Serrano v. Workers’ Comp. Appeal Bd. (Ametek, Inc.), 2017 WL 563317 (Pa. Comm. 2017).
On March 6, 2006, a container of metal powders, with which Serrano was working, exploded, severely burning him. Serrano sued Aramark Uniform and Career Apparel, Inc. (Aramark), which had provided the flame-resistant coveralls Serrano had been wearing at the time of the accident. Serrano alleged that the coveralls did not protect him as warranted by Aramark. Two years later, Serrano settled with Aramark for $2.7 million. In August 2008, the employer asserted a lien of $946,024.70 against Serrano’s settlement for its payment of medical and disability compensation to Serrano. Deducting the employer’s proportionate share of attorney’s fees and costs, the net lien asserted by the employer was $620,178.30. Disputing the employer’s entitlement to the full amount of the lien asserted, Serrano filed a review petition to have the amount of his employer’s subrogation rights determined, and $630,000 was placed into escrow pending the outcome of litigation.
The parties agree that claimant’s burn injuries to his torso, shoulder, arms, and legs were worsened and enhanced by the insufficient/defective coveralls provided by Aramark, and that such injuries were made more severe than they otherwise would have been if Aramark had supplied sufficiently protective coveralls. The coveralls provided by Aramark did not contribute to the burns to Serrano’s neck, face, hands, esophagus, and lungs. The parties agreed that the medical benefit paid by the employer could not be precisely prorated according to each body part injured. Because two-thirds of claimant’s burns were areas covered by the coveralls, Serrano argued that the carrier was entitled to two-thirds of its asserted lien against the settlement. Aramark had refused liability for the injuries to those other areas of Serrano’s body because the coveralls did not aggravate those injuries.
The Workers’ Compensation Judge (“WCJ”) determined that the carrier was entitled to $610,181.59 of the escrowed funds, because it was allowed to recover all of the wage loss benefits paid, and the medical expenses it incurred for the injuries to the torso, arms, and legs caused by Aramark’s negligence. However, the carrier was not entitled to recover $15,302.31 in medical expenses paid to treat the hands, neck, face, head, trachea, larynx, and lungs. Likewise, the carrier was not entitled to reimbursement for the specific loss benefit of $27,937.50 for the scarring to the neck, face, and head. In making this determination, the WCJ relied on the testimony of Serrano’s attorney, that the “work-related injuries to his neck, face, head, and arms, and his inhalation injuries to his esophagus and lungs, were not caused in whole or in part by the acts or omissions of Aramark.” Both parties appealed to the Board, which reversed the WCJ’s decision, stating that § 319 states that an employer is entitled to recover its expenses when a third party causes the work injury “in whole or in part.” The Board concluded that Serrano’s discrete work injuries, as separately enumerated in the carrier’s Notice of Compensation Payable, constituted a single compensable injury for purposes of § 319. Because Aramark caused some of the injuries, the Board reasoned that the carrier was entitled to subrogate its entire lien from the Aramark settlement. The Board remanded the matter to the WCJ, who issued a remand decision that awarded the carrier $620,178.30 for reimbursement of all wage loss benefits and medical expenses paid prior to August 15, 2008.
Serrano again appealed to the Board, reiterating his theory that the carrier’s subrogation rights were limited to compensation paid for those discrete work injuries caused by Aramark. The Board rejected the appeal, explaining “that the employer’s right to subrogation under § 319 is absolute” and “equitable considerations do not outweigh the mandatory language of § 319.”
Serrano appealed to the Commonwealth Court, one of Pennsylvania’s two intermediate appellate courts, arguing that the Board erred in holding that all of his enumerated work injuries constituted a single compensable injury for purposes of § 319. Serrano again argued that the carrier should not be entitled to reimbursement of compensation paid as a result of the burns to the claimant’s hands, neck, face, head, trachea, larynx and lungs, because Aramark did not cause those injuries, even in part.
On appeal, the Commonwealth Court focused on the meaning of § 319, under which subrogation is “automatic” and allows for no express exceptions, equitable or otherwise. Young v. Workers’ Compensation Appeal Board (Chubb Corporation), 88 A.3d 295 (Pa. Cmwlth.), petition for allowance of appeal denied, 97 A.3d 746 (2014). The court noted that employer’s burden is as follows:
To establish its right to subrogation, the employer must demonstrate that it was compelled to make payments due to the negligence of a third party and that the fund against which the employer seeks subrogation was for the same injury for which the employer is liable under the Act. Whether an employer is entitled “to subrogation is a question of law based upon the facts as found by the WCJ.
Section 319 refers to “a compensable injury.” The issue on appeal was whether a subrogation analysis must be done for each “compensable injury” where there is more than one work injury for which the employer has accepted liability. Here, Aramark assumed liability for some of claimant’s work injuries, and it denied liability for others.
The Commonwealth Court noted that the WCJ’s decision held that the carrier was not entitled to recover the medical expenses, which the WCJ quantified as $15,302.31, which the carrier incurred to treat the burns not caused by Aramark. The WCJ also held that carrier was not entitled to subrogate the specific loss benefit of $27,935.50 for the scarring and disfigurement to the neck, face, and head, which were not caused by Aramark. The WCJ allowed the carrier to recover all its medical expenses, with the exception of $15,302.31, and 100% of the wage loss benefits it paid. Serrano appealed the WCJ’s refusal to apportion the carrier’s subrogation rights to a percentage of the total, as suggested by the employee. The Board did not address this part of Serrano’s appeal, so the Commonwealth Court vacated the Board’s order and remanded the case to the Board to address those issues.
The court ruled that nothing in § 319 supports the view that a “compensable injury” means many “compensable injuries” if they are sustained in a single work accident. The legislature knows the difference between a singular and plural noun. It could have stated that if a tort settlement covers one injury out of many work injuries, the entire fund is available for subrogation. Because the statute does not state that, the court ruled that a subrogated carrier must produce evidence to show that the injuries for which it paid benefits (in this case, to Serrano’s hands, neck, face, head, trachea, larynx, and lungs) were caused, even “in part,” by the defendant in the third-party case.
The law now is that, where there are multiple injuries, but the tort recovery covers only some of those injuries, subrogation might be limited to those injuries caused by the third party. If the carrier can recover only for benefits paid for work injuries caused, in part, by the third-party tortfeasor, the potential burden of proof for subrogated carriers just got a lot more difficult. In addition, the potential for gerrymandering settlements to avoid repayment of workers’ compensation liens has widened considerably. The employee and the third party are free to conspire and agree in the third-party settlement documents that the settlement is for certain injuries (those with less lien payments covering them) and not for others (for which larger amounts of medical expenses payments are made). Instead of gerrymanding a settlement among elements of damages, subrogated carriers must now be mindful of apportioning only certain injuries to the tortfeasor, thereby artificially reducing the portion of the lien subject to reimbursement. As long as the full value of the settlement is realized, neither the employee nor the third-party defendant care which injuries are compensated in the settlement. However, the workers’ compensation carrier clearly does care, and the need for subrogation counsel in Pennsylvania cases has become even more important. If the third-party case is tried, this tool for avoiding subrogation liens will be less available, because the jury must allocate medical expenses caused by the defendant.
For more information on how to protect your valuable subrogation dollars in Pennsylvania, contact Gary Wickert at firstname.lastname@example.org.