Recently the Texas Supreme Court issued an important decision in a matter that will affect workers' compensation claims throughout the state, especially in industrial, manufacturing, and oilfield contexts.
It's about a legal concept called subrogation. Basically that means the right to get money back from someone else after you've paid it. In a workers' compensation case, it works like this.
You get hurt on the job. The accident happens because someone else, not your employer or co-employee, was negligent. Your employer has workers' compensation insurance. That insurance company pays you workers' compensation benefits, including medical and income, because the workers' compensation policy pays regardless of whose fault the accident might be.
So you make a claim or file suit against the negligent party. You settle the case. You have to pay back out of that settlement everything that the workers' compensation insurance paid to you (income benefits) or on your behalf (medical benefits). That right the workers' compensation insurance has to share in your recovery is called subrogation.
This is specifically authorized by the law:
(a) The net amount recovered by a claimant in a third-party action shall be used to reimburse the insurance carrier for benefits, including medical benefits, that have been paid for the compensable injury.
(b) Any amount recovered that exceeds the amount of the reimbursement required under Subsection (a) shall be treated as an advance against future benefits, including medical benefits, that the claimant is entitled to receive under this subtitle.
(c) If the advance under Subsection (b) is adequate to cover all future benefits, the insurance carrier is not required to resume the payment of benefits. If the advance is insufficient, the insurance carrier shall resume the payment of benefits when the advance is exhausted.
In some cases, employers who do business with each other a lot have written into their insurance policies mutual waivers of subrogation. That means the insurance is issuing the policy with a specific endorsement in the contract that they agree not to get their money back in the event of the kind of lawsuit or claim outlined above.
In a recent case, an insurance company attempted to get their money back despite such a clause. This case was Wausau Underwriters Ins. Co. vs. Wedel. The Court ruled 7-2 in favor of Wedel. Here is the Court's summary:
The workers'-compensation carrier in this case paid benefits to an injured employee. It later sought reimbursement of those payments from any settlement proceeds the employee might receive from an allegedly liable third party. Ordinarily, Texas law grants it that right. But the policy in this case includes an endorsement waiving the carrier's right to recover from the third party sued by the employee. The carrier concedes it can't recover directly from the third party but insists it can recover indirectly from any settlement the third party pays to the employee. Standing on over twenty years of unanimous case law to the contrary, as well as Texas Department of Insurance rulings consistent with that case law, we disagree. The carrier signed away its right to recover benefits it paid to the employee and received a higher premium in exchange for assuming that risk. It cannot now seek to indirectly recover the same proceeds it agreed not to pursue directly. We affirm the court of appeals' judgment.
The Supreme Court ruled that, because of an unambiguous policy endorsement waiving the right of subrogation, the insurance carrier could not recoup monies paid from its workers' compensation policy out of the employee's recovery against the third party. The insurance carrier conceded it could not recover directly from the third party, but claimed that it could recover from the recovery obtained by the employee from the third party. The Supreme Court did not buy into this distinction.
Many Court watchers predicted this outcome (see my Case Law Update at the SBOT Advanced Workers' Compensation Seminar in August 2017). Here is one commentator's summary of a similarly minded attorney in Austin:
The morning the article was posted, an attorney friend in Austin texted me. It essentially said, “Call me, and I'll tell you why the court was right, and you were wrong.” In that subsequent call, he explained that the waiver in question has been used for many years and is endorsement language dictated by the Texas Department of Insurance. Used frequently in manufacturing, construction and the trades, it reduces liability and is often required in business contracts between vendors and service recipients. This raises the employer's workers' comp premiums, which is an acceptable trade off given the benefits regarding liability.
In my friend's opinion, the carrier in the case I wrote about was “trying to be cute,” and do an end run around the waiver. He indicated most watching the case expected the court to rule exactly as they did. The Supremes supported the status quo; the precedent that had been in place for at least two decades.
Based on this Supreme Court decision, it is important when you have a claim against a third party for negligence causing your injuries, that your lawyer identify whether there is a waiver of subrogation in the policy that would affect your third party recovery.
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