Until recently, Connecticut’s Workers’ Compensation Subrogation Statute, § 31-293, labored under the judicial interpretation by which an employer was allowed to file a third-party action, but its workers’ compensation carrier was not. Subrogated carriers had to hope that the employee or employer was willing to bring an action because if the employee didn’t file, and business conflicts or other reasons led the employer to decide not to file, the carrier was out of luck. That all changed with the 2016 Connecticut Supreme Court decision in Pacific Insurance Company, Limited v. Champion Steel, LLC, 2016 WL 503057 (Conn. 2016).
Section 31-293 provides that when an injury is created “under circumstances creating in a person other than an employer a legal liability to pay damages,” the injured employee may make a claim for compensation and pursue a third-party action simultaneously. At the same time, the statute gives the employer (the statute does not mention the workers’ compensation carrier) the right to bring an action against the third party to recover any workers’ compensation benefits paid to the employee in the past or to be paid in the future. Doucette v. Pomes, 724 A.2d 481 (Conn. 1999). Until recently, it was primarily the employer, not the carrier, who had the ability under § 31-293 to intervene and/or to file an independent third-party action if the employee does not file. The carrier was allowed only to file a lien. For years, a subrogation suit was required to be brought on behalf of the employer upon direction from the carrier.
In Pacific Insurance Company, Limited v. Champion Steel, LLC, the Court for the first time declared that a workers’ compensation carrier (not just the employer) has the right and standing to bring a third-party action against a responsible tortfeasor for subrogation and reimbursement of its workers’ compensation benefit payments. Id. The Court also indicated that the carrier has equitable subrogation rights.
In this case, James Doughty, an employee of Reliable Welding, was working at a construction site when his lifeline failed, causing him to fall. Pacific Insurance Company (“Pacific”), Reliable Welding’s workers’ compensation carrier, paid benefits to Doughty and brought a third-party action against several defendants to enforce its subrogation rights. Doughty intervened. The defendants filed motions to dismiss, arguing that neither § 31-293 nor common law equitable subrogation provided Pacific standing to file suit. Pacific also filed a motion to substitute Reliable Welding as the party plaintiff and Reliable Welding also filed a motion to intervene. The trial court dismissed the lawsuit and Pacific appealed. The defendants argued that Pacific could cite no authority which expanded equitable subrogation to the workers’ compensation context and that a workers’ compensation carrier was not authorized under Connecticut law to bring a third-party action.
The Supreme Court declared for the first time that a workers’ compensation carrier has a “colorable claim of injury and a direct interest in the outcome” of a third-party action. The Court held that the carrier has standing to bring such an action under equitable subrogation principles. A workers’ compensation carrier now has an “equitable subrogation” cause of action against the third-party tortfeasors by virtue of having paid the claim. The Court rightfully noted that there is no logical reason for a defendant to be unjustly enriched merely because it injures an employee whose employer is insured by workers’ compensation insurance. It noted that in some instances, an employee and/or employer may not have an incentive to file suit or may have a disincentive not to do so. In particular, the Court said:
In some cases, employees and employers may have no incentive to bring an action against a third-party tortfeasor who has caused injury to the employee. For example, an employee may not wish to incur the cost of litigation when his injuries have been fully compensated by a workers’ compensation insurer. Similarly, an employer may be reluctant to invest time and money into an action against a third party when it has not provided any workers’ compensation benefits out of its own pocket. In such cases, workers’ compensation insurance carriers would be without recourse if we were to hold that they could not institute equitable subrogation claims against the third-party tortfeasor, and, thereby, the costs of workers’ compensation would likely increase. Second, equitable subrogation actions prevent the unjust enrichment of tortfeasors in situations in which the employee and employer do not bring actions to recover damages caused by the tortfeasors. Pacific Insurance Company, Limited v. Champion Steel, LLC, 2016 WL 503057 (Conn. 2016).
The Court went on to point out that the legislature clearly abrogated the right of an employee to bring a common law negligence claim against the employer, but didn’t clearly curtail the right of a workers’ compensation carrier to bring an equitable subrogation third-party action. It also suggested that the statute was actually silent with regard to a workers’ compensation carrier’s subrogation right and didn’t specifically prohibit such an action. The Court concluded by stating that Pacific had a right to bring a third-party action as the real party in interest, in its own name or in the name of the employee. Id. Originally, the Act provided the employer with subrogation rights. When an employer paid workers’ compensation benefits to an employee for injuries that a third party was legally liable for, the employer would be subrogated to the employee’s right to recover from the third party. Subsequently, as described above, the Act was amended to replace the employer’s right of subrogation with a right either to intervene in an employee’s action against the third party or to bring a direct action against the third party.
The Supreme Court further supported its decision by acknowledging that allowing a workers’ compensation carrier to maintain a third-party action serves the public policy of containing the cost of workers’ compensation insurance. See, Quire v. Stamford, 650 A.2d 535 (Conn. 1994). The Court emphasized that the insurer’s right to be subrogated to the employer’s rights under § 31-293(a) is derived from the common law. The scope of the employer’s rights under § 31-293(a) against a third party must be derived from the statute, but an insurer’s right to be subrogated to, and therefore assert, the employer’s rights does not. Interestingly, if the carrier’s rights are derived by common law from the employer, the carrier is limited only to those rights which the employer could have brought under § 31-293. One might argue that if the subrogated carrier is subrogated to the rights of and steps into the shoes of the employer, it is also subrogated to the employer’s rights under § 31-293. That is, after all, how it works in every other state.
The defendants in Pacific Insurance Company, Limited v. Champion Steel, LLC did not raise, and the parties did not apparently brief, the issue of whether, because the carrier’s claim is equitable, it would be subject to common law defenses such as the Made Whole Doctrine and/or the Common Fund Doctrine. These will, no doubt, be fertile grounds for future appellate cases. If suit is brought by the employer under § 31-293, equitable defenses, such as these, appear to not be allowed. However, if suit is brought by the carrier, whether or not such equitable defenses will complicate its efforts to seek reimbursement of its worker’s compensation payments in order to help hold down the cost of doing business by keeping premiums lower in Connecticut, is an issue that has yet to be determined.
With that said, such defenses might be easily avoided if it is the carrier carrying the water in the third-party action. The Made Whole Doctrine in Connecticut has, until recently, only been applied in the context of a bankruptcy proceeding, and Connecticut courts have only given us a clue as to how they will treat this equitable defense in the future. Moreover, the Common Fund Doctrine has been discussed in at least one unreported case, but is not otherwise addressed or applied in Connecticut jurisprudence. Iroquois Gas Transmission Sys. v. Zuckerman, 1994 WL 119039 (Conn. Super. 1994). Certainly, this new Supreme Court decision creates fertile subrogation opportunities that should not be squandered – especially in smaller cases – previously ignored or overlooked – in which the employee does not bother to file suit.
Personally, I have always felt as though previous Connecticut case decisions simply got this issue wrong. The Connecticut Legislature overlooked language which would grant the carrier the same rights of subrogation and reimbursement, as is the case in virtually every other state where the two are interchangeable. In fact, § 31-293(b) does anticipate a workers’ compensation carrier having subrogation rights when it states:
(b) When an injury for which compensation is payable under the provisions of this chapter is determined to be the result of a motor vehicle accident or other accident or circumstance in which a third person other than the employer was negligent and the claim is subrogated by the employer or its workers’ compensation insurance carrier, the insurance carrier shall provide a rate adjustment to the employer’s workers’ compensation policy to reflect the recovery of any compensation paid by the insurance carrier prior to subrogation.
While the Pacific Insurance Company, Limited v. Champion Steel, LLC decision is a positive one, it does raise new questions by apparently creating a dichotomous system of workers’ compensation subrogation. There now appear to be two separate vehicles for third-party subrogation – one for employers and one for carriers. As a result, it is advisable to contact us before committing to an equitable subrogation course of action in Connecticut.
If you have questions regarding this article or subrogation in general, contact Gary Wickert at [email protected].