The statutory right of a workers compensation
insurer or employer to subrogate against a third party generally does not include
rights to personal auto uninsured/underinsured motorist (UM/UIM) benefits.
by R. Brent
Cooper and Dana Harbin
Cooper & Scully
Most workers compensation acts afford the employer or workers compensation
insurer a statutory right to subrogate against a third-party tortfeasor. Alternatively,
the employer or workers compensation insurer is granted a lien on the proceeds
of a recovery from such a party. Where the loss is occasioned by an uninsured
motorist, the question arises whether the injured employee's personal auto uninsured
motorist insurer is within the contemplation of such subrogation statutes, entitling
the workers compensation insurer or employer subrogation rights to the uninsured
This article examines this question. The analysis of this question begins
with the statutory right of subrogation and the courts' interpretation of that
right. Then, the courts may turn to analysis of public policy in determining
whether to allow subrogation rights against the uninsured/underinsured (UM/UIM)
Workers compensation acts include a section that affords the employer or
workers compensation insurer the right to subrogate where the compensable injury
was "caused under circumstances that created a legal liability for damages on
the part of a party other than the employer." Workers compensation insurers
argue that the words "legal liability" are operative words and subject the UM/UIM
coverage to subrogation because the compensation insurer is under a legal liability
to the employee to pay the loss caused by the uninsured motorist. However, the
majority of courts have held that the word "damages" qualifies the words "legal
liability" and thus permits subrogation only where the liability is in tort.
The argument goes that because the UM coverage is strictly contractual, the
UM insurer is not considered a "third party" within the contemplation of the
subrogation statutes. See the following cases.
These courts unanimously hold that the fact that the UM insurer's obligation
stems from an accident for which the uninsured motorist is legally liable in
tort does not alter the basic contractual nature of the coverage. The liability
which the workers compensation insurer seeks to enforce is the injured employee's
contractual right against the policy, not his right in tort against the tortfeasor.
Minnesota Statute § 176.061 grants an employer a right of indemnity notwithstanding
provisions of the Minnesota No-Fault Act "or any law to the contract" does not
create a right of indemnity where "contractual liability" such as that reflected
in UM coverage, is concerned. See the following.
The Minnesota Supreme Court and lower courts have continuously rejected the
contention that that the employer and workers compensation insurer may subrogate
against a UIM policy in which the employee is the named insured. See the following.
Furthermore, the workers compensation subrogation rights do not extend to
no-fault benefits. See Backhauls, Inc. v Thake,
393 NW2d 427 (Minn App 1986).
The Texas statute gives the workers compensation insurer subrogation rights
of the injured employee against a third party and may enforce the liability
of the third party in the name of the injured employee or the legal beneficiary.
Tex Labor Code § 417.001 (b). The San Antonio Court of Appeals in Texas recently
interpreted this statute in Liberty Mutual v Kinser,
82 SW3d 71 (Tex App—San Antonio 2002, no. pet.) and held that a workers compensation
insurer, who has paid benefits to an employee for injuries suffered in an automobile
accident, does not have a subrogation right to benefits paid the employee under
the employee's personal uninsured/underinsured insurance coverage.
The court analyzed Texas Labor Code § 417.001(b) as follows.
Read in context, the court held that the term "third party" is a "third party
who is or becomes liable to pay damages." Therefore, according to the court,
an insurer is only entitled to subrogation against damages paid to an injured
employee by a third party who is or becomes liable to pay damages, not contractual
benefits such as UM/UIM.
Kinser contended that the subrogation provision is not applicable because
State Farm was liable for contractual benefits not damages. Kinser's policy
stated that State Farm will pay damages that a covered person is legally entitled
to recover. However, Kinser maintained that this contractual right to receive
benefits is distinguishable from the right to recover damages from a third party.
The court agreed with Kinser that the term "damages" as used in section 417.001(a)
does not include UIM benefits, but is limited to damages recovered from a third
party who is liable to the injured employee because the third party breached
a contract or committed a tortious act against the injured employee. Therefore,
the San Antonio Court of Appeals held that the workers compensation insurer
does not have a subrogation right to benefits paid to Kinser by State Farm under
Kinser's UIM coverage—a holding that is consistent with the view of a majority
of other jurisdictions. Id.2 See also the following cases all for the similar proposition that a workers
compensation insurer should not be given the benefit of coverages for which
an employee has paid the premiums.
See also Md. Rev. Stat. Ann. §62 and NH Rev. Stat. Ann. §281A:13.I. where
Maryland and New Hampshire statutes prohibit subrogation or lien against UM/UIM
benefits to the employee/insured.
The minority of jurisdictions have held that workers compensation subrogation
is applicable to UM/UIM coverages on the basis that benefits payable to the
insured employee are damages payable on a tort basis by legally responsible
third parties. See
In summary, the statutory right of a workers compensation insurer or employer
to subrogate against a third party generally does not include rights to personal
auto UM/UIM benefits. Such right is limited by strict interpretation of the
workers compensation acts and, oftentimes, public policy against benefiting
the workers compensation insurer or employer that did not actually pay the premium
for the UM/UIM coverage. Those few states that recognize a subrogation right
against the employee's personal auto UM/UIM coverage do so in an effort to prevent
double recovery by the employee for a single injury as a means of reducing the
burdens of work-related injuries on the business and industrial communities.
1For further listing of decisions
hold that an employer or compensation insurer has no right to subrogation against
UM benefits available to the employee-insured, see Berna-Mork
v Jones, 174 Wis 2d 645, 498 NW2d 221 (1993).
2Note however that the Texas
courts are more likely to allow subrogation rights against UM/UIM coverage where
such coverage was actually purchased by the employer, not the employee. See Texas Workers' Compensation Ins. Fund v Knight,
61 SW3d 91 (Tex App—Amarillo, 2001); Texas Workers'
Comp. Ins. Facility v Aetna Cas. & Suety., 994 SW2d 923 (Tex App—Houston
[1st Dist] 1999, no pet.); Employers Cas. Co.
v Dyess, 957 SW2d 884, 890-91 (Tex App—Amarillo 1997, pet. denied).
Dana Harbin is an attorney in the Dallas office of Cooper & Scully, P.C. where she specializes
in insurance coverage and bad faith involving all types of insurance policies,
both first and third party. Ms. Harbin earned her BA degree from the University
of Texas in Arlington and her JD degree from the University of Texas at Austin.
She can be reached at firstname.lastname@example.org
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