Trial lawyers in Nebraska had high hopes that a questionable Court of Appeals decision from early 2016 might reinject the equitable Made Whole Doctrine into Nebraska workers’ compensation subrogation and eliminate any right of the carrier to a future credit whenever the injured employee files and pursues a third-party action. On December 16, 2016, the Nebraska Supreme Court decision in In Re Estate of Evertson, 295 Neb. 301 (Neb. 2016) appears to have dashed those hopes, but perhaps not as forcefully and authoritatively as the workers’ compensation insurance industry and Nebraska employers would have liked. The Supreme Court reversed the Court of Appeals decision, but did it on jurisdictional grounds, holding that the county court which made the ruling that destroyed Travelers’ workers’ compensation lien and denied it any future credit despite a sizeable third-party settlement, had no subject matter jurisdiction. It vacated the Court of Appeals’ decision.
There is history to this issue. The distinction between recovery by the employer and recovery by the employee was supposedly put to rest over thirty years ago. In the 1985 Supreme Court decision of Turner v. Metro Area Transit, 368 N.W.2d 809 (Neb. 1985), a dissenting justice suggested that Neb. Rev. Stat. § 48-118 distinguishes between recovery by the employer and recovery by the employee. The majority opinion implicitly rejected that viewpoint. The action had been 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.
In 2000, the Supreme Court in Turney v. Werner Enterprises, Inc., 618 N.W.2d 437 (Neb. 2000) 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. The Court specifically said that, “Under § 48-118, we conclude that Werner is entitled to a credit against the settlement proceeds for future workers’ compensation payments to the Turneys until the settlement proceeds are exhausted.”
In the 2012 decision of Bacon v. DBI/SALA, 822 N.W.2d 14 (Neb. 2012), the Nebraska Supreme Court arguably put to rest the strange notion that somehow a recovery must 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, “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.
The Court in Bacon also pointed out that the legislature’s reasoning underpinning the language “recovery by the employer” was based on the fact that at one point, the employer had the right to pursue the third-party action until the employee could show that it had neglected or refused to file such an action:
There is, in fact, a simple explanation for the focus on “recovery by the employer.” When this language was originally enacted, the right to an action against the third party rested almost exclusively with the employer, until such time as the employee could allege and prove that his employer had neglected or refused to institute the action. Oliver v. Nelson, 258 N.W. 69 (Neb. 1934). It was only later that the last paragraph was added, which was intended to expand the rights of the employee to bring an action against third parties. That amendment was careful not to diminish the employer’s subrogation rights, however, and thus stated that the employee bringing his or her own action must join the employer as a party to the suit “for the purpose of reimbursement, under the right of subrogation, of any compensation paid.” Bacon, supra. at 590.
The issue appeared to have been definitively settled until the questionable 2016 Court of Appeals third-party wrongful death case of In re Estate of Evertson, 876 N.W.2d 678 (Neb. App. 2016), rev’d on other grounds, 295 Neb. 301 (Neb. 2016).
In In Re Estate of Evertson, Bruce Evertson died in a car accident while working and a probate proceeding was filed in county court for the purpose of collecting wrongful death benefits by the widow, Darla Evertson. Id. Travelers was the workers’ compensation carrier. Darla settled the third-party action and the county court held a “fair and equitable” distribution hearing. On December 29, 2014, the county court filed an order finding that a “fair and equitable” distribution of the settlement proceeds was:
- Darla Evertson: $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 Evertson;
- Their enjoyment of travel and family time;
- Fishing trips to Canada and Alaska;
- Their 2013 purchase of a “dream home” in California;
- 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, which ignored all precedent in affirming the county court order and holding 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.
The Court of Appeals 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, requiring 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). It did not consider the $1 million UIM policy and the settlement of $500,000 from that policy because the record on appeal did not establish that UIM benefits had or would be received.
The case was appealed to the Nebraska Supreme Court and Matthiesen, Wickert & Lehrer, S.C. drafted and filed an amicus curiae brief on behalf of a large Omaha employer, Werner Enterprises, urging the Supreme Court to grant the appeal. On June 7, 2016, the Supreme Court granted the Petition for Further Review and on December 16, 2016, reversed the Court of Appeals and vacated its decision because the county court lacked subject matter jurisdiction over the subrogation matter. It remanded the case back to the Court of Appeals with directions to vacate the order of the county court.
Surprisingly, the Supreme Court did not address the Court of Appeals complete departure from established precedent. 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). 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. The Supreme Court appears to have given honorable mention to the underlying issue when it stated:
Travelers also contends that the Court of Appeals erred in its interpretation of § 48-118 by refusing to allocate any portion of Darla’s settlement funds for future credit for the ongoing benefits it must continue to pay to Darla because Travelers did not participate in obtaining the proceeds. In raising that assignment of error, Travelers relies upon our holding in Bacon v. DBS//SALA. In Bacon v. DBS/SALA, we held that an employer’s or insurer’s right to a future credit against a beneficiary’s proceeds from a wrongful death claim does not depend upon who happens to recover first. However, because we have determined that the county court lacked subject matter jurisdiction to decide the issue of subrogation, we need not comment further on the issue of whether the Court of Appeals erred in its interpretation of § 48-118. An appellate court is not obligated to engage in an analysis which is not needed to adjudicate the case and controversy before it.
It appears that the Supreme Court was gently reminding the Court of Appeals of the strong precedent in this area. Unfortunately, this reminder is likely not strong enough to deter trial lawyers from making the same arguments employed by the county court and the Nebraska Court of Appeals. If you have any questions on workers’ compensation subrogation in Nebraska, please contact Gary Wickert at email@example.com.