Robert F. Horn, Esquire
Kevin L. Connors, Esquire

On September 27, 2013, the Pennsylvania Superior Court delivered a critical blow to the right of employers and insurers to subrogate their workers’ compensation claims directly against tortfeasors.

The Superior Court rendered its ruling in Liberty Mutual a/s/o subrogee of George Lawrence v. Domtar Paper WL 5423 850.

This is a case that our firm his handling, through all stages, first through the workers’ compensation litigation phase, and then through the filing of the subrogation action against the tortfeasor; we have appealed the ruling for all the right reasons.

To understand Pennsylvania Workers’ Compensation subrogation, it is necessary that we begin with a recitation of the relevant statutory provision, being Section 319, which sets forth as follows:

“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 employe, 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; reasonable attorney’s fees and other proper disbursements incurred in obtaining a recovery or in effecting a compromise settlement shall be prorated between the employer and employe, his personal representative, his estate or his dependents. The employer shall pay that proportion of the attorney’s fees and other proper disbursements that the amount of compensation paid or payable at the time of recovery or settlement bears to the total recovery or settlement. Any recovery against such third person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employe, his personal representative, his estate or his dependents, and shall be treated as an advance payment by the employer on account of any future installments of compensation.”

Obviously, this is an area of law that is of special interest to employers and insurers, as there are often occasions where the injured worker who has received workers’ compensation benefits does not, for whatever reason, pursue a personal injury lawsuit or recovery against the responsible tortfeasor, begging the question, as to whether the employer/insurer that has paid the workers’ compensation benefits, has an independent cause of action against the responsible tortfeasor, for workers’ compensation benefits that have been paid on the claim, by virtue of that tortfeasor’s negligence.

First discussing an employer/insurer’s rights of subrogation in Reliance Insurance Co. v. Richmond Machine, 455 A.2d 686 (Pa. Super. 1983), the Superior Court had held that the insurer’s subrogation action, filed after the two year statute of limitations for a direct claim of personal injury had expired, did not have an independent right of contribution and indemnification, and that its subrogation rights were no greater than those of the subrogee, who would have been required to file the negligence action within the two year statute of limitations applicable for tort matters.

Workers’ compensation subrogation rights were again at the center of the Superior Court’s ruling in Whirley Industries, Inc. v. Segel, 462 A.2d 800 (Pa. Super. 1983), as the Superior Court held that the negligence action against the third party tortfeasor had to be brought by the injured employee. This ruling created no small measure of ambiguity and confusion, since the subrogation action had been brought by the insurer, in the name of the injured party against the party causing injury.

It remains our belief that the Superior Court’s recent ruling in Lawrence is directly contrary to rulings of the Pennsylvania Supreme Court on this issue, and we also believe the ruling to be contrary to the employer’s/insurer’s right of subrogation as set forth under Section 319 of the Pennsylvania Workers’ Compensation Act.

Reviewing relevant Supreme Court decisions in workers’ compensation subrogation, there are several that need discussion.

The Supreme Court decisions that favor protecting the insurer’s (subrogor) right to subrogate in the name of the injured employee include:

• Smith v. Yellow Cab Co. 135 A. 858 (Pa. 1927);
• Scalise v. F.M. Venzie & Co., 152 A. 90 (Pa. 1930);
• Frazier v. WCAB (Bayada Nurses, Inc., 52 A.3d 241, 248 (Pa. 2012).

What do the above cases tell us about a workers’ compensation insurer’s right to subrogate workers’ compensation benefits against a third party tortfeasor in the name of the injured employee (subrogee).

In Smith, the third party tortfeasor had refused to compensate the workers’ compensation insurance carrier, which had incurred a workers’ compensation subrogation lien, with the insurance carrier filing suit in the name of the injured employee “to the use of” the employer against the tortfeasor.

In Smith, the Supreme Court held that the tortfeasor cannot escape liability by entering into settlement with the injured employee, 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 benefits paid.”

Three years later, the Pennsylvania Supreme Court again held in Scalise, that the workers’ compensation insurance carrier, which had paid fatal claim benefits as a result of the injured employee being killed in the course of his employment with the injured employee’s widow filing suit against all responsible parties, that the right of a direct action for negligence, in the context of claims for wrongful death and survival, remained with the widow/estate, but that the employer could intervene, bringing suit in the employee’s name if the employee failed to do so, in which case the injured employee became a subrogee or additional party plaintiff.

Coming full circle, the Pennsylvania Supreme Court then ruled in Frazier, decided in 2012, in which case the Pennsylvania Supreme Court was presented with the issue of subrogation immunity under the Tort Claims Act, with the Court holding that the immunity imposed under the Tort Claims Act was superior to the rights of subrogation, although the Supreme Court noted that the right of subrogation tracks public policy considerations, which should permit the insurance carrier to step into the shoes of the injured employee to recover directly against the third party tortfeasor for third parties negligent acts the result in in workers’ compensation claims..

Believing that the Superior Court ruling in Lawrence has been wrongly decided, allow us to present eight reasons why the Lawrence decision must be overturned on appeal.

• The Court overlooked the clear precedent established by the Supreme Court in Frazier;
• The Court incorrectly interpreted the Supreme Courts holding in Scalise;
• The Superior Court misinterpreted the plain meaning of “subrogated” in the Pennsylvania Workers’ Compensation Act;
• The Superior Court misinterpreted the status of the Plaintiff as a subrogee;
• The Superior Court misinterpreted the purpose of subrogation under the Pennsylvania Workers’ Compensation Act;
• The Lawrence ruling by the Superior Court is inconsistent with other Pennsylvania subrogation decisions;
• The Superior Court, in Lawrence, effectively denied the “absolute right” of subrogation that exists under the Pennsylvania Workers’ Compensation Act; and,
• The Superior Court’s ruling in Lawrence is absolutely contrary to public policy.

For all of the above reasons, our Firm, with the blessing of our clients, has filed a Petition for Reargument and Reconsideration with the Superior Court, fully intending, with the support of the Pennsylvania Defense Institute and the National Association of Subrogation Professionals, to use this moment as an opportunity to clarify Pennsylvania law on the right of employers and insurance carriers to have a direct right of subrogation against tortfeasors responsible for causing workers’ compensation injuries and claims.

In Frazier, the Pennsylvania Supreme Court, in the course of evaluating the legislative intent purpose behind workers’ compensation subrogation, noted that the legislature had actually strengthened Section 319 of the Pennsylvania Workers’ Compensation Act in 1993, when it removed the subrogation barrier that had previously been implemented under the 1990 Pennsylvania Motor Vehicle Financial Responsibility Law, further taking note of the strong public policy for workers’ compensation subrogation, when the Court noted:

“In other words, legislature, with Section 25(b) re-established the comprehensive right of the employer/compensation insurer to subrogate as part of the extensive legislative enactment designed to reduce the costs of workers’ compensation in order to fix our economy and save jobs. “House of Representatives Journal, March 30, 1993 at 543 (comments of Rep. Gladeck”)”. Indeed, as reflected in the debates on what was then Senate Bill No. 1 of 1993, the overriding purpose of Act 44 was to lessen the burden on private corporations in the face of the loss of approximately 140,000 jobs in the Commonwealth during the preceding years. See Id. at 541 (comments of Rep. Dailey”).

Frazier, Id., 247 (emphasis added).

The recent ruling by the Pennsylvania Superior Court in Lawrence leaves us scratching our subrogable heads, as the ruling appears to fly directly in the face of the very nature of subrogation, being an equitable recovery that obviously favors public policy, as the party responsible for causing injury and damage should be required to compensate the injured party, to include, in the context of workers’ compensation claims, the employer or insurer that has stepped into the shoes of the responsible tortfeasor, assuming liabilities that would not otherwise exist but for the tortfeasor’s negligence, either by action or omission.

Moreover, 48 states throughout the United States permit insurance carriers to subrogate their workers’ compensation claims against third parties responsible for causing the liability borne by workers’ compensation insurers, with only two other states, New Mexico and West Virginia, being undecided on that issue.

To permit the Lawrence ruling to stand will have a significant impact on the costs borne by employers and insurers facing workers’ compensation claims, as it will limit their ability to seek recovery against responsible parties, further allowing responsible parties to flaunt liabilities they assumed either by action or omission.

Believing subrogation to be a critical statutory right, we fully intend to seek clarification of this issue, before the Superior Court, as well as before the Supreme Court, if necessary.

ConnorsLaw LLP

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