It is entitled “An Act to clarify reimbursement of workers’ compensation insurers to prevent double recovery by injured workers in third-party cases”, but, as with most deceptive titles to pieces of legislation, it is more of a license for trial lawyers to destroy a time-honored right of reimbursement promised to small businesses across Massachusetts. In an obvious play to appease trial lawyers in Massachusetts, Democrat Rep. Claire Cronin has introduced a bill that would dramatically change the fundamental makeup of that state’s workers’ compensation reimbursement statute – Section 15. The bill purports to prevent the time-honored and fundamental right of reimbursement of a workers’ compensation carrier when an injured employee makes a tort recovery from a negligent third-party tortfeasor. The bill is formally known as 2015 Massachusetts House Bill No. 3457, Massachusetts One Hundred Eighty-Ninth General Court. H.B. 3457 changes Section 15, which currently allows an injured employee who is receiving workers’ compensation benefits to simultaneously hire a lawyer and sue a third party responsible for causing the injury. Previously, an employee had to make an election, and if he or she chose to receive compensation benefits, the right to pursue the negligent tortfeasor fell to the workers’ compensation carrier paying significant benefits. Section 15 currently reads in the 3rd and 4th sentences as follows:
The sum recovered shall be for the benefit of the insurer, unless such sum is greater than that paid by it to the employee, in which event the excess shall be retained by or paid to the employee. For the purposes of this section, “excess” shall mean the amount by which the gross sum received in payment for the injury exceeds the compensation paid under this chapter.
However, H.B. 3457 proposes to add the following in place of the 3rd and 4th sentences:
The sum recovered attributed to damage elements for which compensation was paid shall be for the benefit of the insurer, unless such sum is greater than that paid by it to the employee, in which event the excess shall be retained by or paid to the employee. For the purposes of this section, “excess” shall mean the amount by which the gross sum received in payment attributed to damage elements for which compensation was paid exceeds the compensation paid under this chapter.
In addition, Section 15 currently, reads in the 9th and 10th sentences as follows:
At such hearing the court shall inquire and make a finding as to the taking of evidence on the merits of the settlement, on the fair allocation of amounts payable to the employee and the employee’s spouse, children, parents and any other member of the employee’s family or next of kin who may have claims arising from the injury for which are payable, under this chapter in which the action has been commenced after an opportunity has been afforded both the insurer and the employee to be heard on the merits of the settlement and on the amount, if any, to which the insurer is entitled out of such settlement by way of reimbursement, and on the amount of excess that shall be subject to offset against any future payment of benefits under this chapter by the insurer, which amount shall be determined at the time of such approval. In determining the amount of “excess” that shall be subject to offset against any future compensation payment the board, the reviewing board, or the court in which the action has been commenced shall consider the fair allocation of amounts payable to and amongst family members who may have claims arising from the injury for which said compensation is payable.
H.B. 3457 proposes to add the following language in place of the 9th and 10th sentences:
At such hearing the court shall inquire and make a finding as to the taking of evidence on the merits of the settlement, on the fair allocation of amounts payable to the employee, including amounts attributed to the employee’s pain and suffering, and amounts payable to the employee’s spouse, children, parents and any other member of the employee’s family or next of kin who may have claims arising from the injury for which benefits are payable, under this chapter in which the action has been commenced after an opportunity has been afforded both the insurer and the employee to be heard on the merits of the settlement and on the amount, if any, to which the insurer is entitled out of such settlement by way of reimbursement, and on the amount of excess that shall be subject to offset against any future payment of benefits under this chapter by the insurer, which amount shall be determined at the time of such approval. In determining the amount of “excess” that shall be subject to offset against any future compensation payment the board, the reviewing board, or the court in which the action has been commenced shall consider the fair allocation of amounts attributed to the employee’s pain and suffering, and amounts payable to and amongst family members who may have claims arising from the injury for which said compensation is payable.
The argument of trial lawyers who would love to see subrogation go the way of the Dodo bird is that the carrier should only be reimbursed its medical and indemnity benefits if the employee recovers medical and lost wage benefits in its lawsuit. It sounds harmless, but the practical effect of such an amendment (proven by the experiences of a handful of states which have enacted similar small business-killing measures) is that trial lawyers gerrymander and twist simple personal injury settlements by claiming that the dollars recovered are for pain and suffering, not medical expenses and lost wages. This, despite the fact that the most basic elements of any personal injury cause of action are the out-of-pocket reasonable and necessary medical expenses incurred, and the lost wages – past and future – which result from injuries, both temporary and permanent. In other words, it is a license to maneuver around the current Section 15 and cheat workers’ compensation carriers out of a right of reimbursement that has been part of the workers’ compensation formula across this country for a century.
It has been said that the only thing necessary for the triumph of evil is for good people to do nothing. All insurance professionals should stand up in defense of subrogation whenever possible, not only because it is our bread and butter or because it can result in the reimbursement of millions of claims dollars annually, but because it is as old as the law itself, and serves a valuable societal purpose which transcends auto accidents, ambulance-chasing trial lawyers, and slip-and-fall injury claims. Subrogation remains a sleepy, yet extremely important, subject. It retains an unremarkable place in the judicial and academic circles, yet at its core it seeks to prevent a trial lawyer from making a double recovery for his or her clients recovering medical expenses once from a workers’ compensation carrier and recovering those same expenses a second time from the responsible tortfeasor in a lawsuit.
Subrogation is a word foreign to even the most experienced politicians and lawyers. In the context of Massachusetts’ businesses, reimbursement occurs when the employee is injured at work and workers’ compensation pays for lost wages and unlimited medical expenses. In return, Section 15 currently requires that when the injured employee files suit against the person responsible for the injury and makes a significant recovery, the employer is given this right of reimbursement. One of the chief purposes of subrogation is the requirement that the employer’s insurer recycles subrogation reimbursements into lower insurance premiums. Curtailing the employers’ reimbursement rights hurts Massachusetts’ small businesses by raising one of the most significant expenses they have on their balance sheets.
Workers’ compensation subrogation is unlike all other forms of subrogation. The social experiment of workers’ compensation and the concept of compensation for bodily injury began shortly after the dawn of written history itself. The Nippur Tablet No. 3191 from ancient Sumeria dates to 2050 B.C. and provides for monetary compensation for specific injuries to workers’ body parts. Ancient Greek, Roman, Chinese, and Arab law provided for sets of compensation schedules. Workers’ compensation in America spread like wildfire in the early 20th Century in concert with the Industrial Revolution. The Populist movement of the times and a need to provide employees with payment of medical expenses and a scheduled form of income replacement following a work-related accident led to an explosion of workers’ compensation laws, with the first one passing in Wisconsin in 1911. The unfairness of requiring a small employer to be liable for literally millions of dollars in medical expenses for an injury which it did not cause compelled an equitable countermeasure known as subrogation or reimbursement. The employer was given a guaranteed right to be reimbursed its workers’ compensation lien whenever the employee made a tort recovery from the third party responsible for causing the injuries.
Sadly, trial lawyers have blurred the lines between common law equitable subrogation and the equitable defenses (e.g., Made Whole Doctrine and Common Fund Doctrine) which go hand-in-hand with that equitable remedy. The truth is that workers’ compensation subrogation is not even subrogation – it is a statutory right of reimbursement as part of one of the greatest social compacts in history, not a right of subrogation – a direct cause of action by an employer against a third party. This is not the same as merely “stepping into the shoes” of an insured. Nowhere in the text of Wis. Stat. § 102.29 is the word “subrogation” even mentioned. This section is a statutory formula for distributing third-party proceeds and is not an embodiment of the common law principle of subrogation. In fact, the word “subrogation” does not even appear in Section 15.
The Massachusetts’ legislature is currently in recess, but it will likely start up again in late September or early October. The latest committee voting on the bill took place last week and the bill is currently in the Joint Committee on Labor and Workforce Development.
Rep. Cronin can be reached at (617) 722-2396 or Claire.Cronin@mahouse.gov. She has one joint sponsor on the bill, Rep. Jeffrey Roy (D) and he can be reached at (617) 722-2020 or Jeffrey.Roy@mahouse.gov. The Joint Committee on Labor and Workforce Development is chaired by Sen. Daniel Wolf (D), who can be reached at (617) 722-1570 or Daniel.Wolf@masenate.gov, and Rep. John Scibak (D), who can be reached at (617) 722-2030 or John.Scibak@mahouse.gov.
Appealing to the legislators’ common sense and detailing the harmful effect this bill will have on workers’ compensation premiums within the industry will likely not win the day. Most of them are supported by the trial lawyers’ lobby. Sadly, Republicans in the Massachusetts’ legislature are about as rare as genius. The House of Representatives is overwhelmingly Democrat (125 to 35) and the Senate boasts only 6 Republicans out of 39 state senators. Urging fairness won’t work. Perhaps they need a history lesson.
If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at gwickert@mwl-law.com.
