The Utah Supreme Court has issued an important decision for workers’ compensation and subrogation professionals navigating third-party recoveries and future credits. In HB Construction and/or Auto Owners Insurance Co. v. Labor Commission of Utah, the Court resolved a long-standing ambiguity in Utah Code § 34A-2-106(5) and clarified how attorney fees must be allocated when a carrier seeks both reimbursement of past benefits and an offset against future liability (future credit).[1] The decision fills a doctrinal gap left by Anderson v. United Parcel Service, and builds upon the framework established in Esquivel v. Labor Commission.[2]
For adjusters and subrogation professionals, the takeaway is straightforward but significant: if a carrier intends to use a third-party recovery to suspend or reduce future benefits, it must include the value of those future benefits in calculating its proportionate share of attorney fees and costs. And that proportionate share must be satisfied before the carrier may exercise its future credit.
The Facts Behind HB Construction
The case arose from a catastrophic workplace injury. The injured employee settled a third-party tort action for $5 million. Approximately $2.15 million of that amount was paid in attorney fees and litigation costs. The carrier had paid roughly $1.58 million in workers’ compensation benefits by the time of settlement. Future medical and care costs were projected to exceed $7 million.
The dispute centered on how to calculate the carrier’s proportionate share of the litigation expenses under § 34A-2-106(5)(a)(i), which requires that the “reasonable expense of the action, including attorney fees,” be “paid and charged proportionately against the parties as their interests may appear.”
The carrier argued that its “interest” in the recovery should include only past benefits actually paid at the time of settlement. Because future benefits were uncertain and contingent on longevity and medical needs, the carrier contended they should not be included in the fee calculation.
The Labor Commission disagreed, and the Utah Supreme Court affirmed. The Court held that when a carrier seeks both reimbursement of past benefits and an offset against future liability under § 34A-2-106(5)(b) and (c), its interest in the recovery necessarily includes both past and reasonably anticipated future benefits.
Why This Decision Matters
To understand the significance of HB Construction, it helps to review the doctrinal path leading to it.
In Esquivel, the Utah Supreme Court established that third-party recoveries must reimburse the carrier for benefits already paid and also offset future liability. It further confirmed that attorney fees must be apportioned proportionately based on the parties’ respective interests in the recovery. Although Esquivel accounted for future liability in calculating the carrier’s interest, the specific issue of how to treat projected future benefits in complex, high-exposure cases was only implied and not fully developed.
In Anderson, the Court addressed the statutory priority of reimbursement and offset and rejected equitable arguments inconsistent with the statutory scheme. However, Anderson also did not squarely address whether a carrier’s pro rata share of attorney fees must be based on the present value of the future credit it seeks to obtain. That question lingered.
HB Construction answers it directly. The Court held that the statutory phrase “as their interests may appear” does not require certainty and does not exclude projected future benefits. If a carrier intends to benefit from a future credit that suspends or reduces its obligation to pay benefits, that future liability forms part of its interest in the recovery. As a result, projected future benefits must be included in the proportional fee calculation. This can significantly increase the carrier’s proportionate share of attorneys’ fees and costs that it is required to contribute to a recovery.
In practical terms, if the carrier’s total interest—past paid plus anticipated future benefits—exceeds the amount of the recovery, its proportionate share of attorney fees can exceed 100 percent of the fee pool. That was effectively the result in HB Construction.
Calculation Examples
The mechanics of the statute become clearer when reduced to numbers. Consider first a simple case with no meaningful future credit. Assume a third-party recovery of $100,000 and attorney fees and costs of $33,333. The carrier has paid $40,000 in past medical and indemnity benefits and the claimant has little or no anticipated future exposure. The carrier’s “interest” is therefore $40,000. Dividing $40,000 by the $100,000 gross recovery yields a 40% proportionate interest. The carrier’s share of the $33,333 in litigation expenses is 40%, or $13,333. Under § 34A-2-106(5), the carrier is reimbursed for its $40,000 lien less its $13,333 fee share, resulting in a net reimbursement of $26,667. The balance of the recovery, after fees and lien reimbursement, belongs to the employee. Because there is no substantial future exposure, there is little or no offset to administer going forward.
Now contrast that with a catastrophic injury case involving a significant future credit. Assume a $500,000 third-party recovery with $200,000 in attorney fees and costs. The carrier has paid $100,000 in past benefits, but reasonably anticipated future medical and indemnity exposure is $1,000,000. The carrier’s total statutory “interest” in the recovery is therefore $1,100,000. Dividing $1,100,000 by the $500,000 gross recovery yields a proportionate interest of 220 percent. When that percentage is applied to the $200,000 in litigation expenses, the carrier’s proportionate share exceeds the total fee amount. Under HB Construction and Esquivel, the carrier must bear the entire $200,000 in attorney fees and costs before exercising any future credit. After satisfying that obligation and accounting for its $100,000 past lien, the remaining net recovery is applied as a credit against future benefits. In this scenario, the carrier effectively funds the litigation in full because, according to the court’s logic, it is the principal economic beneficiary of the third-party recovery through the substantial future offset it seeks to obtain.
Reimbursement Must Precede Credit
Because the employee had paid all litigation expenses from the recovery, the carrier owed reimbursement for its unpaid proportionate share before it could exercise any future offset. The carrier characterized this as an impermissible “advance of benefits.” The Court rejected that framing. The payment was not an advance; it was the carrier’s statutory obligation to bear its share of the cost of securing the recovery from which it sought to benefit.
This sequencing is critical. The statutory scheme requires:
- Allocation and satisfaction of litigation expenses proportionately.
- Reimbursement to the carrier for past benefits paid, reduced by its fee share.
- Application of the remaining balance as a credit against future benefits.
A carrier may not simply net its fee obligation against its future credit and declare a wash. If it wants the credit, it must first pay for it.
Implications for Adjusters and Subrogation Professionals
This decision has several practical consequences. First, projected future exposure now directly affects the fee allocation analysis. In catastrophic injury cases involving lifetime medical care, the carrier’s “interest” may dwarf the gross recovery. Adjusters should anticipate that fee allocations may approach or exceed the total attorney fee amount where future exposure is substantial.
Second, life expectancy and medical projections matter. Because future liability must be considered, credible actuarial and medical projections will be central in contested allocation proceedings. That is something for the carrier to consider when setting reserves in light of a pending third-party action. The Court acknowledged uncertainty but made clear that uncertainty does not justify exclusion.
Third, cash flow planning becomes important. If the employee has advanced all attorney fees, the carrier may need to issue a reimbursement payment before it can begin suspending benefits. This may create short-term financial impact even in cases where the carrier ultimately obtains a substantial future credit. That may be a factor in some cases where the carrier decides to simply waive the credit in order to avoid an immediate cash outlay.
Fourth, settlement strategy must account for fee exposure. In evaluating whether to intervene, contribute to fees, or negotiate a global resolution, carriers must factor in that the future credit they hope to secure carries a proportional cost. But they can’t factor it in if they don’t understand it.
Finally, HB Construction reinforces a broader principle: a carrier cannot enjoy the benefit of a third-party recovery without sharing in the cost of obtaining it. That principle was present in Esquivel, untouched in Anderson, and now explicitly reaffirmed in the context of future credits.
Filling the Gap
The importance of HB Construction lies in its doctrinal clarity. Anderson left open the valuation mechanics of future credits. Esquivel provided a structure but only supplied implications and did not fully confront large-scale future exposure disputes. HB Construction closes that gap.
For workers’ compensation professionals, the message is clear. When analyzing a third-party recovery:
- Include both past paid and reasonably anticipated future benefits in determining the carrier’s proportional interest if a future credit will be asserted.
• Calculate the carrier’s pro rata share of attorney fees based on that total interest.
• Ensure that the carrier’s proportionate fee obligation is satisfied before applying any future offset.
Utah has now definitively answered the question that lingered for more than two decades. A future credit is not free. If a carrier intends to reduce or suspend its future compensation obligation using a third-party recovery, it must pay its proportionate share of the cost of obtaining that recovery, measured by the full value of the interest it seeks to protect.
For adjusters and subrogation professionals, HB Construction is not merely a technical clarification. It is a reminder that future exposure and fee allocation are inseparable in third-party recovery analysis.
For questions regarding Utah workers’ compensation subrogation or recovery rights in any state, please contact Mark Solomon at msolomon@mwl-law.com.
[1] HB Construction v. Labor Comm’n of Utah, 2026 WL 534446 (Utah 2026).
[2] Anderson v. United Parcel Service, 2004 UT 57, 96 P.3d 903; Esquivel v. Labor Commission, 7 P.3d 777 (Utah 2000).
