Introduction
Workers’ compensation subrogation is more than a legal doctrine; it is a fundamental component of the grand bargain struck over a century ago in our country between employers and employees. This grand bargain ensured that injured workers would receive timely benefits without the need for litigation while protecting businesses from potentially crippling lawsuits. At the same time, employers (and the insurance companies who are paid insurance premiums to shoulder that burden) were given a statutory right of reimbursement (not traditional subrogation) when a third-party tortfeasor was responsible for causing the injury or death. However, recent legislative efforts driven by trial lawyers in Nevada threaten to unravel this delicate balance, particularly in response to the landmark and sorely needed decision in AmTrust N. Am., Inc. v. Vasquez, 2024 WL 4233423 (Nev. 2024). If Nevada legislators move forward with proposals to neuter the pro-business ruling in Vasquez, they will be breaking a historic legislative promise, undermining the foundation of the workers’ compensation system, all while caving to the lobby of trial lawyers in Nevada.
The Grand Bargain: A Historical Perspective
The origins of workers’ compensation can be traced to early 20th-century efforts to establish a social safety net for injured workers. Before its implementation, injured employees faced the daunting task of suing their employers, often resulting in long delays and unpredictable outcomes. At the same time, businesses were exposed to costly litigation that could threaten their financial stability. The compromise was simple: employers would provide guaranteed benefits regardless of fault, and in return, employees would relinquish their right to sue their employers. This became known as the exclusive remedy rule, a cornerstone of workers’ compensation law.
However, this bargain also required a mechanism to ensure that employers and their insurers were not unfairly burdened when a third party was responsible for an employee’s injury. This is where workers’ compensation statutory reimbursement rights came into play, allowing insurers to recover benefits paid from negligent third parties, thereby keeping insurance premiums manageable for small businesses.
Misconceptions About Workers’ Compensation Subrogation
A common misunderstanding is that workers’ compensation reimbursement rights are akin to traditional equitable subrogation. This misconception has led to the improper application of equitable defenses such as the “made whole doctrine,” the “common fund doctrine,” and other equitable considerations in certain states. However, courts have recognized that workers’ compensation subrogation is a statutory right of reimbursement, not equitable subrogation. In Campion v. Montgomery Elevator Co., 493 N.W.2d 244 (Wis. 1992), the Wisconsin Supreme Court made this distinction clear, stating that workers’ compensation subrogation is rooted in statute and does not operate under the same principles as equitable subrogation. Workers’ compensation reimbursement rights are cut from the same cloth as legislative reimbursement rights woven into the fabric of Medicare, Medicaid, and the Federal Employees’ Compensation Act (FECA), which allows the government to seek recovery of benefits paid and save taxpayers’ dollars. The difference is that workers’ compensation reimbursement inures to the benefit of businesses large and small.
The Importance of Protecting Workers’ Compensation Reimbursement
Without a robust reimbursement framework, Nevada businesses are left shouldering the financial burden of workplace injuries caused by third parties. Before the Vasquez decision, small businesses in Nevada faced rising workers’ compensation premiums because their insurers could not effectively recover benefits paid due to third-party negligence. The ability to subrogate ensures that the responsible party, not small businesses and their insurers, bears the cost of workplace injuries.
Workers’ compensation insurance premiums are one of the most significant expenses for small businesses. When insurers recover funds through subrogation, these recoveries are reported to state rating bureaus and are reflected in a business’s experience modifier (x-mod), which directly impacts premium calculations. In states that have eroded subrogation rights, businesses experience higher premiums, discouraging economic growth and job creation.
The Erosion of the Grand Bargain in Nevada
Over time, legislative and judicial actions in Nevada have chipped away at the grand bargain in several ways, including:
- Limiting Subrogation Rights – Some states have introduced statutes that reduce or eliminate an insurer’s ability to recover from third parties, shifting costs onto small businesses.
- Weakening the Exclusive Remedy Rule – States like Illinois and Minnesota have allowed contribution claims to be filed against employers, exposing them to additional liability beyond the original agreement.
- Allowing Reimbursement Only From Economic Damages – The rogue Supreme Court decisions in Breen v. Caesar’s Palace, 715 P.2d 1070 (Nev. 1986) and Poremba v. Southern Nevada Paving, 388 P.3d 232 (Nev. 2017) both ignored the plain language of §616C.215 and limited.
- Limiting the Employer’s Right to a Future Credit – The employer’s right to a future credit following a successful third-party recovery by an employee is often the most important part of its reimbursement rights. Yet, Nevada somehow managed to destroy this right to a future credit by limiting the portions of the recovery that would apply as a credit and, unbelievably, allowing an employee’s post-accident expenditures for anything and everything (not limited to medical expenses) to reduce and evaporate the future credit.
Nevada now stands at a crossroads. Legislators must decide whether to uphold the historic compromise that has served businesses and employees for over a century or to dismantle it in favor of short-term political expediency.
The Nevada Supreme Court’s decision in Poremba v. S. Nevada Paving, 388 P.3d 232 (Nev. 2017), was a textbook case of judicial activism bending the knee to trial lawyers at the expense of small businesses and the integrity of the workers’ compensation system. Instead of adhering to the clear language of Nevada’s workers’ compensation subrogation statute, the court reached beyond its jurisdiction, relying on a Washington Supreme Court decision to craft a ruling that eviscerated insurers’ statutory right of reimbursement. This decision represented a complete departure from established Nevada law, including Breen v. Caesars Palace, 715 P.2d 1070 (Nev. 1986), which had long upheld a workers’ compensation carrier’s right to recover from the entire third-party recovery, regardless of how damages were allocated. By allowing trial lawyers to manipulate settlement agreements to funnel money into non-economic damages categories such as pain and suffering—funds outside the reach of subrogation—the Poremba decision ensured that insurers, and by extension, Nevada’s small businesses, were left paying for losses caused by negligent third parties.
The ruling also opened the door to additional abuses by allowing injured employees to dissipate their third-party recoveries on personal expenses, including mortgage payments, food, and other non-medical costs. This distorted interpretation of the law directly conflicted with the intent behind Nevada’s workers’ compensation statutes, which provide that a workers’ compensation insurer’s lien applies to the “total proceeds” of any third-party recovery, whether obtained through settlement or judgment. The Poremba court’s willingness to ignore this explicit statutory language in favor of a pro-plaintiff, anti-business ruling left insurers without a meaningful avenue to recover benefits paid, ultimately driving up workers’ compensation premiums for Nevada employers.
It took the Nevada Supreme Court’s subsequent decision in AmTrust N. Am., Inc. v. Vasquez, 555 P.3d 1164 (Nev. 2024), to correct this egregious mistake. In Vasquez, the court rightly overruled Poremba, restoring the fundamental balance that had existed in Nevada workers’ compensation law for decades. The decision reaffirmed that subrogation rights are statutory and not subject to the whims of trial lawyer-influenced courts. It also eliminated the so-called Breen Formula, which had unjustly forced workers’ compensation carriers to pay a share of an employee’s litigation costs, even when the third-party action was being manipulated to sidestep subrogation claims. The Vasquez decision put an end to years of legal uncertainty and financial strain on Nevada’s small businesses by ensuring that insurers could enforce their statutory liens against all elements of a settlement, including those artificially labeled as non-economic damages. It confirmed that in addition to violating the plain language of § 616C.215(5), the Breen decision and the reimbursement formula it saddled Nevada with has proven unworkable both in its application and purpose. Even the notion that requiring the workers’ compensation carrier to contribute to the attorneys’ fees and expenses of an employee’s third-party litigation is somehow “fair” flies in the face of the simple truth that there is nothing “fair” about requiring a small employer to be legally liable for lifetime loss of income and unlimited medical expenses even though it was not remotely at fault for causing the injury. Workers’ compensation is a square peg in the round hole of the American civil justice system. Nothing about it is equitable. Likewise, there should be nothing equitable about an employer’s statutory right of reimbursement, despite decades of effort to make it so. It must be protected at all costs or the system will not work and small businesses will pay the price.
Nevada legislators must recognize the damage that Poremba inflicted and remain steadfast in preserving the integrity of the Vasquez ruling. Any effort to legislate around Vasquez to reintroduce the failed logic of Poremba and Breen would be a direct betrayal of the grand bargain struck over a century ago—a bargain designed to provide swift compensation to injured workers while ensuring that businesses are not unduly burdened with costs created by negligent third parties. Trial lawyers, seeking to maximize their contingency fees, have made it clear that they will continue their assault on subrogation rights. The Nevada Legislature must reject these efforts and stand firm in defense of Nevada’s small businesses, upholding the core principles of fairness and economic responsibility that the workers’ compensation system was built upon.
The Societal Benefits of Subrogation
Subrogation not only benefits businesses but also serves broader societal interests. When a workers’ compensation insurer successfully recovers from a negligent third party, it ensures that costs are allocated appropriately. This, in turn:
- Prevents windfalls for negligent third parties who would otherwise escape financial responsibility.
- Keeps workers’ compensation premiums affordable, enabling small businesses to thrive.
- Maintains the integrity of the grand bargain, reinforcing the exclusivity of the workers’ compensation remedy.
- Reduces the number of lawsuits filed, alleviating court congestion and promoting faster resolutions for legitimate claims.
Unfortunately, trial lawyers and their lobbyists frequently oppose subrogation, not on principle, but because it reduces the amount of money that flows into their pockets. By advocating for rules that weaken subrogation rights, they prioritize their financial interests over the sustainability of Nevada’s small businesses.
Nevada Legislators Must Protect the Vasquez Decision
The Vasquez ruling was a promise kept and a victory for Nevada’s small businesses, reinforcing the statutory right of reimbursement and preventing third parties from unfairly profiting at the expense of employers and insurers. Any attempt to override this decision would:
- Undermine the fairness of the workers’ compensation system.
- Lead to increased insurance costs for Nevada businesses.
- Discourage new businesses from entering the market, harming the state’s economy.
Rather than dismantling subrogation rights, Nevada should be looking to strengthen them. The Vasquez decision corrected an injustice that had persisted for too long. Reverting to the pre-Vasquez era would be a step backward, undoing critical protections for businesses that provide jobs and drive economic growth.
Conclusion
Legislators in Nevada have a duty to uphold the promises made when the workers’ compensation system was established. Weakening subrogation rights would break the grand bargain and unfairly burden small businesses with the costs of third-party negligence. Instead of bowing to the pressure of trial lawyers seeking larger settlements, lawmakers should focus on preserving the stability of the workers’ compensation system. Protecting subrogation rights is not about shortchanging injured workers—it is about maintaining a fair and balanced system that ensures businesses are not penalized for injuries they did not cause. Nevada’s economic future depends on upholding this historic compromise, not dismantling it for the sake of political expediency.
