Minnesota Clarifies Third-Party Allocation Procedure When The Employer Is Negligent

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Minnesota Workers' CompensationThe Minnesota Court of Appeals has confirmed how a third-party tort recovery is to be apportioned procedurally when the employer is found to be comparatively at fault. The confusing state of affairs in Minnesota has undergone some changes in recent years, but the new decision in Fish v. Ramler Trucking, Inc., 2019 WL 272865 (Minn. App. Jan. 22, 2019), clarifies once and for all that the “Johnson procedure”, which turns 40 on February 16th, is still applicable and should be followed. In order to understand the confusing state of affairs which result in any state that allows contribution against an employer in a third-party action, a short review of the law in Minnesota is appropriate.

Section 176.061 is the third-party subrogation statute in Minnesota. It provides that an injured employee may prosecute a claim for workers’ compensation benefit and simultaneously bring a third-party action against the responsible third party. M.S.A. § 176.061 (1983). It also provides an employer with subrogation and indemnity rights against an at-fault tortfeasor. United Steelworkers v. Quadna Mountain, 418 N.W.2d 723 (Minn. 1988). When the employee pursues a third-party action, he is suing, not only on his own behalf, but also on behalf of the subrogated employer and the workers’ compensation carrier.

M.S.A. § 176.061(6) provides for allocation of settlement funds according to a formula set forth within that statute. It provides as follows:

(1) Costs of collection (including reasonable attorneys’ fees) must first be paid;

(2) One-third of the remaining net recovery is to be paid to the injured worker;

(3) The carrier is reimbursed completely out of the balance of  recovery (less pro-rata share of costs and attorneys’ fees); and

(4) The balance or remaining portion of the settlement is to be paid directly to the injured worker and constitutes a credit to the workers’ compensation carrier.

Kealy v. St. Paul Housing & Redevelopment Auth., 303 N.W.2d 468 (Minn. 1981).

Below is an example of a real distribution ordered by a Wisconsin court applying Minnesota law:

$15,000.00   Total Amount of Third-Party Settlement

$  5,850.12   To Plaintiff’s Attorney as Cost of Collection

($5,000 + $850.12 in Costs.)

$  3,049.96   One-Third of Balance to Plaintiff

$  2,430.67   To Workers’ Comp Carrier as Reimbursement for Medical Expenses and Compensation

$5,850.12 Divided By 15,000.00 = .39

.39 x $3,984.75 (Comp. Lien) = $1,554.08

$3,984.75 – $1,554.08 = $2,430.67

$  3,669.25   Balance to Plaintiff. Also serves as a credit to carrier against additional claims.

Krueger v. James G. Althoff Acuity, 2004 WL 3383335 (Wis. Cir., St. Croix County 2004).

While the above formula seems somewhat straightforward, Minnesota law provides the parties to a workers’ compensation third-party case with several tools which can complicate it. For example, in situations where the employer’s negligence may have contributed to the employee’s injuries, the defendant in the third-party action may bring a claim for contribution against the employer as a third-party defendant. Lambertson v. Cincinnati Corp., 257 N.W.2d 679 (Minn. 1977); M.S.A. § 176.061(11).

In Lambertson, the court recognized that the combination of the exclusivity and subrogation provisions creates an inequitable situation in which a third-party tortfeasor could be required to “bear the burden of a full common-law judgment despite possibly greater fault on the part of the employer. This is because there is no common liability between the third party and an employer due to the exclusive remedy protection and, therefore, there is no legal basis for allowing contribution. Lambertson fashioned an equitable remedy, holding that a third-party tortfeasor may seek contribution from an employer, in proportion to the amount of causal fault allocated to the employer by the jury, up to the amount of workers’ comp benefits paid or to be paid. It reaffirmed that “there is no common liability to the employee in tort,” but could not “find any continuing persuasive force” holding that contribution is foreclosed. It concluded that contribution should be available to a third-party tortfeasor notwithstanding the absence of common liability under the law.

Following Lambertson, questions remained regarding how workers’ comp benefits aligned with common law tort damages and how to resolve the blurry intersection between an employer’s obligation to pay part of the employee’s cost of recovery and its potential liability to the third-party tortfeasor for contribution. In Johnson v. Raske Bldg. Sys., Inc., 276 N.W.2d 79 (Minn. 1979), the court outlined a procedure to effectuate the contribution remedy. Known as the “Johnson procedure”, the defendant pays the total amount of the judgment in favor of the plaintiff to the plaintiff (damages less plaintiff’s fault), and then the employer pays the tortfeasor for the employer’s Lambertson contribution liability and the employer recovers its full subrogation lien from the employee. The net effect was a reduced workers’ comp lien recovery.

In Cambern v. Sioux Tools, Inc., 323 N.W.2d 795 (Minn. 1982), the Supreme Court decided that an employer’s fault should not be combined with the defendant’s fault for purposes of determining whether the employee can recover under the then-applicable comparative-fault statute, reasoning that “Lambertson did not disturb the rules for finding fault, only how liability based on fault that was found by the jury was to be allocated between defendants.”

In 2000, Minnesota amended M.S.A. § 176.061 to reflect the Lambertson decision by adding subsection 11, which reads:

To the extent the employer has fault, separate from the fault of the injured employee to whom workers’ compensation benefits are payable, any non-employer third party who is liable has a right of contribution against the employer in an amount proportional to the employer’s percentage of fault but not to exceed the net amount the employer recovered pursuant to subdivision 6, paragraphs (b) and (c). The employer may avoid contribution exposure by affirmatively waiving, before selection of the jury, the right to recover workers’ compensation benefits paid and payable, thus removing compensation benefits from the damages payable by any third party.

Procedurally, if the employer waives or settles the right to recover workers’ compensation benefits paid and payable, the employee or the employee’s dependents have the option to present all common law or wrongful death damages whether they are recoverable under the Workers’ Compensation Act or not. Following the verdict, the trial court will deduct any awarded damages that are duplicative of workers’ compensation benefits paid or payable.

In 2014, the Minnesota Supreme Court addressed the effect of Minnesota’s joint and several liability statute on an employee’s claim against a third-party tortfeasor. In Staab v. Diocese of St. Cloud, 853 N.W. 2d 713 (Minn. 2014), the court held that a tortfeasor who was not more than 50% at fault was not jointly liable for the fault of a party who was not sued but was placed on the verdict form. However, unlike an employer protected by the Exclusive Remedy Rule, the plaintiff in Staab was not prevented from suing the other at fault party.

In Gaudreault v. Elite Line Servs., LLC, 22 F. Supp. 3d 966 (D. Minn. 2014), a federal judge for the first time applied Staab to a third-party action where the defendant was seeking contribution from the otherwise immune employer. The court said that where the defendant’s fault is less than 50% and it seeks contribution from the employer, the defendant was only liable for its percentage of fault, not the employer’s. In other words, because Johnson was decided before the amendment to M.S.A. § 176.061(11), the judge did not follow the “Johnson procedure.” This, despite the fact that the Minnesota Supreme Court had previously ruled that the procedural mechanism for apportionment of the various awards under Lambertson, as set forth in Johnson, still applied and are not affected by the comparative-fault statute. Thankfully, the Gaudreault decision was not a “holding”, but rather an advisory opinion that the judge himself admitted he had no authority to make.

This means that the Johnson procedure is still alive and appropriate. The defendant pays the total amount of the judgment in favor of the plaintiff to the plaintiff (damages less plaintiff’s fault), and then the employer pays the tortfeasor for the employer’s Lambertson contribution liability and the employer recovers its full subrogation lien from the employee. The net effect, of course, is a “net” reduced lien.

In Fish v. Ramler Trucking, Inc., 2019 WL 272865 (Minn. App. Jan. 22, 2019), Frederick Fish was injured while on loan by his employer, Albany Manufacturing, Inc., to Wells Concrete Productions Company (Wells). He was injured while working aboard a flatbed trailer being pulled by a semi-tractor driven by an employee of Ramler Trucking, Inc. Pursuant to the loaned-servant agreement, Albany’s insurer paid workers’ comp benefits to Fish. Fish sued Ramler for negligence, who in turn brought a third-party contribution action against Albany and Wells. Ramler, Albany, and Albany’s insurer settled their respective contribution and subrogation claims before trial in a “reverse-Naig” agreement.

The jury apportioned fault 75% to Wells, 20% to Ramler, and 5% to Fish. The jury awarded damages of $527,340.54. The court reduced the judgment by the amount of workers’ comp benefits received and an additional 5% for Fish’s fault. From the remaining $278,913.58, the court took 20% (Ramler’s percentage of fault) and ordered judgment in the amount of only $55,782.72, effectively reducing the damages by the amount of fault attributed to the employer (Wells), ignoring the Johnson procedure which has been in place since 1979.

On appeal, the Court of Appeals reversed the trial court and confirmed that under M.S.A. § 604.02 of the Minnesota comparative fault statute, the fault of the employer does not reduce the amount of the judgment entered against a third-party tortfeasor. The Johnson procedure is alive and well in Minnesota.

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

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 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.