In a rare example of how strong a workers’ compensation statutory lien can be, a Pennsylvania appellate court affirmed a ruling by a Workers’ Compensation Judge (affirmed by the Workers’ Compensation Appeal Board (WCAB)) in which a workers’ compensation carrier was allowed to recover its full $45,530.48 lien out of the employee’s $675,000 third-party settlement, even after a claims adjuster for the carrier’s TPA advised plaintiff’s counsel that the lien was only $14,210.69.
The facts of the case are fairly straightforward. Janelle Newsome was a police officer with the city of Philadelphia in 2016 when she was hit on the head by a construction sign due to the negligence of the contractors who placed the sign. Newsome began receiving workers’ compensation benefits under the Pennsylvania Workers’ Compensation Act, and also retained an attorney to sue the contractors responsible for the injury. Plaintiff’s counsel, prior to resolving the case, contacted and received an estimate of the amount of Employer’s subrogation lien from Employer’s third-party administrator. Andrew Lankford, a claims adjuster, informed plaintiff’s counsel that the amount of the subrogation lien was only $14,210.69. Relying on this information, plaintiff’s counsel immediately settled the third-party case for $675,000. After the settlement, Lankford’s supervisor reviewed the file and noticed that the true size of the lien was actually $45,646.73. The carrier immediately filed a modification/review petition asserting its full lien against the employee’s third-party recovery.
Most claims professionals, and indeed, most subrogation attorneys, might immediately jump to the conclusion that the carrier was estopped from claiming a lien in excess of the $14,210.69 figure it gave plaintiff’s counsel, and on which he relied in settling the third-party case. After all, the law on negligent misrepresentation and detrimental reliance in Pennsylvania was that if a negligent representation was detrimentally relied on, the party who made the negligent misrepresentation could be prevented from going back on the representation under a theory of promissory estoppel. Detrimental reliance occurs when there is a “(1) a promise/representation to a promisee, (2) which the promisor should reasonably expect will induce action by the promisee, (3) which does induce such action, and (4) which should be enforced to prevent injustice to the promisee.”
Despite the misstatement as to the lien amount, and the Commonwealth Court held that the carrier was entitled to recover its full $45,535.73 lien. The court confirmed by confirming that an employer’s/carrier’s subrogation rights under Section 319 of the Act are absolute, and it may not be reduced without an employer’s consent or in the absence of an employer’s deliberate bad faith. Because there was no bad faith—merely a mistake—the court allowed the carrier to recover the full lien.
It seems that plaintiff’s counsel had additional communication with the claims adjuster after the third-party settlement, and the possibility of reducing the lien based upon settlement costs. When the claims adjuster finally informed plaintiff’s counsel that the lien total had increased to $48,530, the attorney told the adjuster that he had relied on the $14,210.69 figure provided by Claims Adjuster, and that the employee should not be responsible for any additional money owed due to the adjuster’s negligence. Plaintiff’s counsel confirmed that his law firm was holding $14,098.77 in escrow to cover the subrogation lien.
The Workers’ Compensation Judge ruled in the carrier’s favor and the employee appealed to the WCAB. The WCAB affirmed the WCJ and on appeal, the Commonwealth Court also affirmed. The WCJ noted that when the plaintiff’s attorney received the $14,098.77 figured provided by the claims adjuster, he knew that his client had been receiving indemnity benefits far in excess of that amount and should have known that the amount was inaccurate. The WCJ directed plaintiff’s counsel to release from escrow the amount of $14,098.77, and to further pay the carrier$31,431.71, for a total of $45,530.48 as satisfaction of the net subrogation lien. He also granted a future credit to the carrier, ordering that the carrier would only be responsible for 45.10% of any future indemnity benefits until the future credit in the amount of $586,592.95 was exhausted.
The takeaway of this case is that a unilateral mistake such as misrepresenting the lien amount to plaintiff’s counsel was “insufficient to defeat the carrier’s absolute right to recover the actual amount of the lien. A carrier’s subrogation rights under Section 319 of the Act are absolute, and they may not be reduced without an employer’s consent or in the absence of an employer’s deliberate bad faith.
For questions regarding workers’ compensation subrogation, please contact Jim Busenlener at jbusenlener@mwl-law.com.
