TAKING SUBROGATION SHORTCUTS MEANS GETTING CUT SHORT: New Louisiana Decision Highlights Pitfalls Of Not Intervening

Matthiesen, Wickert & Lehrer, S.C. has consistently advised its Louisiana clients to always intervene in third-party tort suits to recover workers’ compensation benefits, as some published opinions have suggested that a workers’ compensation carrier waives its right of recovery if it does not intervene after receiving notice of suit. A recent case from the Louisiana First Circuit Court of Appeals highlights another danger in not intervening: If the employee settles the third-party claim without the workers’ compensation carrier’s consent, the workers’ compensation carrier will not have a cause of action to recover past benefits from the employee, and instead will be forced to pursue the tort claim against the third-party defendant to obtain a recovery for past benefits. If the carrier has not already intervened and has not been actively involved in the third-party litigation, the statute of limitations (in Louisiana it is called prescription) may bar recovery.

In Teri Ledet, et al v. Robinson Helicopter Company, et al, 2015-1286 (La. App. 1st Cir. 4/15/16), the employee died in a helicopter crash and the heirs brought suit against the helicopter owner. The workers’ compensation carrier paid death benefits and later settled the workers’ compensation claim with the employee’s heirs. The carrier’s exposure for future workers’ compensation benefits was terminated by the lump-sum settlement, while the carrier reserved its rights to recover all benefits paid in the third-party litigation. The workers’ compensation carrier intervened in the third-party tort suit.

La. R.S. § 23:1102(B) provides that an employee can settle a third-party claim without the consent of the workers’ compensation carrier, but then forfeits its right to future compensation including medical expenses. The employee can “buy back” that right to future compensation by reimbursing to the carrier the past benefits paid (subject to attorneys’ fees and a proportionate share of costs). Additionally, if the employee compromises the third-party litigation and fails to pay the past benefits to the workers’ compensation carrier, the third-party defendant or his insurer shall be required to reimburse the workers’ compensation carrier to the extent of the total amount of compensation benefits and medical benefits previously paid to or on behalf of the employee. La. R.S. § 23:1102(C)(1).

In the Ledet case, the employee’s heirs settled the third-party claim and, as is customary, agreed to be responsible for all outstanding liens. The employee’s heirs then refused to reimburse the lien for past benefits in the approximate amount of $111,000. Having settled the workers’ compensation claim, the employee’s heirs had no qualms about settling the third-party tort claim and stiffing the workers’ compensation carrier, because they had already been paid for their future benefits as a result of the workers’ compensation settlement. Faced with the unpalatable choice of litigating and proving up a third-party suit against the defendants in a case where the workers’ compensation carrier’s attorney had not been actively involved, the carrier instead filed a Motion to Enforce Settlement. In its Motion, the carrier argued that by agreeing to be responsible for any liens and indemnifying the defendants, the employee’s heirs became responsible for reimbursement of the lien. The trial court agreed. However, the Louisiana First Circuit Court of Appeals reversed, holding that the carrier was not a party to the settlement agreement between the employee’s heirs and the defendants, that the indemnification clause in the settlement agreement did not create a right of action in favor of the carrier to seek enforcement of that settlement agreement, and § 23:1102 did not grant to the carrier a right of reimbursement from the employee’s heirs. Instead, the only claim remaining to the carrier was a right of action directly against the third-party defendants.

This case highlights the importance of intervening into a third-party suit as soon as possible and actively participating in developing the cause of action against the third-party defendants. If the worker’s compensation carrier is not intervened and active in the litigation, an employee who is not worried about future benefits can settle the third-party claim and then refuse to reimburse the carrier. The employee then has little incentive to assist the workers’ compensation carrier in pursuing the third-party defendants. If the workers’ compensation carrier has never intervened, it is also likely that the statute of limitations or prescriptive period will bar any recovery against the third-party defendants. Even if the workers’ compensation carrier has intervened, but is not active in the litigation, recovery will be very difficult because the carrier may not have the cooperation of the employee, will not have access to the employee’s experts, and will not have sufficient knowledge of the third-party case to effectively litigate and try the claim against the defendants. It is very important to retain subrogation counsel early and to retain subrogation counsel who will intervene and actively pursue the defendants in Louisiana in order to avoid the Ledet scenario.

Another lesson of this case is that because the carrier didn’t intervene, its only option was to pursue the third-party case against the tortfeasors and it couldn’t enforce its lien against the heirs despite the indemnity language. The carrier opted for the shortcut and it cost them.

If you should have any questions regarding this article or subrogation in general, please contact Jim Busenlener at [email protected].

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James T. Busenlener
Partner

James T. Busenlener is an insurance trial lawyer and the managing partner of Matthiesen, Wickert & Lehrer, S.C.’s New Orleans branch office. Jim is licensed to practice law in Louisiana, Texas, and Pennsylvania, as well as numerous federal district and appellate courts.