Delaware Workers’ Compensation Subrogation Rights Do Not Extend to PPD And Commutation Benefits

Delaware FlagThe Delaware Supreme Court recently affirmed a ruling by a Delaware Superior Court which, in this author’s opinion, constitutes a potentially very dangerous and confusing opinion. Some might read the decision in ACW Corporation v. Maxwell, 2020 WL 678778 (Del. 2020) as a major departure from both the Delaware workers’ compensation subrogation statute and well-established subrogation law, interpreting it as declaring that lump-sum workers’ compensation settlement payments are not recoverable via subrogation from a third-party tortfeasor. This would be an overreaching and incorrect interpretation of the decision, however. If future courts double down and interpret the case in such a fashion, it will have the compounded effect of weakening the important right of subrogation in Delaware, increasing the cost of doing business for Delaware small businesses, and providing significant incentive for workers’ compensation carriers to treat injured employees in Delaware less benevolently. Most people couldn’t intentionally accomplish such a trifecta if they tried; and it is doubtful that the Delaware Supreme Court did. Nonetheless, a thorough understanding of the ruling is necessary for any subrogation professional practicing in this jurisdiction.

It all began with a February 2, 2016 accident involving Shanara Waters, an employee of Arby’s. She was struck by the defendant, Christopher Maxwell, and thereafter filed a tort action against Maxwell, which she settled for $5,000. Waters next claimed and began receiving worker’s compensation benefits from Arby’s workers’ compensation carrier, Eastern Alliance. Eastern Alliance ultimately settled the workers’ compensation case with Waters for a lump sum of $12,500. The total workers’ compensation lien was $13,133.25, consisting of the $12,500 lump-sum payment and $633.25 for two medical bills. In Delaware, commutation of compensation is permitted under § 2358 of the Act but must be approved by the Industrial Accident Board. 19 Del. Admin. C. § 1331-22.1. As part of the compensation claim settlement Eastern Alliance agreed to waive its lien in connection with her small third-party recovery. However, this agreement was made based on Eastern Alliance’s understanding that Waters only recovered $5,000 from the third-party carrier, retaining subrogation rights as to any remaining policy limits. Under § 2363(c), Waters’ settlement of her claim did not bar Eastern Alliance from subrogating against the third party.

Lump Sum SettlementOn February 1, 2018, upon discovering additional liability limits Eastern Alliance filed a third-party subrogation suit against Maxwell and his carrier, seeking recovery of the $13,133.25 lien, which included the $12,500 lump-sum settlement. Maxwell filed for summary judgment, arguing (1) that Eastern Alliance had “paid the claimant/plaintiff (Waters) into the future a benefit that may never occur in order to end any ongoing relationship with the claimant/plaintiff”, and (2) that under § 2363(e) the workers’ compensation carrier may recover only those amounts that Waters could recover against Maxwell in an action in tort. The Commutation Agreement, they continued, “did not set forth any actual damages which Waters could recover from Maxwell in a tort action, and Arby’s and Eastern Alliance had no evidence of any such damages.” Eastern Alliance argued in response that under § 2363(e), they were entitled to recover any amount they paid to Waters under the Workers’ Compensation Act. Apparently, Eastern Alliance offered no proof of Waters’ personal injury damages (e.g., pain and suffering, medical expenses, loss of earnings, etc.), but only mere proof of the $12,500 lump-sum settlement payment it made to Waters. Waters’ personal injury attorney submitted an affidavit with the Motion for Summary Judgment indicating that all of the medical bills and lost wages (except for the $633.25 in medical expenses paid by Eastern Alliance) were paid for by the employee’s PIP carrier. The affidavit also stated that Waters had no present claims for lost wages and no future medical expenses were indicated. The defendants argued that § 2363 did not require Eastern Alliance to lump-sum settle Waters’ compensation claim, and that the $12,500 was “speculative” and “based on nothing.” Eastern argued that the lump-sum payment was a qualified payment under § 2363 because the terms of the Commutation Agreement included potential future workers’ compensation benefits. It also argued that there was no distinction between an amount sought in subrogation and the purely speculative future damages Waters could have collected in personal injury damages from the tortfeasor.

On July 10, 2019, the Superior Court issued its ruling and granted Maxwell’s Motion for Summary Judgment. It held that Eastern Alliance did not offer any evidence that any portion of the $12,500 were damages resulting from the personal injuries Waters suffered. The court said that any of the damages related to the commutation would be speculative and not proved with reasonable probability. They allowed recovery of $633.25 to Eastern Alliance but none of the $12,500 lump-sum settlement.

On November 18, 2020, the Delaware Supreme Court affirmed the decision. It held that “neither defendant driver nor his insurer could be held liable for the lump-sum payment made by the workers’ compensation insurer to claimant, or for claimant’s medical bills.”

NonsenseThis decision must be understood for what it is; and what it is not. It is not a judicial declaration that any lump-sum settlement payment is ipso facto not recoverable by a workers’ compensation carrier in a third-party subrogation action or reimbursable from a tort recovery made by an injured employee. That would be absurd. The confusing decision centers around § 2363(a) and § 2363 (e), which together form the statutory basis for a workers’ compensation carrier’s right of subrogation and/or reimbursement in Delaware. Section 2363(a) explains who can file a third-party action and when:

If the injured employee or the employee’s dependents or personal representative does not commence such action within 260 days after the occurrence of the personal injury, then the employer or its compensation insurance carrier may, within the period of time for the commencement of actions prescribed by statute, enforce the liability of such other person in the name of that person.

Section 2363(e) then goes further and explains what can be recovered in that third-party action. If the employee files suit and makes a recovery, he or she must repay the workers’ compensation carrier “for any amounts paid or payable under the Workers’ Compensation Act to date of recovery.” This would naturally include any lump-sum settlements because they constitute “amounts paid under [the Act].” However, if the employee does not file suit within 260 days after the injury, the right to file suit shifts to the workers’ compensation carrier. It then has the right to file suit and recovery. What can it recover? The statute answers that. It reads:

In an action to enforce the liability of a third party, the plaintiff may recover any amount which the employee … would be entitled to recover in an action in tort. Any recovery against the third party for damages resulting from personal injuries or death only, after deducting expenses of recovery, shall first reimburse the employer or its workers’ compensation insurance carrier for any amounts paid or payable under the Workers’ Compensation Act to date of recovery, and the balance shall forthwith be paid to the employee … and shall be treated as an advance payment by the employer on account of any future payment of compensation benefits.

Whether plaintiff is the employee or the carrier, the cause of action is enforcing a personal injury cause of action. A carrier cannot simply say, “We paid $12,500 in a lump-sum settlement, pay us.” As in most other states, a subrogated carrier pursuing a third-party subrogation action must plead and prove a personal injury case. This means proof of any of the following damages:

  1. compensation for pain and suffering that [he/she] has suffered to date;
  2. compensation for pain and suffering that it is reasonably probable that [plaintiff’s name] will suffer in the future;
  3. compensation for permanent impairment;
  4. compensation for reasonable and necessary medical expenses incurred to date;
  5. compensation for reasonable and necessary medical expenses that it is reasonably probable that [plaintiff’s name] will incur in the future;
  6. compensation for loss of earnings suffered to date; and
  7. compensation for earnings that will probably be lost in the future.

Measure of Damages – Personal Injury § 22.1, DEL. P.J.I. CIV. § 22.1 (2000). The subrogated carrier will be responsible for proving up all of the above elements of damages. It is not sufficient to simply prove the amounts they paid in workers’ compensation benefits—because that number doesn’t represent “any amount which the employee … would be entitled to recover in an action in tort.”

GavelAs in the vast majority of other states, the employer/carrier is given a joint right to pursue the employee’s personal injury cause of action. If Eastern Alliance had entered into a lump-sum settlement with Waters for $1 million, it wouldn’t automatically be entitled to recover $1 million in its third-party action. It would have to plead and prove a routine personal injury action and the jury would have to award damages based on the damages proven and awarded. Out of that recovery, it would then be entitled to reimburse itself up to the $1 million it paid in a lump-sum settlement. The ACW Corporation v. Maxwell decision doesn’t suddenly mean carriers cannot seek subrogation of or reimbursement for lump-sum settlements. It just means that they have to meet their burden of proof under the statute and Delaware personal injury law.

Under the statute, the employer is statutorily entitled to recover “any amounts paid or payable under the Workers’ Compensation Act.” This includes:

  1. Temporary Total (TT) Weekly Benefits;
  2. Temporary Partial (TP) Benefits;
  3. Permanent Total (PT) Benefits;
  4. Permanent Partial (PP) Benefits:
    1. Permanent Impairment Benefits
    2. Disfigurement Benefits
  5. Lump-Sum Commutations; and
  6. Lump-Sum Settlements.

Delaware worker’s compensation law provides that a commutation is an offer by the insurance company to “buy out” some or all of these benefits for a lump-sum payment to the claimant. Some employees would prefer to have a lump-sum benefit, but this is still considered “an amount paid or payable under the Workers’ Compensation Act.”

To the extent that this opinion is interpreted to mean that commutation, permanent partial disability payments, and other benefits exclusively created by the Act are not recoverable from a third-party tortfeasor, it would be error. The workers’ compensation carrier is not limited to being reimbursed only from portions of the third-party recovery which represent medical expenses and/or lost wages. It is entitled to reimbursement of “any amounts paid or payable under the Workers’ Compensation Act to date of recovery” from “any recovery against the third party for damages resulting from personal injuries.” The English language doesn’t get any clearer than this.

In ACW Corporation v. Maxwell, the Superior Court granted Maxwell’s Motion for Summary Judgment and denied Arby’s Motion for Summary Judgment, effectively holding that a portion of the lien which represents a $12,500 commutation of the workers’ compensation lien, where all lost wages and all but $635.25 of the medical expenses were paid for in the form of PIP payments by the employee’s auto insurance company, was not recoverable under § 2363(e). The court seemingly skipped a step in its statutory analysis, siding with Maxwell, who contended “that the first sentence of Section 2363(e) provides that the measure of damages recoverable to an injured employee are those that the employee would be able to recover ‘in an action in tort’, and thus commutation, permanent partial disability payments, and other benefits exclusively created by the Act are not recoverable from a third-party tortfeasor.” But the court overlooked the most important part of the statute – an employer’s/workers’ compensation carrier that has paid benefits of any kind which are authorized under the Act to recover any damages recoverable by an injured employee in an action in tort. Once that recovery is made, the second half of subsection (e) allows the carrier in even clearer terms to pay itself back for any amounts “paid or payable under the Workers’ Compensation Act.” It’s a simple two-step process clearly described and authorized by the statute unambiguously and concisely.

The carelessness with which the decision was made is evidenced by the fact that the trial court wrote the decision using outdated language from the statute which has since been amended and updated. For instance, there is no longer a reference to “workmen’s compensation” as was made in the decision. In footnote 20, the court quotes from Maxwell’s Motion for Summary Judgment, “Section 2636 makes it clear that while the employer or the worker’s [sic] compensation carrier may pursue its own claim under subsection (a) for a tort claim the worker’s [sic] compensation carrier can only recover those claims in tort.” The Latin word sic, meaning thus or so, is used in quoted passages when the author believes the quoted passage has errors, but the author wants to quote the text exactly. In this case, Maxwell’s error in logic was perpetuated, and apparently simply copied, by the judge. The revised and current statute refers to “workers’ compensation”, not “workmen’s compensation.” The court cites the statute incorrectly in the opinion, suggesting that the judge didn’t even look up the statute, but just copied from Maxwell’s Motion.

The trial court perpetuates Maxwell’s tortured analysis which concluded that the first sentence of § 2363(e) provides that the measure of damages recoverable to an injured employee are those that the employee would be able to recover “in an action in tort” and, therefore, (and here is where the leap of logic enters) “commutation, permanent partial disability payments, and other benefits exclusively created by the Act are not recoverable from a third-party tortfeasor.” Of course, they’re not, but that’s not the limit of the employer’s/carriers’ workers’ compensation subrogation rights in Delaware.

As if declaring that commutations cannot be subrogated wasn’t enough, the court threw another non-sequitur in for good measure, seemingly doubling-down on the notion that “commutation, permanent partial disability payments, and other benefits exclusively created by the Act” are not recoverable by the employer/workers’ compensation carrier as suggested by Maxwell. The court limited Arby’s reimbursement to the $633.25 it had paid in medical expenses, denied it the ability to recover the commutation benefits it paid under the Act, and made no mention of the fact that the PIP carrier would likely still have a right to come back against the worker’s compensation carrier as primary and recover all of the benefits it had paid. The decision will hopefully be appealed.

The Supreme Court affirmed the Superior Court’s ruling because Eastern Alliance apparently didn’t offer any proof of personal injury damages sustained by Waters. It correctly points out that mere proof of the commutation agreement does not by itself suffice. If personal injury damages provable by Eastern Alliance were only $5,000, then $5,000 would be all that Eastern Alliance (or Waters) could recover.

Expect trial lawyers to argue that the ACW Corporation v. Maxwell decision somehow limits workers’ compensation carriers’ subrogation rights to medical benefits and indemnity payments it makes. But that is not at all what the Delaware Supreme Court is somewhat articulately saying.

If you have any questions regarding this article or workers’ compensation subrogation in general, please contact Gary Wickert at [email protected].

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Gary L. Wickert
Partner

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has nearly four decades of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.