay Travelers out of the proceeds of the judgment.

Travelers then sought relief from the trial court. The trial court determined that requiring Jarrells to repay Travelers for worker’s compensation benefits paid would impose a double set-off on the recovery because the jury had already deducted the worker’s compensation benefits from the gross award. Travelers appealed, and the court of appeals reversed with instructions to enter judgment for Travelers and to determine the value of the lien. The employee then appealed that decision to the Indiana Supreme Court.

In its decision, the Indiana Supreme Court addressed the interplay of the collateral source payment statute (Ind. Code § 34-44-1-1) and the worker’s compensation lien statute (Ind. Code § 22-3-2-13). The collateral source rule places limitations on the type of evidence a plaintiff in a personal injury action may present concerning payments received from sources other than the defendant. The purpose of the rule is to allow the fact finder to make an accurate assessment of the plaintiff’s “pecuniary loss” and to prevent a party from recovering more than once for each item of loss sustained. Id. at 376. At the same time, the collateral source payment rule allows presentation of evidence of worker’s compensation benefits “to establish proof of money that the plaintiff is required to repay.” Id. at 376-77. Repayment, as Travelers’ argued, was required by Indiana Code § 22-3-2-13. Considering the purpose of the collateral source payment rule, the Supreme Court found that “[i]f the jury is to consider evidence of collateral course payments such as worker’s compensation that the plaintiff is required to repay, the only plausible interpretation of these provisions is that the jury should include the amount of any collateral source payments that the plaintiff is required to repay in its award to the plaintiff.” Id. at 377 (emphasis added). Likewise, if there is no obligation to repay, the jury should not include the amount of collateral course payment in its award. Thus, it would appear that the Supreme Court agreed with the decision reached by the court of appeals.

However, the Indiana Supreme Court affirmed the original decision of the trial court in favor of Jarrells and against Travelers. In doing so, the court acknowledged that it was not apparent from the jury award whether the jury intended for Travelers to be repaid or if the jury reduced the total award by the amount that Travelers had paid in benefits, so that Jarrells would not recover twice. The court concluded that the trial court was in the best position to determine the intent of the jury. Further, there was no evidence on the amount Jarrells would be required to repay to Travelers, and there was no instruction as to the rules governing the calculation. Thus, the court found that a jury could not have determined how much to add to the judgment if it wanted to provide for Jarrells’ repayment to Travelers as opposed to “considering” it by eliminating from its award the damages already covered by worker’s compensation benefits. Id. at 379.

In so finding, the Indiana Supreme Court also held that the pattern jury instruction used in Jarrells should not be used in future trials. Id. at 377. One way clarification can be obtained is to add language that would specifically instruct the jury to include in the total damages awarded those collateral source payments subject to repayment obligations, such as worker’s compensation. Other options are also available to help eliminate the ambiguity in the current instruction. Revised jury instructions should offer the jury no opportunity to exclude from its award amounts that are subject to a statutory repayment obligation. To do so would allow the jury, rather than the court, to decide which law applies. If jurors could decide whether a worker’s compensation carrier should receive what is a statutory right to repayment, the result could potentially have a punitive effect on carriers providing benefits to injured workers, if the carriers are infrequently or inconsistently awarded reimbursement. Another unwanted result if the carriers are infrequently or inconsistently awarded reimbursement of benefits paid may be that fewer carriers will offer compensation insurance or that carriers will increase compensation insurance premiums to account for the risk that repayment of a statutory lien may be not granted.

A lesson to be learned from Jarrells for worker’s compensation defense attorneys and worker’s compensation insurance carriers is that it may not be enough merely to notify counsel pursuing a third-party claim of the right to workers’ compensation benefit reimbursement out of any recovery. Insurers may wish to intervene in civil suits (to the extent such right exists under Indiana Code § 22-3-2-13), particularly where the lien is sizeable, to ensure that the lienholder’s interests are represented or protected in civil proceedings, before a judgment is rendered.

The Civil Jury Instructions Committee has revised all jury instructions. Practitioners should look for the revised pattern collateral source instruction (and other instructions) to be published this fall and should analyze how the new instruction affects worker’s compensation benefit reimbursement.•

Ms. Das is a partner at Lewis Wagner, LLP, in Indianapolis and chairs the DTCI Worker’s Compensation Section. The opinions expressed in this article are those of the author.

ADVERTISEMENT

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. I grew up on a farm and live in the county and it's interesting that the big industrial farmers like Jeff Shoaf don't live next to their industrial operations...

  2. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  3. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  4. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  5. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

ADVERTISEMENT