By: Robert F. Horn, Esquire
November 14, 2014

The fight for a workers’ compensation carrier’s right to file a direct subrogation action against responsible third parties was argued before the Pennsylvania Supreme Court on October 8, 2014, and the Supreme Court’s decision still hangs in the balance. Liberty Mutual a/s/o George Lawrence v. Domtar, 19 WDA 2014.

The Question presented to the Pennsylvania Supreme Court was: “Does Section 319 of the Pennsylvania Workers’ Compensation Act, allow the employer/insurer to step into the shoes of the insured employee to subrogate against the tortfeasor?”

Suggested answer: “Yes.”

The subrogation team at Connorslaw crafted the argument directly from the Supreme Court’s analysis in the Frazier case, decided by the Supreme Court in 2012. In particular, the question at issue was specifically crafted to guide the Court in a direction consistent with its rationale in Frazier and the right of the employer/insured to subrogate against the tortfeasor.

In evaluating the questions of the Court at oral argument, the Justices seemed convinced that the statute allowed this right, however, the Justices questioned whether the mechanics of allowing the carrier to directly sue in subrogation could negatively impact a plaintiff’s right to sue.

The Pennsylvania Workers’ Compensation Subrogation Statute is a single paragraph in length, and it pales in comparison to the length and scope of other states’ statutes that allow a direct right of subrogation. The most problematic aspect of the Pennsylvania Workers’ Compensation Subrogation Statute is that it lacks any specificity as to procedural mechanics and it does not protect the plaintiff’s right to file his own lawsuit.

What most concerned the Justices was that allowing the right of subrogation might result in either the splitting of a cause of action, or the carrier filing ahead of the plaintiff and disrupting his right of recovery.

Disagreement Among Carriers

Subrogation carriers do not even agree as to whether the Pennsylvania statute permits a direct action by workers’ compensation carriers. In this matter, Liberty Mutual fought to preserve the subrogation rights, against the staff counsel of another member of National Association of Subrogation Professionals (NASP), who routinely denies a carrier’s right to subrogate directly.

This contest shows reasonable minds disagree about the subject statute.

Court in Disarray

The Pennsylvania Supreme Court is comprised of seven Justices and the case will be decided by a majority. Although a full Court heard the oral argument, the Court was rocked by an e-mail scandal that suspended Justice McCaffery, who then announced his immediate retirement shortly after the argument. Also post-argument, Justice Eakin submitted his e-mail account for investigation by the Judicial Conduct Board. In addition, Chief Justice Castille announced earlier in the year that he would be retiring on December 31, 2014.

In Pennsylvania, all judges and justices are elected and there is not expected to be an election for replacement justices until November 2015. There is rampant speculation about the appointment of interim Justices, but Pennsylvania just elected a new governor and most legal writers believe no interim Justices would be selected before March 2015.

This decision may be greatly delayed and most likely will be decided by fewer Justices than the number who participated in the oral argument. Since the lower appellate court has routinely ruled against subrogation, a 3/3 split by the Supreme Court will leave the Superior Court’s prior ruling standing as the controlling precedent in this issue.

Pennsylvania’s high court’s drama has been as contentious as the legal arguments regarding subrogation.

Highlights of the Oral Argument

Other points established during the oral argument supporting the right of subrogation:

o there is a statutory right of subrogation expressed in mandatory terms;
o the Frazier case allows the carrier to step into the shoes of the claimant;
o carrier has compound rights of subrogation and reimbursement;
o ‘use plaintiff’ like ‘subrogee’ is an established right;
o the true purpose of subrogation will be violated if:

 employer is required to pay for the negligence of the third party;

 the third party is allowed to escape liability for his wrongful act;
o there are many reasons why an employee does not sue, but that should not preclude recovery by the carrier; and
o a carrier is entitled to its day in court for its economic loss.

My opponent’s argument focused on the lack of procedural mechanics in the statute to argue that this should be punted to the legislature and that the rights of subrogation should be denied as the statute is currently written.

He also argued that this is a balancing test that bans direct subrogation which carriers can factor into their rates, and seized upon the questions from the Court to state that subrogation should not be allowed because it might result in a cause of action being split.

Conclusion

This right of subrogation is important for workers’ compensation carriers in Pennsylvania to control costs. Unfortunately, this right has been attacked by both the defense bar and the plaintiff bar, creating a line of case law adversarial to a direct right of subrogation against third parties by the Superior Court.

Although this case could be decided either way, I am remain confident that the Pennsylvania Supreme Court will define the direct right of subrogation in favor of subrogation, notwithstanding cautionary wording about splitting a cause of action and the mechanics that are lacking in the statute.

However, the Court has to balance competing interests for the rights of the plaintiff with our rights of subrogation, and that might require presenting this issue to the legislature for resolution to consider a revision of the statute in an amendment.

You can see Bob arguing before the state Supreme Court by utilizing the following link: https://pcntv.com/the-pennsylvania-supreme-court-on-pcn/ or by contacting the Bob Horn at (610) 524-2100 x 126, rhorn@connorslawllp.com for a DVD of the argument.