Future Credit In Pennsylvania Workers’ Compensation Third-Party Recovery Applies Only To Indemnity Benefits—Not Medical Benefits

Pennsylvania Workers' CompensationA long-standing controversy in Pennsylvania workers’ compensation subrogation has been resolved—and resolved in a manner most unfriendly to Pennsylvania small businesses and the entire workers’ compensation industry. On June 19, 2018, the Pennsylvania Supreme Court hung their hat on a mistaken turn of a phrase found within § 319—the Pennsylvania workers’ compensation subrogation statute. Whitmoyer v. W.C.A.B. (Mountain Country Meats), J-24-2018 (Pa. 2018). The Court held that the phrase “instalments (sic) of compensation” within § 319 refers only to indemnity benefits—not medical expense benefits.

Those who routinely rail against appellate courts legislating from the bench might find reason to applaud this new decision. The role assigned to judges in our system is to interpret state laws, not to make them—not to rewrite them. Judicial legislation leads not to a government of laws, but of the men and women who serve as judges. Clear state legislation is then substituted with the personal and capricious rule of a small elite. With that viewpoint in mind, the Pennsylvania Supreme Court should be applauded for their judicial restraint. However, the role of the appellate court—including the Pennsylvania Supreme Court—includes a duty to interpret ambiguities and/or clarify confusing statutory language, especially when the literal interpretation would lead to an approach to an issue wholly different and apart from the law of virtually every other state.

When the legislature passed Pa. Stat. Ann. tit. 77, § 671 (also known as § 319 because § 671 was contained within § 319 of the original Workers’ Compensation Act), the section dealing with a carrier’s right to a future credit read—and still reads:

Any recovery against such third person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employe, his personal representative, his estate or his dependents, and shall be treated as an advance payment by the employer on account of any future instalments of compensation.

A controversy had been brewing for many years over whether the carrier’s future credit under § 319 applies only to indemnity benefits and not to future medical expenses. Pennsylvania courts have held that the phrase “instalments (sic) of compensation” in § 319 encompasses medical expenses in addition to indemnity benefits. Older case decisions are not as clear on this point. In Deak v. W.C.A.B. (USX Corp.), 653 A.2d 52 (Pa. Commw. 1994), the court held that medical expenses were not included within the term “instalments of compensation.” However, that decision relied on the case of Dasconioa v. WCAB (Aeronca, Inc.), 559 A.2d 92 (Pa. Commw. 1989), which did not interpret the phrase and is, therefore, not determinative of the issue.

In the 2018 Pennsylvania Supreme Court decision in Whitmoyer v. Mountain County Meats, the Court announced that the word “compensation,” as used elsewhere in the Workers’ Compensation Act (including elsewhere in § 319), refers variously to either indemnity or medical benefits. Giant Eagle, Inc. v. W.C.A.B. (Givner), 39 A.3d 287 (Pa. 2012). It stated that “Instalments of compensation,” however, is a more specific term, holding it means what it says: compensation paid in installments. Indemnity benefits are required to be paid in this manner, namely, “in periodical installments, as the wages of the employe were payable before the injury”, while medical expenses are not. 77 P.S. § 601. Accordingly, the Supreme Court held that when an employee recovers proceeds from a third-party settlement (following reimbursement of the past lien), the employer (or insurance carrier) is limited to a future credit against that recovery only to the extent that future disability benefits are payable to the claimant. There is no longer a future credit as to future medical expenses.

What is astonishing about the decision is that the inadvertent use of the word “instalments” would seemingly have been benign, void of any intent to limit future credits to indemnity benefits only. No other state in the country interprets or applies the carrier’s right to a future credit in such a limiting and detrimental way. Some states, such as Oklahoma and Oregon, prohibit a future credit altogether, but allow recovery of future obligations in the third-party case itself. Tennessee limits a future credit when the likelihood of unknown or incalculable future medical benefits are not adequately proven. No state, however, has made the illogical distinction between a future credit for indemnity benefits, which is allowed; and medical expenses, which is not allowed. This practitioner cannot even think of a logical reason or legislative intent for such an interpretation. More likely, the insertion of the term “instalments” was inadvertent. The term “instalments of compensation” isn’t even a term of art used within the bodies of workers’ compensation law in any of the 50 states—including Pennsylvania. It was just a bad choice of words used by a careless Pennsylvania legislature.

“Compensation” is a term within the workers’ compensation industry which has routinely been interpreted to colloquially include both indemnity wage replacement benefits and medical benefits. For example, California Labor Code § 3207 specifically defines “compensation” as:

… compensation under this division and includes every benefit or payment conferred by this division [Division IV] upon an injured employee, or in the event of his or her death, upon his or her dependents, without regard to negligence.

Other states have similar global definitions of “compensation.” When employees are injured in the course and scope of employment, they are entitled to “compensation.” In every state except Pennsylvania, this includes medical expenses.

Just a few years ago, this same Pennsylvania Supreme Court ruled that while the Pennsylvania Workers’ Compensation Act uses the term “compensation” in a frequent and consistent manner as indicating wage loss benefits, in a limited manner, it also uses the term to include medical benefits. Giant Eagle, Inc. v. W.C.A.B. (Givner), 39 A.3d 287 (Pa. 2012).

Some say that good judgment comes from experience, but experience comes from bad judgment. The bad judgment employed by the Pennsylvania Supreme Court, which comprises five Democrats and two Republicans, has tilted the very fabric of workers’ compensation subrogation in Pennsylvania, running up a large tab and placing it squarely at the feet of small businesses in Pennsylvania. The Quaker State saddles its employers and small businesses with potentially unlimited liability in the case of medical expenses and lost wage replacement benefits when an employee is injured, and in exchange we give the employer immunity from suit by the employee and grant the employer (or its workers’ compensation carrier) the right to reimbursement, should the employee make a large tort recovery from a tortfeasor (third party other than the employer) responsible for the injury. Subrogation recoveries—especially future credits—serve as a debit to employers’ actual loss totals and actual primary losses, thereby directly affecting their experience modifiers, holding down onerous workers’ compensation insurance premiums, which are often one of the biggest expenses for small businesses.

The inexplicable wholesale denial to employers of this right to a future credit denies them the benefit of the social compact made with business when society saddled employers with the potentially unlimited liability of work-related injuries. It also grants injured employees and the trial lawyers who represent them the right to make and keep a double recovery—the recovery of medical expenses once from the workers’ compensation carrier and the recovery of the identical damages a second time from the tortfeasor.

The Whitmoyer decision subverts all that is logical and good about the already-confusing and expensive system of workers’ compensation in Pennsylvania. And, it is about to get much more expensive, thanks to the Pennsylvania Supreme Court. Instead of using logic and following the lead of the other 49 states, the Pennsylvania Supreme Court elected to spike the ball in favor of injured employees and the trial lawyers who represent them.

If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at gwickert@mwl-law.com.

Gary L. Wickert

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has 35 years 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.