by Robert F. Horn, Connorslaw LLP

On May 29, 2014, the Pennsylvania Supreme Court granted our Petition for Allowance of Appeal in Liberty Mutual as Subrogee of George Lawrence v. Domtar Paper [“Domtar”], 77 A.3d 1282 (2013).

The Domtar case arises from a slip and fall where the workers’ compensation carrier proceeded in subrogation against the property owner, because the claimant did not bring his own action. The Superior Court ruled that an action against the third party tortfeasor must be brought by the injured employee, and the carrier does not have the right to bring suit directly against a third party. The issue of appeal as certified by the PA Supreme Court is:

Does section 319 of the Pennsylvania Workers Compensation Act, 77 P.S Section 671,allow the employer/insurer to step into the shoes of the insured employee against the tortfeasor?

Suggested Answer: Yes

The plain meaning of the statute is at issue. The subject statute states (emphasis added):

Where the compensable injury is caused in whole or in part by the act or omission of a third party, the Employer shall be subrogated to the right of the Employee, his personal representative, his estate or his dependents, against such third party to the extent of the compensation payable under this article by the Employer.

The principle of the plain meaning rule operates as a rule of caution: The Courts must not change a statute under the guise of interpreting it. If the language of the statute has a “plain meaning,” it must be followed. The plain meaning of subrogation is, “the substitution of one person in the place of another with reference to a lawful claim” or, commonly, “the right to step into the shoes of a party who may compensate”. Black’s Law Dictionary.

The certified question was already answered by the PA Supreme Court in a recent decision: “Thus, the employer/compensation insurer may step into the shoes of the claimant to recover directly against a third party tortfeasor,” Frazier v. WCAB (Bayada Nurses, Inc.), 52 A.3d 241, 248 (2012). The Supreme Court in Frazier followed the plain meaning of the statute by interpreting “subrogation” to mean the insurer may step into the shoes of the claimant. Unfortunately, the same is not true of Superior Court.

The matter at hand is not the first time the Pennsylvania Superior Court ruled against the subrogation rights of workers’ compensation carriers. The Superior Court first discussed denying the carriers’ rights in Reliance Ins. Co. v. Richmond Machine, 455 A.2d 686 (Pa. Super. 1983). The holding of the Reliance case is limited and the facts are distinguishable from the matter at hand.

The Reliance case was filed after the two-year statute of limitations and the carrier was trying to assert a direct right for contribution and indemnity. The Court properly denied that it did not have an independent right of contribution and indemnity and, in fact, its subrogation rights were no greater than the subrogee who was required to file the action within the two-year statute of limitations.

The Superior Court further eroded the subrogation rights in Whirley Industries, Inc. v. Segel, 462 A.2d 800 (Pa. Super. 1983), where it opined that the action against a third party tortfeasor must be brought by the injured employee. This created ambiguity since the subrogation action is brought in the name of the injured employee, on behalf of the carrier.

More recently, the Superior Court affirmed the dicta in Reliance stating that the carrier does not have a right of subrogation, but only a right of reimbursement in the unpublished Opinion, Sentry Insurance as Subrogee of Donald J. Rettman v. Van DeCamps, Inc., et al, 4 A.3d 669 (Pa. Super. 2010, unpublished) followed by the published opinion in Domtar. While the result of the Superior Court in Domtar is not a surprise, it is

The Pennsylvania Supreme Court has always favored protecting the carrier’s right to subrogate in the name of the employee. In Smith v. Yellow Cab Co., 135 A. 858 (1927), Smith recovered from a tortfeasor who had notice of a lien. After the tortfeasor refused to compensate the lien holder, the workers’ compensation carrier then filed a suit in the name of Smith “to the use of” his employer against the tortfeasor. The Supreme Court upheld that the wrongdoer could not escape liability by entering into a settlement with the injured worker, and that “it may fairly be inferred from the language of the workers’ compensation statute that the employer may bring suit in order to recover the compensation paid.”

In Scalise v. F.M. Venzie & Co., 152 A.90 (1930), an employee was killed in the course of his employment, and his widow filed suit against the responsible parties. The defendants in that action tried to claim that the right no longer belonged to the widow, but rather, to the workers’ compensation carrier. The Court ruled that the right of action remains with the employee, but that the employer [carrier] may intervene, bring suit in the employee’s name if the employee fails to do so, or, be an additional party plaintiff.

In addition, the Supreme Court favored subrogation in several other decisions, most recently, in Frazier v. WCAB (Bayada Nurses, Inc., 52 A.3d 241, 248 (2012). In Frazier, the Pennsylvania Supreme Court decided the superiority between subrogation immunity under the Tort Claims Act versus the workers’ compensation right of subrogation. Although the Court decided that the Tort Claims Act immunity was superior, the Court authored strong wording about the rights of subrogation. It noted that the right of subrogation exists both in subrogation and reimbursement and, further, analyzed the public policy in favor of subrogation to keep workers’ compensation costs down in order to save jobs in the Commonwealth.

Further, the Court explicitly upheld Scalise and opined that the carrier may step into the shoes of the claimant to recover directly against a third party tortfeasor.

an employer … is not to be denied his right of suit [in subrogation] because the employee does not sue [the third party tortfeasor], but may institute the action in the latter’s name.
Scalise v. F.M. Venzie & Co., 301 Pa. 315, 152 A.90, 92 (1930), as quoted by Frazier Id., 248. (emphasis added)

In summary, the right to subrogation for an employer/insurer is not based on a right of the claimant to maintain a suit against the third party, but is an absolute right granted by the Workers’ Compensation Act. If the carriers’ right of subrogation was based on the claimant’s sole right to bring a suit, than it would be a right of reimbursement and not a right of subrogation. Further, the purpose of subrogation is defeated when defendants are allowed to escape liability and the employer is forced to pay for the negligence of the defendant.

At ConnorsLaw, we are looking forward to this opportunity to defend workers’ compensation carriers’ right of subrogation, and we are confident the Pennsylvania Supreme Court will uphold that right. If you would like more information on this issue, please contact Bob Horn at [email protected] or (610) 524-2100 ext. 126.