Pennsylvania Supreme Court Destroys Compensation Carrier’s Ability To Initiate Filing Of Third-Party Action

A long-standing political tug-of-war over whether a workers’ compensation carrier can initiate a third-party subrogation lawsuit and protect its subrogation rights under § 319 has ended with a disappointing Supreme Court decision. On November 21, 2018, the Pennsylvania Supreme Court decided the case of Hartford Ins. Group on Behalf of Chen v. Kamara, 2018 WL 6070474 (Pa. Nov. 21, 2018), ending a see-saw battle over whether a workers’ compensation carrier can bring a third-party action against a third-party tortfeasor on behalf of an injured employee to recoup the amount paid in workers’ compensation benefits where the employee did not independently sue the tortfeasor, did not join in the insurer’s action, and did not assign her cause of action to the insurer.

Arriving at the Kamara decision has been a long and winding road. On April 17, 2015, the Pennsylvania Supreme Court, in in Liberty Mutual Ins. Co. v. Domtar Paper Co., 113 A.3d 1230 (Pa. 2015), denied Liberty Mutual the right to file a third-party action, but only because the court felt it wasn’t done correctly. They also left behind valuable clues on how it should have been done. Domtar established that “the employer or workers’ compensation carrier’s right of subrogation under § 319 must be achieved through a single action brought in the name of the injured employee or joined by the injured employee.”

On February 10, 2017, in The Hartford Insurance Group on Behalf of Chen v. Kamara, 2017 WL 542020 (Pa. 2017), a Superior Appellate Court determined that a subrogated workers’ compensation carrier may initiate filing a third-party action on its own initiative, provided it does so correctly. That court correctly pointed out that § 671 of Pennsylvania’s Workers’ Compensation Subrogation Act couldn’t be clearer. It unambiguously states, “…the employer shall be subrogated to the right of the employee.” However, that didn’t deter opponents of subrogation from arguing that a workers’ compensation carrier did not have a right to initiate a third-party subrogation action because the subrogation right contained in § 671 does not rise to the level of an “assignment.” The argument was that under Pennsylvania law, a workers’ compensation carrier had no right to sue a third-party tortfeasor in its own name, primarily because actions arising from tortious conduct are unitary and may not be divided.

In Hartford Insurance Group on Behalf of Chen v. Kamara, Chunli Chen was standing in the parking lot of Thrifty Car Rental, waiting to rent a car, when she was struck by a rental car operated by defendant, Kafumba Kamara, and owned by defendant, Thrifty Car Rental, and/or defendant, Rental Car Finance Group. Chen was employed by Reliance Sourcing, Inc. and Hartford Insurance Group (“Hartford”) paid $59,424.71 in workers’ compensation benefits to or on behalf of Chen. Hartford thereafter sued Kamara and styled the complaint with “The Hartford Insurance Group on behalf of Chunli Chen” as the plaintiff.

While Pennsylvania law has long allowed for a workers’ compensation carrier to be subrogated to the rights of an injured employee, the Pennsylvania Supreme Court had previously held, based on long-standing precedent, that “the right of action against a third-party tortfeasor under Section 319 of the [Workers’ Compensation Act] remains in the injured employee, and that the employer/insurer’s right of subrogation under Section 319 must be achieved through a single action brought in the name of the injured employee or joined by the injured employee.” Liberty Mutual Ins. Co. v. Domtar Paper Co., 113 A.3d 1230 (Pa. 2015). Precisely what that meant was, until now, unclear.

Kamara asked the trial court to dismiss Hartford’s suit, claiming that, since Chen was the injured employee and neither assigned her cause of action to Hartford nor was a party to the lawsuit, the entire complaint was improper. Hartford responded that suit was proper because “[i]n the Domtar [Paper] case, Liberty Mutual filed suit ‘as subrogee of’ [the injured employee, while, in the case at bar,] Hartford captioned the suit ‘on behalf of Chunli Chen’ to show [that Hartford is] appropriately pursuing this action in the name of the injured employee.”

On February 25, 2016, the trial court entered an order that sustained both of Kamara’s preliminary objections and dismissed Harford’s complaint with prejudice. The trial court held that under Domtar Paper, dismissal was proper because Hartford was attempting to bring an independent cause of action against the third-party tortfeasors. As the trial court explained, “under Pennsylvania law, actions against a third-party tortfeasor must be brought by the injured employee; the workers’ compensation insurance carrier has no independent cause of action against the tortfeasor under Section 319 of the Workers’ Compensation Act.”

Hartford appealed to the Superior Court (one of two intermediate appellate courts in Pennsylvania), and the issue was whether the trial court erred in dismissing Hartford’s claim when, under Domtar Paper, Hartford captioned the suit “The Hartford Insurance Group on behalf of Chunli Chen” to show that the action was appropriately brought in the name of the injured employee. The Superior Court correctly noted that, in Domtar, Liberty Mutual sued “as subrogee of” the injured employee, while Hartford styled the suit “on behalf of Chunli Chen” to show that Hartford was appropriately pursuing this action as a “use plaintiff” in the name of the injured employee. Hartford was not pursuing a subrogation claim directly against the third-party tortfeasors, as in Domtar Paper. Instead, Hartford sued “on behalf of Chen” and was attempting to establish the liability of the third-party tortfeasors to Chen. Therefore, the Superior Court felt that Hartford’s lawsuit was proper under both the Workers’ Compensation Act and case law construing the Act and overturned the trial court’s ruling. The Superior Court decision was appealed to the Pennsylvania Supreme Court.

In denying Hartford the right to file the third-party action, the Supreme Court admitted that the statute says “[w]here the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employee… to the extent of the compensation payable under this article by employer.” It gave several flimsy reasons for denying the carrier the right to subrogate when the employee does not:

  • Granting an employer an independent cause of action against the tortfeasor would impermissibly split the employee’ cause of action, subjecting the tortfeasor to multiple suits for the same harm.
  • The action commenced by Insurer “on behalf of Chunli Chen,” absent Chen’s voluntary joinder or assignment, does not constitute an action brought “in the name of the injured employee.”
  • There is no authority, statutory or otherwise, permitting Hartford to pursue Chen’s cause of action without Chen’s voluntary participation as a party plaintiff or the contractual assignment of her claim. The court ignored the plain language of the statute which states, “the employer shall be subrogated to the right of the employe (sic).”
  • The carrier cannot “seize the injured employee’s cause of action…by merely captioning the complaint ‘on behalf of’ the employee and/or by including in the complaint independent claims of the employee in addition to the claim for subrogation…”.
  • Section 319 did not afford employers/insurers an independent right to sue third-party tortfeasors.
  • The injured worker retains the cause of action against the tortfeasor.

The Pennsylvania Association for Justice (the trial lawyers’ group) filed an amicus brief which espoused that “an employer’s workers’ compensation insurance carrier has every incentive to limit its focus of the litigation against a third-party tortfeasor to the amount it is due in subrogation and has no incentive or obligation to pursue vigorously the injured employee’s independent claims.” Whether that was an oversight or a deliberate misrepresentation to the court is unclear, because a workers’ compensation carrier has every incentive to maximize a third-party verdict because of the future credit it obtains under Pennsylvania law.

What is perhaps most confusing is that the carrier’s ability to file a third-party action is only utilized when the employee does not want to do so. Carriers do not want to pay for prosecuting a lawsuit that an employee will undertake. That an employee with a religious conviction against lawsuits or who has fled the country and is not available to sue could frustrate the ability of a workers’ compensation carrier to seek subrogation and help an innocent Pennsylvania employer hold down its future workers’ compensation premiums with a successful recovery, betrays an almost willful antagonism toward Pennsylvania small businesses. Successful workers’ compensation subrogation helps hold down the cost of business across the entire state. If no employee will file suit, the only winner from this questionable Supreme Court decision is the responsible tortfeasor, who walks away scot-free.

The only valid point made by the Supreme Court was that the current statutory scheme does not require that the workers’ compensation insurance carrier provide notice to the injured worker of any lawsuits commenced by insurers on the worker’s behalf. An insurer could swiftly sue on behalf of the injured employee without her knowledge and obtain a settlement from the third-party tortfeasor before the employee has decided whether to pursue an action to recover sums for non-economic damages, extinguishing the injured worker’s independent claims. The Court noted this was a problem with the statute itself, and one which would have to be remedied by the Pennsylvania legislature. One can only hope they are reading this opinion and drafting a proposed bill to fix this problem.

There were two well-crafted and logical dissents to the decision. Justice Saylor dissented, correctly pointing out that § 319 allows the carrier to step into the shoes of the employee because the subrogation granted by the statute by its very nature involves stepping into another party’s shoes. Frazier v. W.C.A.B. (Bayada Nurses, Inc.), 52 A.3d 241 (Pa. 2012) (“In subrogation, the insurer stands in the shoes of the insured in attempting to recover what is rightfully owed to it from a third-party tortfeasor.”)

Justice Todd also dissented, pointing out that the majority decision seems to turn the common law understanding of “subrogation” on its head, by not allowing Hartford to step into the shoes of the employee as the statute clearly says it may do. Todd correctly points out that the easy fix would have been the adoption by the Supreme Court of procedural safeguards, such as notice to the employee, which are within the constitutional rule-making authority of that court.

If you have questions regarding this article or subrogation in general, please contact Gary Wickert at gwickert@mwl-law.com.

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Gary L. Wickert
Partner

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has 35 years of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.