Settling Workers’ Compensation Subrogation Claims Independent of Employees’ Claims

Colorado FlagAggressive subrogation practitioners always look for short cuts. Ours is an industry in which the “bottom line” means the difference between success and failure. If a workers’ compensation subrogation claim can be resolved quickly—even before the employee settles the third-party action filed by him—it improves the cost-effectiveness of the result. In many states, a workers’ compensation carrier can settle directly with a third-party defendant, in some cases assigning its subrogation lien to the defendant, who can then take a credit for the full lien when settling the employee’s personal injury action, despite having reimbursed the carrier something less than the full lien. Such an opportunity provides the tortfeasor with an opportunity to save some money and provides the workers’ compensation carrier with an opportunity to resolve its subrogation lien well before the employee’s claim settles.

It appears that in Colorado, even if the employee has filed suit, a carrier can file a separate third-party suit for subrogation against the same defendants. In the federal circuit court decision of Lebsack v Rios, 2017 WL 5444568 (D. Colo. 2017), the workers’ compensation carrier filed suit against the defendants (seeking the discounted amounts of medical expenses payable under the Act) after the employee filed suit against the same defendants (seeking the retail/undiscounted amounts of medical expenses charged by the providers). The carrier settled the third-party action for the discounted medical expenses and the employee sought a ruling on the effect of the settlement on her suit and the interaction of the Collateral Source Rule on it. The court held that when the carrier settled its subrogation claim, the employee’s claim for the amounts covered by the workers’ compensation statute was extinguished, and the Collateral Source Rule no longer applied. Ferrellgas, Inc. v. Yeiser, 247 P.3d 1022 (Colo. 2011). The employee claimed this was a trick by the defendants to eliminate her right to recover the difference between the billed versus paid medical expenses. The federal judge ruled that while this might have reduced defendants’ ultimate exposure, it was not a “trick.” Rather, the defendants took advantage of existing subrogation law.

Under the Colorado Collateral Source Rule, codified at C.R.S. § 13-21-111.6, a plaintiff’s damage claim must be reduced by the amount by which she has been compensated by a third party unless the third-party payment was the result of a contract entered into and paid for by the plaintiff. Thus, if an injured plaintiff’s medical expenses were paid by her own health insurance carrier, her claim against the tortfeasor who caused her injuries is not reduced by her insurer’s payment of those expenses. Moreover, the employee can recover the full amount of the medical expenses billed by the healthcare providers, not simply the discounted amount to which the providers agreed as a result of negotiations with plaintiff’s health insurer. Volunteers of America Colorado Branch v. Gardenswartz, 242 P.3d 1080 (Colo. 2010). The discounted amount actually paid by her health insurer or workers’ compensation carrier to settle medical bills is not even admissible in evidence. Wal-Mart Stores, Inc., 276 P.3d 562 (Colo. 2012).

Because the workers’ compensation carrier stepped into the employee’s shoes to the extent of benefits it paid, it obtained the right, as subrogee, to pursue a claim for reimbursement of those benefits directly against the defendants. When the defendants settled with the carrier, the employee’s claim for those medical expenses (even the amounts billed which exceeded the discounted amounts paid by the carrier) was extinguished. The Collateral Source Rule no longer applied. This reduced the defendants’ exposure for medical expenses. The court held that the plaintiff/employee was not allowed to recover the difference between the medical expenses billed and the medical expenses paid. The court noted that not only was the claim for medical expenses extinguished, but the Colorado Workers’ Compensation Act also prohibits healthcare providers from recovering more than what is allowed in the workers’ compensation schedule. C.R.S. § 8-42-101(3)(a)(1). The court held that the employee cannot recover from the defendants amounts that the healthcare providers could not lawfully charge and that she had no obligation to pay.

This decision is significant because it provides subrogation professionals with another useful tool with which to resolve its subrogation liens well before the employee’s claim settles and without the concomitant demands for reduction of the lien which usually accompany negotiations between the employee and tortfeasor.

For more information on maximizing your workers’ compensation subrogation recoveries, please contact Gary Wickert at [email protected].

Gary L. Wickert

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has nearly four decades 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.