WORKERS' COMPENSATION SUBROGATION AND THIRD-PARTY CLAIMS

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1 WORKERS' COMPENSATION SUBROGATION AND THIRD-PARTY CLAIMS I. INTRODUCTION BY RICHARD M. JUREWICZ, ESQUIRE GALFAND BERGER, LLP 1835 Market Street, Suite 2710 Philadelphia, PA (ext. 829) (215) Because of its obligations under the Pennsylvania Workers' Compensation Act, an employer and its insurance carrier are immune from any common law civil liability for any injuries suffered by an injured employee. When an employee is injured, an employer or its workers' compensation insurance carrier must provide two types of statutory benefits: (1) wage loss indemnity and (2) payment for the cost of medical treatment. The Pennsylvania Workers' Compensation Act prohibits a personal injury lawsuit against an employer or any of its employees, including supervisors, no matter how negligent they may have been in causing or contributing to an accident and injuries of another employee. However, common law does provide injured employees with remedies outside of the Workers' Compensation Act. If anyone other than a claimant's employer is even partially responsible for contributing to an accident, the injured employee and employer, in the name of the injured employee, have a right to sue that third party. Under the laws in this state, an injured person is referred to as a first party. His/her employer and any co-employees are considered a second party. A third-party is anyone other than the injured person's employer and fellow employees. With work-related accidents, a third-party can be any manufacturer or supplier of any machinery, equipment, tools and/or chemicals that an injured employee is using or is exposed to at the time of his/her accident. Other examples of third parties may be: An outside contractor who created a hazardous condition; An outside consultant or troubleshooter who failed to advise the employer of a hazard that he or she should have recognized; The owner of a building who fails to correct unsafe conditions; The careless operator of a car or truck; The supplier of unsafe scaffolding or other types of equipment; Other subcontractors on a construction project. The laws in this state permit an injured employee in pursing a third-party claim to be fully compensated for all losses suffered from an accident. The losses that are not compensable by workers' compensation include non-economic losses such as pain and suffering, loss of life's pleasures, humiliation, disfigurement, depression, despair and a non-injured spouse's loss of consortium. In Pennsylvania, an employer or its insurance carrier can recoup all or some of its workers' compensation benefits paid to an injured worker that is paid out of the proceeds of any lawsuit. This is what is referred to as subrogation. The law does not permit an injured employee to collect twice for the same losses. The reason for this is that when an injured employee files his third-party lawsuit, he is entitled to claim from that third-party not only the non-economic losses not provided for by workers' compensation, but also wage loss and medical bills that have already been paid by the employer or its insurance carrier. Accordingly, the employer and its insurance carrier step into the shoes of the injured 1

2 employee who files his or her lawsuit and obtains from the third-party proceeds for the reimbursement of wage losses and medical bills that have already been paid out on behalf of the injured employee. Identifying subrogation or third-party liability claims in work-related workers' compensation accidents is important not only to an injured worker, but also the field claims adjuster or third-party administrator who has been asked to open up the claim. Too often injured workers do not consult lawyers because they think they cannot sue. Many times because the injured worker was accused of committing an "unsafe act" or violating a "safe work practice," he feels that the accident was his fault and believes that he has no rights. The fact that an injured employee or another co-worker may have been at fault does not mean that he does not have a third-party claim. Likewise, in those work-related accidents that involve serious injuries that warrant an investigation by the workers' compensation carrier, the claims adjuster does not consider a potential thirdparty claim whenever evidence suggests that the injured employee did something wrong. This is reinforced by the employer when the field claims adjuster contacts management personnel of the employer. Invariably, the field claims adjuster is told by the employer that the accident was caused by the injured employee's negligence. Because the injured employee or another co-worker may have contributed to the accident, does not mean that there is not a third-party case. Contributory negligence on the injured employee's part or by a co-worker does not prevent a third-party claim. When a product liability thirdparty claim is filed, courts are required by law to rule that any evidence of an injured employee's alleged negligence is not admissible in a court of law. II. THIRD-PARTY PRODUCT LIABILITY CLAIMS A. Definition Of A Defective Product The law defines a defective product as a product that lacks ANY element [safety feature or safety device] necessary to make it safe for its reasonably foreseeable uses or contains any condition to make it unsafe for its foreseeable uses. There is more than one way that a product can be determined to be defective or unsafe by law. (i) Design Defect In this type of claim, the overall safe design of a product is being challenged. It is not limited to the particular product involved in the accident, but applies to the model type of product involved in the injured worker's accident. The failure to provide a guard or other safety device is generally the design criticism in this type of products case. (ii) Manufacturing Defect This type of claim is usually asserted when a particular product that caused an accident did not comply with the design specifications of the same lot or types of other products made by the same manufacturer. This type of case is generally found in accidents where a product breaks or fails upon normal use. (iii) Malfunction With this type of case, it is not necessary to show a particular defect. Rather, an accident occurs generally because a product operates and functions in a manner other than an expected or intended function. Mechanical failures in a product can cause a machine to repeat a cycle. Electrical failures can cause a machine to come on by itself or not shut off when it is supposed to. These types of claims tend to be difficult because it must be established that there are not any secondary causes or explanations for the malfunction (i.e., electrical failure because the machine was miswired by employer before accident). 2

3 (iv) Failure to Warn Even if a product has been perfectly made, it can still be defective for failure to provide proper and adequate warnings. There are two types of failure to warn cases. One is where a product does not contain any warnings or is not provided with an operator's or instruction manual. The other context is where warnings are provided, but they are not clear or properly worded to provide sufficient information on how to use or operate a product or how to avoid dangers. III. IDENTIFYING THIRD-PARTY CLAIMS Every year thousands of workers are injured in accidents, which are caused, in part, by unsafe, dangerous and/or defective equipment and machinery. To be successful in identifying potential thirdparty claims, a claims adjuster has to look beyond what the injured worker did to begin to analyze the design and use of the equipment and machinery by which the employee was injured. Most work-related accidents are unintentional. Workers do not deliberately cause their own accident. You must look beyond what the injured worker did. Generally, there is more than one cause or explanation for an accident. Just as most injuries are unintentional, most accidents are preventable. Safety is not just the responsibility of the worker, but also the designers and manufacturers of equipment and machinery which expect their equipment to be used by many different kinds of people over many, many years. The most frequent cause of machine accidents is injuries caused by either unguarded or improperly guarded moving parts. In investigating any work-related accident that was due to the use of any equipment or machinery at the employer's facility, one must determine whether there was a hazard present with the design, set-up, operation and use of the equipment that led or contributed to the employee's accident and injuries. Good safety engineering requires that any machine part, function or process, which may be a potential source for an injury, must be safeguarded. According to the National Safety Council, when the operation of a machine or accidental contact with any of its moving parts can injure an operator or others in the vicinity, then the hazard must be controlled or eliminated by a safer design. IV. INVESTIGATION It is important that work-related accidents are investigated at the first available opportunity. To the extent that photographs can be taken of the equipment or machinery before changes are made by the employer, they should be taken to preserve accident scene evidence. Photographs are a very valuable source of evidence because in many accidents, based upon the investigation done by the employer and the workers' compensation carrier, changes are made to the equipment and machinery to improve its safety. Statements should also be obtained from any co-workers who were working near the injured worker or from any other employees that have any knowledge or information about the accident or the equipment. Maintenance personnel are a valuable source of evidence from whom statements should be obtained because they are the most familiar with the history of the repair work done to the equipment and any modifications or changes that may have been made to the piece of equipment after it was purchased, but before the injured worker's accident. The other source of evidence that can be obtained readily is any purchasing information from the employer that would indicate from whom the machine was purchased and the date of purchase. An inspection of the equipment should also be done. Most pieces of equipment have a metal plate that contains the name and address of the manufacturer as well as the model number and serial number for the equipment involved in an accident. The serial number and model number will provide important information that will be able to be used to track down the age of the machine. 3

4 The purpose of doing a thorough investigation is not to be judgmental. An investigation is done to gather as much facts, evidence and information to enable someone at a later date to evaluate what were some of the causes or contributing factors in bringing about the accident. V. EXAMPLES OF THIRD PARTY CASES While many work-related accidents involve industrial equipment, third-party claims are not just limited to product liability claims against manufacturers of machinery. Illustrations of other successful third-party cases have included the following: VI. Metal filing cabinet falls on secretary. Unsafe Condition: Failure to provide a safety device that prevents two drawers from being opened at once. Forklift driver runs over work. Unsafe Condition: Driver's vision obstructed. No visual or audible alarm to warn worker. Worker falls eight feet from machine while performing routine maintenance. Unsafe Condition: Failure to provide safe access and guarded platform. Portable circular saw slips from worker's hand and cuts artery in leg. Unsafe Condition: No automatic cut-off device on operating trigger of saw. Worker's fingers severed on fan blades. Unsafe Condition: Opening in fan blade guard was greater than one-quarter inch. Worker seriously injured as a result of fall from scaffold. Unsafe Condition: Failure of seller or scaffold to provide safety rails. Worker poisoned by manganese in welding rods. Unsafe Condition: Failure of welding rod supplier to alert worker of hazard of manganese in welding rods and what worker should do to eliminate risk of serious injury. Worker falls down staircase. Unsafe Condition: Building owner responsible for failure to provide handrails. Worker injured when his truck struck by another car. Unsafe Actions: Failure of other car driver to have his vehicle under control. Worker slips and falls on ice in parking lot. Unsafe Condition: Failure of facility maintenance contractor or snow removal contractor to properly clear parking lot and put cinder down. PRACTICAL CONSIDERATIONS IN RESOLVING THIRD-PARTY CASES Too often an adversarial relationship is created between claimant's counsel and the workers' compensation insurance carrier or the third-party administrator. Since the workers' compensation insurance carrier's subrogation rights out of any third-party recover prioritize any money that the claimant will receive out of a third-party recovery, claimant's counsel is hesitant to cooperate with the worker's compensation insurance carrier. However, this approach may create obstacles in getting the third-party case successfully resolved. Claimant's counsel should actually try and create a working relationship with the workers' compensation insurance carrier, recovery specialist or third-party administrator on the claim. Claimant's counsel should request that the workers' compensation carrier substantiate and document any claim of subrogation entitlement. This would include requesting from the workers' compensation carrier not only a 4

5 payment ledger for all medical expenditures paid and indemnity benefits provided to the injured worker but the supporting medical records and billing information. Once provided with this information, claimant's counsel will produce this same documentation in discovery to the third-party defendants and their insurance carriers thereby placing them on notice as to the subrogation interest asserted by the injured worker's employer. Obviously, the amount of the subrogation lien is a major issue that needs to be addressed before attempting to resolve any third-party claim. The workers' compensation carrier essentially stands in the shoes of the injured worker for any third-party recovery. If the injured worker tries to verdict his thirdparty case and it is a defense verdict then there is no recovery by the workers' compensation carrier as well. Consequently, claimant's counsel should make every effort to educate the workers' compensation insurance carrier on developments in the third-party case. This includes sharing with the workers' compensation carrier any evidence obtained in the third-party case that would have a bearing on the liability in that case. Expert reports produced by third-party defendants (both liability and damages) should be provided to the worker's compensation carrier. Likewise, any depositions that have undermined the liability in the third-party case should be forwarded as well to the worker's compensation insurance carrier. Providing the workers' compensation insurance carrier with information and documentation in the third-party lawsuit will allow the workers' compensation insurance carrier to make an "educated" decision on its subrogation lien when any efforts are underway to resolve the third-party lawsuit. Creating open dialogue early in the third-party case with the workers' compensation insurance carrier will enable claimant's counsel to develop a better understanding of the amount of recovery that will need to be made in the third-party case to satisfy client expectations and satisfaction of the subrogation lien. 5