It has been seven years since we first published our rankings of the ten best and ten worst states for workers’ compensation subrogation. Since then, case decisions and legislatures have been busy trying to help trial lawyers destroy workers’ compensation subrogation liens in third-party personal injury cases. Therefore, it is time to revisit our rankings taking everything that has happened since then into consideration. Note that this is not an assessment of which states do the best and worst jobs of handling workers’ compensation claims—that article was first published in 2009, at which time Iowa, Kansas, Minnesota, Utah and Virginia were reported as doing the best job handling workers’ compensation injuries, while Louisiana, New Jersey, New York, Oklahoma, Rhode Island, Texas and Wyoming perform the worst.
Workers’ compensation is the great American trade-off – a social compact of unprecedented proportions. Innocent employers – everyday Americans trying to run a small business – are held responsible for potentially unlimited medical expenses and lost wage benefits for injuries they did not cause or contribute to. In exchange, they are given protection from employee lawsuits and a statutory right to be reimbursed from the tortfeasor who actually caused the work-related injury – sometimes referred to as subrogation. Workers’ compensation in America turns 105-years-old this year, and it seems society has forgotten the deal that we made with employers and their insurers. Workers’ compensation subrogation is under attack by judges, lawyers, lawmakers, and “civil justice” warriors, and subrogation is on the run. Once again, the fallout of this war on subrogation lands on the shoulders of small businesses in the form of higher insurance premiums. It is time that the underwriting industry recognize and reward those states which preserve and protect the right of workers’ compensation carriers and self-insureds and call out and punish those states that cuddle up to trial lawyers and treat with contempt the greatest tool small businesses have for keeping workers’ compensation insurance premiums low – subrogation.
Forty years of subrogating workers’ compensation claims in all 50 states and appearing before countless Supreme Courts, Courts of Appeal, and legislative committees as a defender of this right of subrogation in the face of fierce opposition, has given me a keen and unique insight into which states are friendly toward subrogation and which are not. In creating a list of the ten states most favorable and the ten states least favorable to workers’ compensation subrogation, I have taken into account a number of variables, some of which transcend a state’s workers’ compensation laws and decisions. These include:
- Made whole case law and legislation;
- Availability and implementation of future credits;
- Lien reduction statutes;
- No-fault automobile insurance laws;
- Limits and/or prohibition on the right to file third-party actions or intervene into them;
- Notice requirements;
- Attorneys’ fees considerations/Common Fund Doctrine application;
- Rights of employer contribution/effect of employer negligence on subrogation;
- Types of third parties against which a carrier can subrogate (g., UM/UIM, medical malpractice, legal malpractice, etc.);
- Ability of courts to “equitably” apportion a lien if the employee is unhappy; and
- Types and terms of statutory formulas in place.
Taking into consideration the above criteria and considerations, the following are the winners and losers – the top ten (best) and the bottom ten (worst) states when it comes to workers’ compensation subrogation.
Ten (10) Best States
Wisconsin stays atop the list as the most favorable state for workers’ compensation subrogation. Wisconsin provides a predictable statutory formula that has no exceptions and cannot be deviated from or avoided. It provides an opportunity for the workers’ compensation carrier to recover 100% of its workers’ compensation lien in most instances, without reduction for the plaintiff’s attorneys’ fees, employer negligence, the Made Whole Doctrine, or other considerations. A carrier’s right of reimbursement under § 102.29 is actually not even subrogation rights – they are distinct from subrogation and represent a statutory right of reimbursement. Wisconsin § 803.03 requires a subrogated carrier to be made an involuntary defendant in third-party cases filed by the employee, which may necessitate the involvement of subrogation counsel, even in the case of smaller liens. The carrier can file a third-party action at any time.
Delaware leap frogs over Alabama to number two following some questionable Alabama workers’ compensation subrogation court decisions. In Delaware, the concept of workers’ compensation subrogation is fairly straightforward and simple. A third-party recovery is reduced by attorneys’ fees and litigation costs, and the balance is paid to the carrier, less a pro-rata contribution toward the fees and expenses, with the balance paid to the employee and constituting a future credit for the carrier. A future credit is recoverable by the carrier and subrogation against an UM/UIM policy is allowed if they insure the employer.
Alabama drops to No. 3 following the 2022 Alabama Court of Appeals decision in O’Brien v. Mobile Pub. Lib., 2022 WL 829245 (Ala. App. 2022). The O’Brien decision announced for the first time that a workers’ compensation carrier cannot seek reimbursement from or subrogate against benefits paid by an uninsured motorist/underinsured motorist insurance policy insuring the employer. Otherwise, Alabama still provides a first money right of reimbursement for the subrogated workers’ compensation carrier, after the deduction of attorney’s fees by the plaintiff. While the carrier is reimbursed first, its recovery is reduced by the Fitch formula, which obligates the carrier to reimburse a proportionate share of the plaintiff’s attorneys’ fees and litigation expenses. Similarly, the Miller formula requires the carrier to contribute the same percentage of the future benefit payments it is relieved of paying under its future credit, as a contribution toward fees and expenses, if, as, and when, the future benefits are owed. Employers are immune from contribution – even if their actions are intentional. However, a co-employee can be sued for intentional acts or willful removal of a machine’s safety guard. The carrier is also actually given six extra months after the two-year statute of limitations lapses, in which to file a direct third-party subrogation action.
The carrier is entitled to first money right of reimbursement, less a pro-rata share of the plaintiff’s attorneys’ fees and costs. No employer contribution is allowed, and the carrier can secure a future credit from any excess recovered by the plaintiff. Interventions are freely allowed. The carrier can file suit at any time with 30 daysnotice. Recovery against UM/UIM policies, medical negligence, and even legal malpractice recoveries appears to be possible. Maine also enjoys an extended six-year personal injury statute of limitations.
Arkansas was never a favorite for workers’ compensation subrogation because of its embrace of the Made Whole Doctrine and its application in the third-party context. Sadly, it now moves into the No. 5 slot, displacing Wyoming, following the horrendous 2020 Arkansas Court of Appeals decision in Liberty Mutual Ins. Co. v. Youngblood. In Liberty Mutual Ins. Co. v. Youngblood, 2020 WL 5542443 (Ark. App. 2020), it was argued that § 11-9-715 does not allow attorneys’ fees to be awarded outside of proceedings before the Workers’ Compensation Commission. The Court of Appeals disagreed and held that even requesting that the plaintiff prove that the employee was not made whole can lead to liability for the plaintiff’s attorneys’ fees.
Following close behind the top five states are Hawai’i, Wyoming, Iowa, Maryland, and Rhode Island. Hawai’i recently jumped to No. 6 following the 2022 decision in Moranz v. Harbor Mall, LLC, 502 P.3d 488 (Haw. 2022), which resisted the destructive tendency followed by some other states of incorporating the common law Made Whole Doctrine into workers’ compensation subrogation. This decision accomplishes the following: (1) holds that common law equitable defenses to subrogation such as the Made Whole Doctrine are not applicable to the statutory framework of workers’ compensation, (2) holds that the carrier’s lien extends to all damages in a third-party recovery, both special and general; and (3) clarifies how future credits are to be calculated under the Alvarado formula.
The next 30 states reveal a gradual deterioration of and a growing lack of respect and appreciation for workers’ compensation subrogation rights which play such an important role in the U.S. economy and were part of the social compact made at the turn of the last century. And that brings us to the ten worst states.
Ten (10) Worst States
Georgia will seemingly forever languish in last place. Following our first “Ten Worst” article, I wrote to every legislator in Georgia and explained in great detail why their anti-subrogation environment was hurting Georgia businesses. Only one legislator responded. It is as though the Georgia legislature is intentionally trying to make it more expensive for small businesses and employers in their state to be profitable. Georgia is hands-down the worst state for workers’ compensation subrogation, which is all but impossible to handle successfully. It is the only state which codifies the equitable Made Whole Doctrine into its workers’ compensation statutes, requiring the employee to be completely made whole before the carrier is entitled to dollar one. To make matters worse, even if the employee is made whole (which, as you can imagine, the employee never admits to), the carrier is not subrogated to non-economic damages – requiring the carrier to be active at trial to make sure the jury questions require allocation of the elements of damages. If it makes it past the made whole gauntlet, it owes attorneys’ fees to the employee’s attorney. Oh, yes, and there is no future credit. Let’s start a business in Georgia!
Florida is right behind Georgia. There is no right to intervene into a third-party action. Instead, the carrier can only file (in fact, MUST file) a Notice of Lien, which allows no participation in the litigation. Once there is a recovery, the carrier’s reimbursement is determined by the Manfredo formula (ratio of “net” settlement to “total value” of the case). And yes, the plaintiff always adds a lot of subjective zeros to the number he or she believes this total value to be. As if that wasn’t enough, subrogation is also complicated by no-fault laws.
Illinois turns workers’ compensation subrogation into a source of reimbursement from the party who is supposed to be protected by the Exclusive Remedy Rule. Contribution from the employer by third-party tortfeasors is allowed. Once limited to the amount of the lien, this “Kotecki Cap” on employer contribution is now considered “waived” by even the most common and ordinary contract terms involving indemnity. Attorneys’ fees are owed to the plaintiff’s counsel but are limited to 25%. There is no subrogation allowed against UM/UIM policies, even if owned by and paid for by the employer.
Arkansas was never a favorite for workers’ compensation subrogation because of its embrace of the Made Whole Doctrine and its application in the third-party context. Sadly, it now moves into the No. 4 slot, displacing Kentucky, following the horrendous 2020 Arkansas Court of Appeals decision in Liberty Mutual Ins. Co. v. Youngblood. In Liberty Mutual Ins. Co. v. Youngblood, 2020 WL 5542443 (Ark. App. 2020), it was argued that § 11-9-715 does not allow attorneys’ fees to be awarded outside of proceedings before the Workers’ Compensation Commission. The Court of Appeals disagreed and held that even requesting that the plaintiff prove that the employee was not made whole can lead to liability for the plaintiff’s attorneys’ fees.
Only recently has Kentucky become a bad jurisdiction for workers’ compensation subrogation. It drops to No. 5 thanks to Arkansas being even worse lately. The carrier must intervene, or it risks losing its subrogation rights. No reimbursement is allowed from non-economic damages and a modified Made Whole Doctrine is applied. To make matters worse, the plaintiff can settle around the workers’ compensation carrier, necessitating active and qualified subrogation counsel in every case. Nobody knows why, but there is no future credit if the past lien does not exceed the amount of the plaintiff’s attorney’s fees and costs.
The next five worst states for workers’ compensation subrogation include Massachusetts, Louisiana, Michigan (thanks to interplay with its no-fault system), Montana, and New Mexico. Montana moved up to the No. 9 spot following the 2016 decision in Talbot v. WMK-Davis, LLC, 2016 WL 5787289 (Mont. 2016), in which the Montana Supreme Court did its best Georgia impersonation by applying its non-sensical made whole requirements to workers’ compensation subrogation even though the benefits were paid under the Oklahoma Workers’ Compensation Act. Oklahoma law was ignored. Companies and employers in states outside of Montana purchase insurance based on underwriting principles and calculations that take into consideration and rely on subrogation recoveries and future credits when calculating premiums for workers’ compensation policies. These subrogation rights positively affect the employers’ risk modifiers, relieving them from significantly increased workers’ compensation insurance premiums for years to come. The simple act of crossing the Montana border now means that insurance companies will be required to raise insurance premiums on anybody experiencing a loss while engaging in commerce in Montana. You can rest assured that none of the justices who joined in on this opinion gave that significant factor a lick of thought.
Legislators, judges, and rule-makers are only human. They react to those who work hard to protect or insist on their rights. Trial lawyers and their lobbyists have been indoctrinating those who hold our industry’s subrogation rights in the palm of their hands for decades, while our industry, as a whole, has been reluctant to stand up for and preserve our valuable rights of recovery. If the value we place on something is reflected in how hard we fight to protect it, the insurance industry doesn’t value workers’ compensation very highly. The ultimate victims are the small businesses whose experience modification ratings (EMR’s) find no relief through subrogation even when they are not at all responsible for causing a serious work-related injury.
If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at email@example.com.
Gary Wickert is an insurance trial lawyer and a partner with Matthiesen, Wickert & Lehrer, S.C., 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 is a national and international speaker and lecturer on subrogation and motivational topics.