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

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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.

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  1. A traditional parade of attorneys? Really Evansville? Y'all need to get out more. When is the traditional parade of notaries? Nurses? Sanitation workers? Pole dancers? I gotta wonder, do throngs of admiring citizens gather to laud these marching servants of the constitution? "Show us your billing records!!!" Hoping some video gets posted. Ours is not a narcissistic profession by any chance, is it? Nah .....

  2. My previous comment not an aside at court. I agree with smith. Good call. Just thought posting here a bit on the if it bleeds it leads side. Most attorneys need to think of last lines of story above.

  3. Hello everyone I'm Gina and I'm here for the exact same thing you are. I have the wonderful joy of waking up every morning to my heart being pulled out and sheer terror of what DCS is going to Throw at me and my family today.Let me start from the !bebeginning.My daughter lost all rights to her 3beautiful children due to Severe mental issues she no longer lives in our state and has cut all ties.DCS led her to belive that once she done signed over her right the babies would be with their family. We have faught screamed begged and anything else we could possibly due I hired a lawyer five grand down the drain.You know all I want is my babies home.I've done everything they have even asked me to do.Now their saying I can't see my grandchildren cause I'M on a prescription for paipain.I have a very rare blood disease it causes cellulitis a form of blood poisoning to stay dormant in my tissues and nervous system it also causes a ,blood clotting disorder.even with the two blood thinners I'm on I still Continue to develop them them also.DCS knows about my illness and still they refuse to let me see my grandchildren. I Love and miss them so much Please can anyone help Us my grandchildren and I they should be worrying about what toy there going to play with but instead there worrying about if there ever coming home again.THANK YOU DCS FOR ALL YOU'VE DONE. ( And if anyone at all has any ideals or knows who can help. Please contact (765)960~5096.only serious callers

  4. He must be a Rethuglican, for if from the other side of the aisle such acts would be merely personal and thus not something that attaches to his professional life. AND ... gotta love this ... oh, and on top of talking dirty on the phone, he also, as an aside, guess we should mention, might be important, not sure, but .... "In addition to these allegations, Keaton was accused of failing to file an appeal after he collected advance payment from a client seeking to challenge a ruling that the client repay benefits because of unreported income." rimshot

  5. I am not a fan of some of the 8.4 discipline we have seen for private conduct-- but this was so egregious and abusive and had so many points of bad conduct relates to the law and the lawyer's status as a lawyer that it is clearly a proper and just disbarment. A truly despicable account of bad acts showing unfit character to practice law. I applaud the outcome.

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