Synopsis: Understanding Subrogation and/or Third-Party Practice in Workers’ Comp Claims Handling, Part I of a two-part series.
Editor’s comment: Here are four tough IL WC test questions:
1. Can an injured worker sue their employer in civil court for their work-related injuries?
2. Can an injured worker sue someone else, an individual or another company for their work-related injuries?
3. Can an injured worker sue their physician or other healthcare giver for malpractice following a compensable accident at work?
4. Can an employer sue someone who negligently injures their worker and causes the employer to have to pay WC benefits to a worker?
The simple answer to all four questions is yes, sort of. Here are the answers:
1. An injured worker cannot sue their employer in civil court for anything other than intentional injuries.
a. If an employer hires a bouncer to beat a worker up and they beat the worker up, the worker can sue their employer for such injuries.
b. The worker can’t sue for work-related injuries as the result of an employer’s negligent or arguably reckless actions in the workplace; they are limited to the workers’ comp system only for medical care, lost time and permanency/impairment.
2. An injured worker can and may sue anyone else, not related to their employer for work-related injuries—this may come in the framework of a product liability or motor vehicle claim. It might also be a slip/fall situation.
3. An injured worker who is the subject of medical malpractice by a hospital, physician or other health-care provider who suffers additional lost time, medical bills or permanency/impairment following their work injuries can sue that health-care giver for damages.
4. Finally, an employer who pays WC benefits on behalf of a worker can bring a claim for the injuries suffered by their worker in the worker’s name or in their own name if they closely follow the rules and Act.
In both workers’ comp claims and personal injury actions, one aspect of “damages” is lost wages and medical bills—in WC parlance, we call that money “benefits.” Remember the employer of the injured worker is required by law to pay TTD to replace lost wages along with reasonable, necessary and related medical bills. When an employer has to make such payments for injuries caused to their innocent worker, the employer arguably “shares” the damages and, if the employee recovers from the third party causing injury either via settlement or trial, the employer should get their money back. The legal phenomenon of an employer getting money back as a portion of the damages from a civil claim brought by an injured worker is called “subrogation recovery.” The IL WC Act and parallel legislation in other states does this by creating workers' compensation “liens” on the civil actions for personal injuries.
Two caveats--first, the rules and statutory interpretations constantly change in this area and you should always check for an updated picture of any complex issue. Second, few legal and claims professionals truly understand subrogation recovery--be certain you are getting accurate and updated advice.
For a general concept to utilize in understanding subrogation recovery of workers' compensation liens, begin with the idea WC claims handlers are paying benefits for a personal injury. If the injured worker can sue anyone else to recover such benefits, their claim is “subject to” or subrogated to your claim to recover the WC benefits you have paid. This simple concept of the third party claim being “subject to” your claim underpins almost all aspects of subrogation recovery.
There is one other critical factor you must be aware of--even if the employee doesn't bring a third party claim, in Illinois (and in most states), a defense attorney actually can bring the claim on behalf of the employer or insurance carrier. The rules in Illinois allow defense counsel to bring a third party action in the name of the employer or employee to recover benefits paid in the last three months of the applicable statute of limitations.
The problem which most workers' compensation professionals have with this second aspect of subrogation recovery is we are defense-minded and do not typically view claims from a plaintiff perspective. In recovering a workers' comp lien through a direct claim, you can proceed in both a litigated and nonlitigated fashion--you can actually call the carrier, advise them of the claim, provide documentation and seek a settlement of all or part of your claim. Like a plaintiff attorney making a claim, documentation is critical--but usually you have documentation at hand, it's your claim file. It's also important to be creative in seeking potentially culpable parties and theories of recovery. Remember, we told you that you have to think like a plaintiff.
Definitions in WC Subrogation
However, we digress. Let's go back to an overall view of third party practice and subrogation recovery of workers' compensation liens. A few definitions might be helpful:
a. Third party action
For even a veteran workers' comp professional, this term is a real confuser. There really are three different species of 'third party' claims:
i. There is the action by the injured employee against anyone not his/her employer--the other tortfeasor (defendant) is the 'third' party.
ii. There is the direct action by the employer to institute a claim with or without the employee's participation to recover benefits paid. This is similar to the first claim listed above.
iii. There is the action by the third-party tortfeasor/defendant in the above claim to implead or cross claim against the employer for “contribution.” The goal of a contribution action is to fully or partially defeat their WC lien claim. This is also called a third party claim or an 'action in contribution' or 'action over.' It is a third party claim in the sense the employer may be brought into the claim long after it has begun.
b. Third party Defendant
In definitions 1a and 1b above, the “third-party” is anyone that can be sued to recover for the personal injuries to the employee during work. Remember, it can include both doctors (or related medical personnel) or lawyers who participate in the claim following the initial injury. You as the employer can participate or sue for medical malpractice which affects your injured employee's claim. In definition three above, it is the employer being sued to defeat their lien.
c. Kotecki v. Cyclops Welding/Tort Reform Act of 1995
The appellate decision in Kotecki and the statutory imprimatur in the 1995 Tort Reform Act combine to protect the employer from liability in excess of their workers' compensation payments. In the past and prior to the Kotecki ruling, as a result of the 'action over' against the employer, the employer might potentially have to contribute more to a civil verdict than amounts paid for workers' compensation recovery. In some claims, this concept essentially defeated the limits for benefits in the IL Workers' Compensation Act.
d. Direct action by the employee against the employer
Generally speaking, this is not possible. In cases where the employee claims the employer intentionally injured him/her, the employee (in Illinois) can seek both direct tort recovery against the employer and also seek workers' compensation benefits. In all other instances, acceptance of workers' compensation benefits by the employee should bar the direct action against the employer for personal injuries.
e. Written notice of lien
Correspondence to plaintiff and his/her attorney formally notifying them you are seeking lien recovery. Such correspondence should also be directed to all defendants of which you are aware. Guidelines for the use of such correspondence will be outlined below.
f. Written acknowledgment of lien
Return correspondence from plaintiff or his/her attorney or a defendant acknowledging your written notice and indicating a willingness to protect your lien as part of resolution of the claim.
g. Written notice of suit
Section 5 of the Illinois Workers’ Compensation Act requires written notice by personal service or registered mail to the employer of the fact of filing a civil suit and the court where it is filed with proof of filing in the action.
h. Petition to intervene
A device by which the employer can enter a pending action brought by the employee for personal injuries. It makes the employer a party entitled to notice of all proceedings and enables them to be a party to any settlement discussions. The employer is typically not allowed to participate in the trial against the lead defendants. The employer will be able to defend itself in the contribution action but this is different from a petition to intervene. The employer can institute the petition to intervene as a matter of statutory right. There is no need to be sued in contribution to intervene.
i. Workers’ compensation lien
Any benefits paid to an injured employee as a result of a work accident comprise the lien. In Illinois, the lien is a mandatory right with regard to recovery--a judge has to award the whole lien if you protect your claim. We feel workers' compensation liens, as creatures of statute, are mandatory and if you adequately protect your lien claim, the judge has to adjudicate the lien in the full amount you are entitled to.
j. 75% “rule”
In Illinois, if a petitioner is represented by counsel and files suit to recover against a third party, two things are deducted from lien recovery. First, you lose 25% of the total lien which is paid to petitioner's/plaintiff's counsel for their efforts in recovering your lien. Obviously, since your employee's counsel makes every conceivable effort to cut, diminish or otherwise defeat the lien to maximize their recovery, this seems to be unfair but it is the law. It is also patently unfair that you have to pay such fees when you also need to hire your own counsel, intervene and otherwise protect your interests.
k. Pro rata share of costs
You also lose from the lien a pro rata share of costs. If this sounds confusing, it probably is and many parties forget this matter. If you recover $10,000 as the total workers' compensation payment as your lien and your employee recovers $100,000 with an expenditure of $5,000 in court costs, you will actually get $7,500 less $500 as 1/20 is the pro rata share of the court costs (10,000 times 1/20 equals $500). Your $10,000 lien will be properly adjudicated by the trial court at $7,000.
l. Gross lien vs. net lien
If you understand the two concepts above, this one's easy. Your gross lien is the total work comp benefits paid. Your net lien is the amount you can recover after deducting the 25% attorney fee and a pro rata share of costs.
m. ‘Dollar’ WC lump sum settlement contracts
This is a settlement at the IL Workers’ Compensation Commission where full or partial lien waiver occurs and no additional benefits will be paid. The focus is to close all liability for work comp benefits when petitioner is settling his third party claim.
More next week in Part II. Please reply with any questions or concerns. Please post your thoughts and comments on our award-winning blog.
Synopsis: New and Improved “Offshoring” Memo for TPA’s and UR.
Editor’s comment: As we recently advised, in December 2012, Andrew Boron, the Director of the IL Department of Insurance issued a bulletin indicating they were going to start requiring all TPA’s and UR be provided within the State of Illinois. We considered that mildly unusual and outside the parameters of the Act cited by the Director.
We received a later email from another source that was sent to a UR provider. Basically, that email indicated the initial December 20, 2012 bulletin was limited to Group Health Care insurers only. The clarification in the email said it wasn’t directed at workers’ comp claims. The problem we had with that approach is no one truly knows when medical care transitions from group health coverage to workers’ comp coverage. It is also arguably possible for a claim to start as a WC claim, drop back to group health and then revert to WC status.
On January 18, 2013, Director Boron issued a new and improved bulletin. It says:
We basically accept this as an IL requirement that TPA’s and UR have to operate out of offices in the United States. As we indicated the first time we saw this concept, we don’t agree that is what the law says. That said, it is hard to object to such work being in our country and not in some foreign company that might have lower medical or claims standards. We have forwarded an email to the source of the earlier person who answered the inquiry about the December 20, 2012 bulletin to see if they will clarify whether this new bulletin relates to both group health and WC. We have not received any reply.
Either way, it is our impression that all TPA’s and UR providers who are going to provide such services to Illinois employers are going to have to do so from the confines of an office located in the United States. If you don’t do so, the IL Department of Insurance may pull your ticket. If they do, you may then have to sue to block enforcement of the memo above.
We appreciate your thoughts and comments. Please post them on our award-winning blog.
Synopsis: Legal Malpractice Action against Izzy Bernstein, Deceased Allowed to Move Forward and Not Barred by Res Judicata.
Editor’s comment: Attorney Isadore M. Bernstein was something of a legend in IL WC circles. He was a quiet, successful and hard-working Plaintiff/Petitioner attorney who had a walk-up office on Central Avenue just south of Midway Airport in Chicago for years. He was first licensed in Illinois the month before the Japanese Navy attacked our base at Pearl Harbor on December 7, 1941. From our research Attorney Bernstein passed a couple of years ago but his name lives on in Illinois law—he has had two major appellate rulings issue after his passing!
The Illinois Supreme Court just issued their ruling in Hernandez v. Pritikin that affirmed the ruling of the First District Appellate Court on the issue of res judicata or what is also called issue preclusion. In Hernandez, Plaintiff developed physical problems in the early 1990s, and was ultimately diagnosed with Parkinson’s disease. Defendants were attorneys associated with Mr. Bernstein that represented Plaintiff from early 1999 to late 2002 and pursued a workers’ compensation claim on his behalf. In 2004, now represented by a new law firm, Plaintiff sued various companies allegedly involved in the manufacture and sale of various chemicals he claimed had contributed to his work-related exposure and subsequent occupational disease. When that action was dismissed as time-barred, in 2005, Plaintiff sued his former lawyers for legal malpractice.
Plaintiff’s original complaint alleged Defendants failed to advise him of actual or potential claims against persons or entities other than his employer, failed to file such claims and/or failed to advise him to hire other counsel to pursue such claims. Defendants moved to dismiss, arguing the statute of limitations had run on the products liability claims before they were hired. At the hearing on the motion to dismiss, the trial judge suggested the statute of limitations had begun running on the products claim liability claim by 1995 at the latest, years before Defendants were hired. But when the written dismissal order was granted, it was drafted to say the motion to dismiss was “granted” and Plaintiff had 30 days to amend the complaint. There was no mention in the order of “with prejudice,” nor any suggestion Plaintiff was barred from pursuing any particular facts.
The amended complaint restated all the allegations of negligence relating to failure to advise/file the products liability action, but added further allegations Defendants should have advised the plaintiff to sue his first law firm, who represented Plaintiff on a Social Security disability claim. Plaintiff also added factual allegations apparently intended to justify application of the discovery rule to lengthen the statute of limitations on the products liability claim.
Defendants moved to dismiss again, arguing if the SOL started running on the products claim by 1995 at the latest, then it followed any claim against the first attorneys was time-barred before Defendants were hired. After the hearing on a second motion to dismiss, the written order was more cryptic and indicated Defendant’s motion to dismiss the amended complaint was denied. Again, nothing was said about any particular set of facts being in the case or out of it. Later, Plaintiffs voluntarily dismissed but subsequently refiled the action. At that time, the Circuit Court dismissed it on res judicata grounds.
The IL Appellate Court reversed, holding both actions raised a single claim for legal negligence. The successive allegations, first for failure to advise about the products liability claims and later for failure to sue the first law firm were merely differing facts in support of that claim. Accordingly, the order dismissing the allegations centered on the products liability claims did not finally resolve a “claim” for res judicata purposes.
The IL Supreme Court affirmed the Appellate Court on different grounds. Although the original trial judge had expressed a view about when the statute of limitations began running on the products liability claim, the critical fact was what the written order actually said and didn’t say. The orders indicate Defendant had the right to amend the complaint. There was no suggestion further allegations on the products liability claims were barred. Therefore, it necessarily followed the order finally decided nothing, and res judicata couldn’t apply.
While we aren’t sure of the facts of this claim, it is now eight years old, having been first filed in 2005. It is difficult to believe the matter has value significant enough to justify eight years of litigation costs, fees and appellate battling. We appreciate your thoughts and comments.