Ignorance of the law is no excuse – unless you’re the Nebraska Court of Appeals. On March 8, 2016, the Court, in perhaps one of the most illogical and biased decisions in many years, held that a trial court can wipe out a workers’ compensation lien for literally any reason – including the fact that the employee and his wife just bought a dream home. In re Estate of Evertson, 2016 WL 873851 (Neb. App. 2016). The Court added insult to injury by ignoring decades of Nebraska law and holding that when an injured or deceased employee brings a third-party lawsuit, the workers’ compensation carrier will never be entitled to a future credit. You couldn’t make this stuff up if you tried.
On February 4, 2014, Bruce F. Evertson, chief executive officer of Evertson Well Service, Inc., was killed after being involved in a motor vehicle accident with a tractor-trailer unit driven by Dennis Dobrinski. Travelers was the workers’ compensation carrier for Evertson Well Service and paid benefits to Darla Evertson, the surviving spouse, of $728 per week until she dies or remarries. If Darla remarries, Travelers will pay her a two-year lump sum settlement. Darla has a life expectancy of 27.6 years.
In the case of In re Estate of Evertson, Evertson’s estate settled its wrongful death/survival claims with Dobrinski’s insurance carrier, Employers Mutual Casualty (EMC). Travelers consented to the settlement without having a firm agreement regarding the distribution of the funds in place. EMC paid $500,000 from the policy to the Estate, of which $125,000 was allocated to Evertson’s adult son, $125,000 was allocated to Evertson’s adult daughter, and $250,000 was allocated to Darla Evertson. A hearing was held on November 17, 2014 to determine a “fair and equitable” division of the $250,000 of settlement proceeds. Travelers claimed a subrogation interest in the entire $250,000 allocated to Darla pursuant to Neb. Rev. Stat. § 48-118 (Reissue 2010) of the Nebraska Workers’ Compensation Act. Six exhibits were received into evidence at the hearing:
- The settlement agreement;
- Darla’s affidavit with Evertson’s obituary attached;
- An affidavit by the chief financial officer of Evertson Operating Company, Inc., setting forth premiums paid by Evertson Operating Company for workers’ compensation insurance between May 1, 2009 and May 1, 2015;
- An affidavit setting forth that the attorney’s fees, expenses, and court costs billed by Darla’s attorneys in this case totaled $42,583.31;
- A negotiation letter; and
- The affidavit of the workers’ compensation adjuster showing that EMC had paid $26,208 in indemnity payments to Darla and $10,000 in funeral expenses.
In addition to the EMC settlement, the parties stipulated that the agreement referenced an under-insured motorists (UIM) policy for Evertson Well Service with a policy limit of $1 million. Travelers requested that a second supplemental transcript be filed with this Court that showed that on March 18, 2015, the county court entered orders approving the settlement of the UIM claim and approving the distribution of $500,000 of UIM settlement proceeds. However, these were obviously not considered by the county court at the hearing on November 17, 2014 and were not considered on appeal.
On December 29, 2014, the county court filed an order finding that a “fair and equitable” distribution of the settlement proceeds was:
- Darla: $207,416.69;
- Attorneys: $42,583.31 for their fees; and
- Travelers: $0
The county court set forth in its order that it considered the following factors contained in Evertson’s obituary:
- Decedent’s 25-year marriage to Darla;
- Their enjoyment of travel and family time;
- Fishing trips to Canada and Alaska;
- Their purchase of a “‘dream home’ ” in California in 2013;
- There was no evidence that Travelers helped finance the settlement between EMC and the Estate; and
- Travelers had charged and received the necessary premiums to provide workers’ compensation coverage for Evertson Operating Company; and under all the circumstances, Travelers’ financial risk was minimal and insurance companies are in the business of assuming risk.
Naturally, Travelers appealed to the Nebraska Court of Appeals. The Court noted that the distribution of proceeds of a judgment or settlement under § 48-118.04 is left to the trial court’s discretion and there is an abuse of discretion standard on appellate review. A judicial abuse of discretion requires that the reasons or rulings of a trial judge be clearly untenable, unfairly depriving a litigant of a substantial right and a just result. Sterner v. American Fam. Ins. Co., 805 N.W.2d 696 (Neb. App. 2011).
The Court, on appeal, did not consider the $1 million UIM policy and the settlement of $500,000 from that policy. This is because the record on appeal did not establish that UIM benefits had or would be received. The Court of Appeals made a point of mentioning that this evidence was not preserved for appeal, stating:
Travelers requested that a second supplemental transcript be filed with this court which showed that on March 18, 2015, the county court entered orders approving the settlement of the UIM claim and approving the distribution of $500,000 of UIM settlement proceeds. However, these were obviously not considered by the county court at the hearing on November 17, 2014, and we likewise do not consider them on appeal. An appellate court reviews a case upon the evidence actually received and considered in the trial court.
As a result, it held there was no error. Travelers argued that the trial court applied a “made whole” analysis, instead of a “rule of proportionality” analysis, and the appellate court noted that § 48-118.04 provides:
If the employee or his or her personal representative or the employer or his or her workers’ compensation insurer do not agree in writing upon distribution of the proceeds of any judgment or settlement, the court, upon application, shall order a fair and equitable distribution of the proceeds of any judgment or settlement.
The Nebraska Supreme Court has refused to read such a formula into the statute and has specifically rejected the adoption of the “Made Whole” Doctrine or the “rule of proportionality” to determine what constitutes a fair and equitable distribution. Sterner, supra. Under the plain language of § 48-118.04, the trial court can make a fair and equitable distribution, something left to the court’s discretion and to be determined by the trial court under the facts of each case.
The Court of Appeals ruled that the trial court conducted a “fair and equitable” analysis, taking into consideration various factors, including the purchase of a “dream home” in California in 2013. The Court also noted and was swayed by the fact that Travelers did not expend any funds in securing the settlement. It held that the trial court did not abuse its discretion in shutting out Travelers and ruling that in awarding it zero dollars in satisfaction of its statutory right of reimbursement, the trial court was somehow “fair and equitable.”
The legislative history of L.B. 594 reveals that the purpose of what is now § 48-118.04 was to prevent a fair and reasonable settlement between the employee and third-party tortfeasor from being delayed because the parties could not agree on how the proposed settlement should be distributed. Burns v. Nielsen, 732 N.W.2d 640 (Neb. 2007). As the introducing senator explained:
Workers’ compensation cases sometimes … move slowly through the court for no other reason other than [that] third parties, when you have a lot of parties involved you can’t seem to get the cases settled…. Oftentimes, in determining either under the doctrine of subrogation or third party medical providers or what have you can’t agree on a settlement amount, what percentage should be paid, or whatever in a disputed claim, and because of that the case itself slows down. This would allow the court to step in at that time and say, this is a reasonable settlement figure, it ought to go. This is a reasonable distribution of those proceeds. Id; Floor Debate, L.B. 594, Committee on Business and Labor, 93d Leg., 2d Sess. 8098-99 (Jan. 18, 1994).
Because § 48-118.04 directs the trial court, when the parties cannot agree, to order a “fair and equitable distribution” of settlement proceeds, some Nebraska courts have said that the changes made by L.B. 594 called for application of the law of equity to the statutory right of subrogation. Jackson v. Branick Indus., 581 N.W.2d 53 (Neb. 1998). However, later decisions have clarified that subrogation in workers’ compensation cases is still based on statute and not in equity. Burns, supra. Nebraska has not adopted the “Made Whole” Doctrine or any other specific rule for determining how to fairly and equitably distribute the settlement. Turco v. Schuning, 716 N.W.2d 415 (Neb. 2006); Burns, supra. Section 48-118.04 was not intended to permit the subrogation interest of an employer or workers’ compensation insurer to be subject to any equitable defenses. Burns, supra. Apparently, however, it’s “fair and equitable” to simply wipe out an entire workers’ compensation lien and send the carrier with the statutory right of reimbursement to bed without supper.
But, the carnage didn’t stop there.
Travelers argued that the trial court erred in not granting them a future credit. Travelers claimed that an employer or workers’ compensation carrier is entitled under § 48-118 to treat amounts recovered by an employee from a settlement with a third-party tortfeasor exceeding the compensation benefits the employer or compensation carrier has paid as “advances against possible future compensation.” In support of its claim, Travelers relies upon language contained in § 48-118 which provides:
Any recovery by the employer against such third person, in excess of the compensation paid by the employer after deducting the expenses of making such recovery, shall be paid forthwith to the employee or to the dependents and shall be treated as an advance payment by the employer on account of any future installments of compensation.
The plain language of this portion of the statute refers to “[a]ny recovery by the employer against such third person….” Noting that the recovery against the tortfeasor was not made by the employer or workers’ compensation carrier, but by the employee’s personal representative on behalf of the Estate, which recovery would then be distributed to Darla and her adult children, the Court denied Travelers a future credit.
In the 2012 Nebraska Supreme Court decision of Bacon v. DBI/SALA, 822 N.W.2d 14 (Neb. 2012), the Court addressed the confusing language of the statute which reads:
Any recovery by the employer against such third person, in excess of the compensation paid by the employer after deducting the expenses of making such recovery, shall be paid forthwith to the employee or to the dependents and shall be treated as an advance payment.
Plaintiffs have implied that only when the employer/subrogated carrier itself makes the recovery – as opposed to the employee making the recovery – are they entitled to a future credit. The Court of Appeals in Evertson held that:
The plain language of this portion of the statute refers to “[a]ny recovery by the employer against such third person….” In this case, the recovery against the tort-feasor was not made by the employer or workers’ compensation carrier; rather, it was made by the employee’s personal representative on behalf of the Estate, which recovery would then be distributed to Darla, Evertson’s son, and Evertson’s daughter. Thus, the language relied upon by Travelers is not applicable to the instant case.
There wasn’t even a pretense of following precedent here. In the Bacon case, the Nebraska Supreme Court put to rest the notion that somehow a recovery has to be effected by the employer or the workers’ compensation carrier in order for the carrier to be reimbursed or receive a future credit. In Bacon, the employee argued that the employer could not assert subrogation rights because the employer had not brought the third-party action – the employee did. The Court began by reviewing the language of § 48-118, specifically the “[a]ny recovery by the employer” language. The Bacon Court reviewed previous Nebraska cases in which the court clearly rejected any distinction between recovery by the employer and recovery by the employee, and affirmed the future credit granted by the trial court. The Court reasoned that § 48-118 was enacted “for the benefit of the employer” and that “[i]nnocent employers who are required to compensate employees for injuries are intentionally granted a measure of relief equivalent to the compensation paid and the expenses incurred, where a third person negligently causes the loss and responds in damages to that extent.” Id. The Court found the language of the statute relied on by the employee and that “recovery by the employer” was trumped by the statute’s more general mandate that the employer shall be subrogated to the rights of the employee against third parties. Id. The carrier’s right to a future credit against an employee’s recovery does not depend upon who brought the action which led to the employee’s recovery or who happens to “recover” first. Id.
In fact, the distinction between recovery by the employer and recovery by the employee was put to rest over thirty years ago. Turner v. Metro Area Transit, 368 N.W.2d 809 (Neb. 1985). In Turner, a dissenting justice argued that § 48-118 distinguishes between recovery by the employer and recovery by the employee. The majority opinion implicitly rejected that viewpoint. That case was brought by the injured employee against a negligent third party and the Court allowed the employer a future credit in the amount of the worker’s settlement with the third-party tortfeasor. Id. Years later, the Supreme Court again affirmed this approach by declaring that an employer doesn’t waive its subrogation right to a credit from the proceeds of the employee’s settlement with third-party tortfeasors by accepting subrogation reimbursement directly from the defendant of the past lien. Turney v. Werner Enterprises, Inc., 618 N.W.2d 437 (Neb. 2000). The Turney Court specifically and clearly stated:
Under § 48-118, we conclude that Werner is entitled to a credit against the settlement proceeds for future workers’ compensation payments to the [employee] until the settlement proceeds are exhausted.
The fact that a Nebraska Court of Appeals could get things so wrong is a testament to the anti-subrogation bias harbored by some courts. Rationalization is the second-strongest human drive and it was on full display in this bizarre decision. The Court also pointed out that the subrogated carrier’s cause was not helped by the fact that there was no evidence on appeal regarding the fact that there was a $1 million UIM policy issued to the employer from which the employee would also be making a potential recovery and to which the carrier arguably was also subrogated. Shkolnick v. Am. Family Mut. Ins. Co., 506 N.W.2d 356 (Neb. App. 1993). This is a case that must be appealed to the Nebraska Supreme Court.
If you should have any questions regarding this article or workers’ compensation subrogation in general, please contact Gary Wickert at firstname.lastname@example.org.