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
motorist coverage.
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)
coverage.
Statutory Right of Subrogation
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.
- State Farm Mut. Auto. Ins. v Cahoon,
287 Ala 462, 252 S2d 619 (1971)
- Allied Mut. Ins. v Larriva, 19 Ariz App
385, 507 P2d 997) (Div 2 1973)
- Travelers Ins. v National Farmers Union P&C,
252 Ark 624, 480 SW2d 585 (1972)
- State Compensation Ins. Fund v Commercial Union
Ins., 631 P2d 1168 (Colo App 1981)
- State Farm Mut. Auto Ins. v Board of Regents,
226 Ga 310, 174 SE2d 920 (1970), on remand, 121 Ga App 804, 175 SE2d 896
- Knight v Ins. Co. of N. Amer., 647 F2d
127 (10th Cir 1981)
- State Farm Mut. Ins. v Fireman's Fund Amer.
Ins., 550 SW2d 554 (Ky 1977)
- Gautreaux v Pierre, 254 S2d 476 (La App
3d Cir 1971)
- Commissioners of State Ins. Fund v Miller,
4 AD2d 481, 166 NYS2d 777 (1st Dept 1957); Shutter
v Philips Display Components Co., 90 NY2d 703, 665 NYS2d 379, 688
NE2d 235 (1997)
- Standish v American Mfrs. Mut. Ins.,
698 A2d 599, 601 (Pa Super 1997)
- Hudson v Hudson Munic. Contractors, 898
SW2d 187 (Tenn 1995) (an insured's recovery of UM benefits should not be
subject to both a deduction for workers compensation benefits and a subrogation
claim by the workers compensation insurer)
- Home v Superior Life Ins., 203 Va 282,
123 SE2d 401 (1962)1
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.
- Janzen v Land O'Lakes, 278 NW2d 67 (Minn
1979)
- Allstate Ins. v Eagle-Picher Ind., 410
NW2d 324, 327-28 (Minn 1987) (remains the law in Minnesota that an employer's
subrogation against UM coverage is not allowed)
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.
- Cooper v Younkin, 339 NW2d 552 (Minn
1983)
- Hewitt v Apollo Group, 490 NW2d 898 (Minn
App 1992) (UIM coverage)
- Western Nat. Mut. Ins. v Casper, 549
NW2d 914 (Minn 1996) (UM arbitration award)
- Fryer v National Union Fire Ins., 365
NW2d 249 (Minn 1985) (subrogation is not allowed against an arbitration
award of UIM benefits)
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.
- Section 417.001(b) of the Texas Labor Code defines a workers' compensation
insurer's subrogation rights. Tex Lab.Code Ann. § 417.001(b) (Vernon Supp.
2001). Under that provision, the insurer is entitled to enforce the liability
of "the third party" in the name of the injured employee and is subrogated
to the injured employee's rights. Id. The reference to "the third party"
in section 417.001(b) necessarily refers to the third party referenced in
section 417.001(a). The fact that section 417.001(b) refers back to the
"third party" in section 417.001(a) is clearer in the statutory language
that existed prior to the recodification in which section 4.05(b) refers
to the liability of "that other person," since the phrase "that other person"
could only refer back to the person mentioned in section 4.05(a). Act of
December 11, 1989, 71st Leg., 2nd C.S., ch. 1, § 4.05, 1989 Tex Gen. Laws
33, repealed by Act of May 12, 1993,
73rd Leg., R.S., ch. 269, § 5, 1993 Tex Gen. Laws 1273.
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.
- Casualty Reciprocal Exchange v Demock,
2002 WL 244281 (Tex App—El Paso 2002) (unpublished opinion)
- Jeneary v Com., 262 Va 418, 551 SE2d
321 (Va 2001); (Virginia Supreme Court held that in the absence of express
statutory authority, there is no right of subrogation to UM/UIM benefits
so that the Uninsured Employers Fund is not entitled to a lien against UM/UIM
proceeds)
- Adams v Delmarva Power & Light, 575 A2d
1103 (Del 1990)
- Johnson v Fireman's Fund Ins., 425 S2d
224 (La 1982)
- Travelers Ins. v Joseph, 649 S2d 53,
58 (La App 1st Cir 1994)
- Southeast Furniture v Barrett, 24 Utah
2d 24, 465 P2d 346 (1970)
- State Farm Mut. Auto. Ins. v Karasek,
22 Ariz App 87, 523 P2d 1324 (1974)
- Travelers Ins. v National Farmers Union P&C,
252 Ark 624, 480 SW2d 585 (1972)
- Commissioners of State Ins. Fund v Miller,
4 AD2d 481, 166 NYS2d 777 (1st Dept 1957)
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
- Harris v New Castle County, 513 A2d 1307
(Del 1986) (employer subrogated to employee's UM recovery where policy furnished
by employer on concept that UM insurer is a substitute tortfeasor)
- Midland Ins. Co. v Colatrella,102 NJ
612, 510 A2d 30, 33 (1986) (primary concern of legislature is to integrate
the sources of recovery in work-related injuries)
- Walkup v Wabash Natl., 691 NE2d 1282,
1285 (Ind App 1998), opinion vacated on other grounds, 702 NE2d 713 (Ind
1998) (court noted that Indiana Code § 22-3-2-13 allowed employer to place
a lien on "any" settlement award, including UM benefits)
- Silvera v Employers Ins. Co. of Nevada,
40 P3d 429 (Nev 2002) (Nevada Statutes § 616C.215(3)(b), permits a workers'
compensation insurer to subrogate against a UM policy that covers the injured
employee unless the policy was purchased and maintained by a party other
than the employer or the employee)
- Travelers Cos. v Liberty Mut. Ins., 164
Vt 368, 670 A2d 827 (1995) (workers compensation insurer is entitled to
reimbursement of its payments out of the UIM recovery of employee on basis
that UIM payments are tantamount to a tort recovery of the insured employee's
damages)
Conclusion
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.
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 [email protected]