By: Lisa A. Miller, Esquire
The Commonwealth Court affirmed the Decision of the Appeal Board which affirmed the Decision of the WCJ granting the Defendant’s Petition to Review Compensation Benefit Offset (Review Petition) which asserted its entitlement to subrogation against Claimant’s Third Party recovery.
Claimant argued that Defendant’s subrogation rights should have been extinguished pursuant to Thompson v. WCAB (USF&G), 566 Pa. 420, 781 A.2d 1146 (2001) because Defendnat acted in deliberate bad faith when it did not ensure that evidence critical to Claimant’s Third Party Action was preserved, or because one of Defendant’s employees was derelict in her duty to assist the Claimant in his third party action.
On April 12, 2006, Claimant, a police officer, sustained injuries when he lost control of his motorcycle during training. Defendant accepted Claimant’s injuries as being work related, and paid Claimant injured on duty benefits, as well as for his medical treatment. Claimant then filed a Third Party Tort Action against Philadelphia Cycle Center (PCC) alleging that improper maintenance caused him to lose control of the motorcycle resulting in the crash and his injuries. Claimant obtained an arbitration award in the amount of $490,000.00 against PCC on February 11, 2009.
Defendant filed the Review Petition on March 25, 2009 asserting that it was entitled to subrogation, noting that its lien was $219,755.63 based upon its payment of medical expenses and IOD benefits.
Claimant objected to the Review Petition, claiming that Defendant had acted in bad faith by allowing for the spoilation of evidence, which affected his third party recovery and, therefore, Defendant’s subrogation right should be extinguished pursuant to Thompson.
Defendant submitted the Arbitration Award in the amount of $490,000.00. Employer also presented a packet of information in support of the subrogation lien which contained documentation of Employer’s payment of medical expenses, and injured on duty benefits in the amount of $219,755.63.
Defendant also offered the Claimant’s engineer’s report from the third party action, which indicated that Claimant informed the engineer that while he was operating the motorcycle on April 12, 2006, the motorcycle’s clutch was “grabby,” difficult to modulate, and the engine was cutting out while Claimant accelerated. The Engineer inspected the motorcycle on January 31, 2007 and found that its clutch lever had been replaced with a non-brand clutch lever, which because it was not the correct lever for the motorcycle, was filed to fit into the clutch lever assembly, but still did fit properly into the holder assembly. Engineer also noted that the clutch lever lacked lubrication. Additionally, engineer noted that the motorcycle’s drive chain and sprockets were worn and due for repair. Noting that the training “was made unnecessarily difficult due to the excessive driveline lash, increased pull force on the clutch lever, and poor engine operation” Engineer opined that the motorcycle had been improperly maintained and that this improper maintenance caused Claimant to lose control of the motorcycle and crash.
Claimant offered the deposition of a senior legal assistant (Legal Assistant) in the Claims Unit of Defendant’s Law Department. By letter dated May 3, 2006, Claimant’s counsel informed Employer of the April 12, 2006 incident, and Claimant’s injuries. Counsel requested that Employer direct its Police Department to refrain from altering the motorcycle, particularly the clutch mechanism until Claimant could have the motorcycle inspected by an engineer. The May 2006 letter also advised Employer that allowing the motorcycle to be altered prior to any inspection “would be tantamount to spoiling evidence”.
The Legal Assistant’s supervisor directed her to contact the Police Department to assure that the motorcycle would not be altered or modified before an inspection could be performed. She contacted the Police Academy, where the accident occurred, and was directed to contact the Police District where the motorcycles were located.
She emailed Claimant’s counsel on May 5, 2006 to inform him that no inspection had been permitted because Claimant had not complied with a particular Police Directive requiring him to notify the Police Department of his lawsuit, and indicated that once Claimant complied with that directive, Engineer would be given access to the motorcycle. She spoke with the Lieutenant in the 8th Police District on May 5, 2006, who informed Legal Assistant that Engineer could not inspect the motorcycle until Claimant complied with the Police Directive. She also advised Lieutenant of the request not to have the motorcycle altered until the Engineer could inspect it.
On May 25, 2006, Legal Assistant received a letter from Counsel dated May 16, 2006, that satisfied the notice requirements of the Police Directive. She again contacted the Lieutenant and informed her to make the motorcycle available for inspection, and to make sure it had not been or would not be altered. She did not provide any documentation to support the request. The Lieutenant complied with the request.
In a letter dated June 13, 2006, she informed Counsel that he had to contact a Lieutenant G, the Officer who conducted the training exercise. However, in emails related to setting up the inspection, Legal Assistant did not advise Counsel that he had to contact Lieutenant G to arrange for the inspection. She also denied that Counsel informed Legal Assistant that the Police Department would not allow Engineer to inspect the motorcycle until Employer’s solicitor’s office gave written permission.
As of December 2006, Legal Assistant was unaware of any alterations made to the motorcycle, but did not make any follow-up inquiries to determine if the motorcycle had been altered. She noted that she verbally communicated with a Sergeant several times, but did not send emails to any member of the Police Department regarding the request not to alter the motorcycle. She sent Sergeant a Memorandum dated January 18, 2007, informing him that the Law Department had agreed to allow Engineer to inspect the motorcycle.
On September 26, 2006, a repair order for the motorcycle was issued, indicating that the motorcycle’s clutch lever had been replaced. Legal Assistant asserted that she was unaware of the repair, acknowledged that the motorcycle’s clutch had been referenced in letters and emails regarding the matter, and that the clutch had been replaced four (4) months prior to the Engineer’s inspection. Legal Assistant also acknowledged that in a letter dated September 16, 2009, the Police Department Special Advisor to the Commissioner informed Counsel that “no emails, letters, notes, telephone messages or other written communications regarding the matter exist to be provided by” among others, the Lieutenant and Sergeant.
Claimant also presented the deposition of the Sergeant who is assigned to the 8th Police District and controls the motorcycles in that District, and the Lieutenant, an Administrative Lieutenant in the 8th Police District.
Sergeant indicated that he was aware of the motorcycle accident on April 12, 2006, the motorcycle was returned to the 8th District, and the motorcycle was assigned to another Officer between April 2006 and May 2007. Sergeant testified that motorcycle repairs would be performed by PCC, and denied seeing the May 2006 letter from Counsel or the May 17, 2007 Memorandum from Legal Assistant requesting that the motorcycle not be altered or discarded. He recalled receiving telephone calls from the Legal Assistant in January 2007 regarding the inspection of the motorcycle, but did not recall any prior discussion with either Legal Assistant or Lieutenant. Sergeant indicated that, had he been told or received something in writing about not altering the motorcycle, he would not have allowed the motorcycle’s clutch lever to be replaced.
Lieutenant testified she was aware of the Claimant’s April 12, 2006 work injury, but she was not directly aware of the May 2006 letter. She did have one telephone conversation with the woman from the Law Department regarding the Law Department’s decision to allow Claimant’s Engineer to inspect the motorcycle. Lieutenant noted that she could not authorize any outside inspection of Police property without a written subpoena or other documentation. She noted that the motorcycle had been in use since April 12, 2006. She explained that she received nothing in writing regarding the motorcycle, and denied having a discussion with anyone associated with the Employer about not altering the motorcycle until after an inspection could occur. Lieutenant testified that, having not received such instructions, she did not advise Sergeant not to have the motorcycle altered before the inspection could occur. She denied that she would have indicated that an inspection was not permitted to occur because Claimant did not comply with the Police Directive.
The WCJ found that the testimony of Sergeant and Lieutenant more credible than Legal Assistant with regard to the communication that motorcycle involved in the April 12, 2006 incident was not to be altered before it could be inspected. In doing so, the Judge cited Legal Assistant’s admissions that she did not make any written record of her communications with Sergeant or Defendant. Therefore, the WCJ found that Sergeant and Lieutenant “did not receive or issue orders that the motorcycle should not be modified”.
However, the WCJ found that Claimant did not establish, as required by Thompson, that Employer “undertook in deliberate bad faith to subvert a third party suit brought by” Claimant so as to extinguish Employer’s subrogation lien. The communications did not demonstrate deliberation; rather, it showed that “a series of apparent miscommunications within Employer resulted in the alteration of the motorcycle prior to its inspection”. Because the WCJ found that there was no deliberate bad faith on Employer’s part, he concluded that the Employer was entitled to subrogation under Section 319 of the Workers’ Compensation Act.
Claimant appealed to the Board which noted that there was no direct evidence of Employer’s alleged deliberate bad faith and that, when relying on “circumstantial evidence and the inferences to be deduced therefrom, such evidence must establish the conclusion sought and must preponderate in favor of the conclusion so as to outweigh any other evidence and any inconsistent inferences”. The Board held that the claimant did not establish that Employer acted with deliberate bad faith, and therefore, Employer retained its subrogation right under Section 319 of the Act.
The Commonwealth Court noted that pursuant to the plain language of Section 319, subrogation is “automatic”, and, “by its terms, admits no express exceptions, equitable or otherwise” Thompson, 566 Pa. 428, 781 A.2d 1151. The Supreme Court has held that, generally, the right to subrogation is “statutorily absolute and can be abrogated only by choice”. Id. 429, 781 A.2d 1152.
In Thompson the Claimant was injured at work and filed a products liability action against the entities that had manufactured, distributed and/or owned the machine on which he was injured. After inspecting the machine, it was discovered that the Claimant’s injury was the result of certain bolts working loose on the machine and then another bolts failure due to being overloaded. Employer took possession of the bolts; however, by the time the trial took place, the Employer had inadvertently misplaced the bolts without any of the parties inspecting them. The Claimant argued that the subrogation right should be extinguished because it had misplaced evidence necessary for the third party lawsuit.
The Supreme Court in Thompson held that ad hoc equitable exceptions to subrogation were inappropriate in light of the plain language of the statute. Although the Supreme Court held that the right to subrogation is absolute, it also recognized that “there may be circumstances where an Employer undertakes in deliberate bad faith to subvert a third party suit brought by its employee, circumstances which might require a different calculus”. However, the Supreme Court in Thompson concluded that Claimant did not demonstrate that Employer acted in bad faith, and therefore, “the Employer’s right to subrogation remained absolute”.
There was no question that Claimant did not present any direct evidence that Employer through Legal Assistant, acted with deliberate bad faith in an effort to subvert Claimant’s Action against PCC. Thus, the Claimant had to meet his burden of proof through circumstantial evidence. Thus, the Claimant’s circumstantial evidence and the inferences reasonably deducible therefrom, must be adequate to support the conclusion that Legal Assistant acted in deliberate bad faith in an attempt to subvert Claimant’s third party lawsuit and must preponderate in favor of that conclusion so as to outweigh in the WCJ’s mind, any other evidence and reasonable inferences therefrom that are inconsistent with a conclusion of the deliberate bad faith.
Here, the circumstantial evidence presented to establish that Employer acted with deliberate bad faith to subvert Claimant’s third party action was the testimony of Legal Assistant, Sergeant, Lieutenant, and the lack of written records regarding Legal Assistant’s communications with Sergeant’s attendant and Lieutenant. Based on the evidence, the WCJ inferred that there must have been a missed communication between Legal Assistant, Sergeant and Lieutenant, and that this miscommunication was not based on a deliberate bad faith desire to subvert Claimant’s third party case. Thus, the WCJ, as fact finder, determined that Claimant’s assertions that this evidence supported the conclusion that Legal Assistant acted with deliberate bad faith to subvert Claimant’s third party lawsuit did not so preponderate or outweigh in the WCJ’s mind, the inconsistent inference from that evidence that the alteration was a product of miscommunication.
The WCJ weighed the evidence, the reasonable inferences therefrom, and concluded that the evidence supported a conclusion different from that asserted by the Claimant. Like credibility determinations, the weight given to the evidence and reasonable inferences deducible therefrom, is a question solely for the WCJ as fact finder Elliott Turbo Machinery Company v. WCAB (Sandy), 898 A.2d 640, 647 (Pa. Cmwlth., 2006).
The Claimant further alleged that the Legal Assistant was derelict in her duties. However, the WCJ did not find the Legal Assistant derelict in her duties. Instead, the WCJ found that there was a series of communication between Legal Assistant, Sergeant and Lieutenant regarding the motorcycle, and that it was those miscommunications that led to the alteration of the motorcycle. Because the facts support the WCJ’s findings that there was a series of miscommunications, and not that the Legal Assistant engaged in a dereliction of duties sufficient to alter the analysis, we are not persuaded by Claimant’s argument.
In short, as the Supreme Court has stated, it would be “unreasonable to permit an Employer both to act in deliberate bad faith to subvert an employee’s third party action, and then to demand subrogation arising from that action”. Thompson 566 Pa. 433, 781 A.2d 1154. However, the WCJ did not find “deliberate bad faith” in Employer’s actions. Here in the facts, as presented and found, do not necessitate that conclusion.
