Trial lawyers are already calling it a “travesty of justice” and I gave two media interviews about its significance within two hours of the decision being published. The truth is, however, the new Wisconsin Supreme Court case which is being decried as allowing a workers’ compensation carrier to “force” an employee to accept a settlement in third-party litigation, is not new law and merely confirms existing law which acknowledges that the trial court has the power to approve a third-party settlement where either the employee or the carrier is not happy with it. It does nothing more than confirm what § 102.29 has clearly stated for generations:
[The employee and the carrier] shall have an equal voice in the prosecution of the claim, and any disputes arising shall be passed upon by the court before whom the case is pending.
The Adams v. Northland Equipment Company, Inc., 2014 WL 3582789 (Wis. 2014), decision came as a surprise to the legal community because the Court of Appeals’ decision below it was unreported. However, the ruling is not novel. Russell Adams was injured while working for the Village of Fontana and sued the responsible party, Northland Equipment Company, Inc. The League of Wisconsin Municipalities Mutual Insurance Company was the worker’s compensation carrier for the Village and had paid $148,332 in medical and indemnity benefits, thereafter intervening into Adams’ third-party action to preserve its statutory right of reimbursement under § 102.29. The worker’s compensation carrier received a $200,000 settlement offer directly from the third-party’s liability carrier, Cincinnati Insurance, but Adams refused to consent to the settlement. The workers’ compensation carrier unsuccessfully attempted to negotiate a resolution with Adams, so it accepted the settlement offer contingent on approval of the settlement by the circuit court. After reviewing all of the factors in the case, the Court approved the settlement over the objection of Adams, who argued that being compelled to accept the settlement violated both his due process rights and his right to a jury trial under Article I, § 5 of the Wisconsin Constitution. The circuit court granted the carrier’s motion to compel settlement and the Court of Appeals, in an unreported decision, affirmed. Adams appealed to the Wisconsin Supreme Court.
Wisconsin Supreme Court Decision
Last week, the Supreme Court confirmed that a circuit court may approve a third-party settlement under § 102.29, even if the employee or the carrier does not agree to the settlement. The Court explained that the statute provides both the employee and the carrier an “equal voice in the prosecution of the claim.” Section 102.29 provides a detailed formula as to how a third-party recovery is apportioned and that the trial court has the authority to resolve any disputes arising between the employee and the carrier during the litigation, including disputes involving settlement.
The Supreme Court dismissed Adams’ argument that his right to a jury trial under the Wisconsin Constitution had been violated, explaining that it has previously ruled that the right to jury trial under the Constitution is preserved for a statutory claim only if (1) the statute codified a cause of action that existed in 1848 when Wisconsin’s Constitution was adopted; and (2) the cause of action was an action at law rather than in equity. The Supreme Court determined the Worker’s Compensation Act did not fit under these two tests. The Supreme Court similarly dismissed Adams’ argument that the circuit court’s decision violated due process.
Both the employee and the workers’ compensation carrier pursuing a third-party action have an “equal voice” in the prosecution of the lawsuit under § 102.29(1). When there is a settlement offer, both must be notified, and the settlement must be approved by the trial court.
Previous Case Law
The Adams’ decision follows the logic of the Court of Appeals two years earlier in Dalka v. American Family Mutual Ins. Co., 799 N.W.2d 923 (Wis. 2011), which held that allowing the carrier to compel a settlement does not violate an employee’s right to a jury trial because the claim § 102.29(1) creates is not the counterpart of a cause of action at law recognized at the time of the adoption of the Wisconsin Constitution. Against the objections of the trial lawyers, the Supreme Court correctly remembered history, noting that “Workers’ Compensation is a legislatively enacted compromise designed to bring employers and employees together in a mutually beneficial scheme of guaranteeing benefits in the event of work-related injury and disease.”
In the 2011 Dalka decision, the court determined that Dalka waived his right to a jury trial by making a compensation claim. An employee loses exclusive control of a third-party action once workers’ compensation benefits are accepted. The Dalka case emphasized the amount of control a carrier has in a third-party action. It is refreshing for appellate courts to remember precedent and history, rather than rewriting both. A carrier’s rights of reimbursement under § 102.29 are actually not even subrogation rights. Campion v. Montgomery Elevator Co., 493 N.W.2d 244 (Wis. App. 1992). A careful reading of § 102.29 reveals that the rights granted by this statute are distinct from subrogation. Id. Section 102.29 provides for a direct cause of action by an employer against a third party. This is not the same as merely “stepping into the shoes” of an insured. Nowhere in the text of § 102.29 is the word “subrogation” even mentioned. This section is a statutory mandate for courts to apportion third-party recoveries using the formula set forth therein. Section 102.29(1) literally transforms a workers’ compensation insurer’s right of subrogation into a right to bring a direct claim against the third-party tortfeasor. Dalka, supra.
A circuit court can compel either the injured worker or the subrogated carrier to take a settlement offer which one party wants to take but the other doesn’t. Adams, supra. Wisconsin courts have held that this does not deprive the injured worker of his right to a jury trial under Article I, § 5 of the Wisconsin Constitution. Id. In fact, the Supreme Court confirmed that an employee’s right to a jury trial are waived by operation of law upon acceptance of workers’ compensation benefits, because such an act brings the third-party claim within the ambit of the provision of the Workers’ Compensation Act. Id. Article I, § 5 of the Wisconsin Constitution provides:
The right of trial by jury shall remain inviolate, and shall extend to all cases at law without regard to the amount in controversy; but a jury trial may be waived by the parties in all cases in the manner prescribed by law.
In Dalka, the Court determined that Dalka waived his right to a jury trial by making a compensation claim. It noted that prior case law gave the trial court the authority to resolve the dispute between the employee and the compensation carrier. Id.; Bergren v. Staples, 57 N.W.2d 714 (Wis. 1953). It noted that § 102.29 gives the compensation carrier the same right as the injured employee to prosecute a third-party action. They have an “equal voice.” The employee loses exclusive control of the third-party action once workers’ compensation benefits are accepted. In 2011, the Wisconsin Supreme Court decided not to review the Dalka decision, but clearly changed its mind in the Adams’ case.
Legislative History of Workers’ Compensation
Workers’ compensation was a social compact and a political compromise forged 103 years ago in the State of Wisconsin – the first state to pass such legislation. Following the implementation of workers’ compensation, innocent small businesses can find themselves liable for millions of dollars of expensive and life-long medical care in cases of catastrophic injury caused completely by the gross carelessness of an employee or some other third party. The architects of workers’ compensation intended them to completely supplant the tort-based legal system and, by fiat of law, the burden of industrial injuries was placed on the backs of small businesses now compelled to purchase expensive insurance to ameliorate that risk. Subrogation helps keep the socialized cost of that insurance by keeping premiums lower where subrogation is successful.
Trial lawyers must make a living and their lobby is strong. As a consequence, we have ubiquitous examples of common law tort concepts getting smuggled into the statutory framework of workers’ compensation, prohibiting statutory reimbursement where an employee is not “made whole”, finding ways to pierce the statutory exclusive remedy immunity granted to employers, and even allowing contribution claims against employers in some states.
The Supreme Court decision last week really just confirms existing law – law that is most appropriate and sensible for those who remember history and keep promises. A carrier’s rights of reimbursement under § 102.29 are actually not even subrogation rights, a fact trial lawyers frequently forget. A careful reading of § 102.29 reveals that the rights granted by this statute are distinct from subrogation. Section 102.29 provides for a direct cause of action by an employer against a third party. This is not the same as merely “stepping into the shoes” of an insured. Nowhere in the text of § 102.29 is the word “subrogation” even mentioned.
Trial lawyers will use the Adams’ decision as the poster child for common sense civil justice reform, just like they did the McDonald’s hot coffee case. They will argue it is grossly unfair that an employee must merely “participate” in a settlement in which a carrier insists on, rather than having complete control over the litigation. Most people will fail to consider how “unfair” it is for employers and small businesses to have the immense weight of workers’ compensation liability foisted upon them. This is a legislative and social compact – a compromise between employees, employers, and society. As the Supreme Court said in Adams, “By enacting workers’ compensation, the legislature intended to impose upon employers an absolute liability, regardless of fault; and in return for this burden, intended to grant employers immunity from all tort liability on account of injuries to employees. By entering into an employment relationship, then, the employer and employee make it part of their relationship to resolve work-related injury disputes within the statutory worker’s compensation framework.” We often forget that part.
The 5-2 decision in Adams should not come as a surprise to anyone. It merely restated existing law. Interestingly, the two middle-of-the-road Justices (Crooks and Prosser) sided with the three more conservative Justices (Ziegler, Roggensack, and Gableman). This decision provides additional strength to workers’ compensation subrogation and gives added leverage to a carrier’s actions and contributions in third-party actions. It underscores the need to be active early and often in subrogating these claims, rather than sitting back and letting the claimant’s attorney do the heavy lifting. The road more travelled is and always has been the more easily-travelled road, but has been much more expensive for the insurance industry in the long run.
Remember that when you conflate the American system of civil justice with third-party litigation in the workers’ compensation context, you are comparing apples and oranges. Third-party litigation represents a special relationship and a special legislative compromise crafted in all 50 states which changes the ordinary rules of the game. The Adams’ decision should be applauded as a beacon of common sense in a nation of workers’ compensation third-party litigation turned on its head. Judges, legislators, and appellate courts have cost American businesses billions in higher workers’ compensation premiums because they so often tend to forget history. Thankfully, the Wisconsin Supreme Court did not.
If you have questions regarding this article or subrogation in general, please contact Gary Wickert at [email protected].