Texas Supreme Court Reaffirms Workers' Compensation Subrogation

A unanimous Texas Supreme Court issued a long-anticipated decision in Texas Mutual Ins. Co. v. Ledbetter.  The Supreme Court upheld the rights of a workers’ compensation insurance carrier to first monies received in a third party settlement.

Mr. Ledbetter was in the course and scope of his employment when he was fatally electrocuted.  Texas Mutual Insurance Company paid burial benefits and initiated death benefits to the widow and minor son.

In his third party lawsuit against the tort feasor, Mr. Ledbetter’s estate, widow, minor son, and two adult daughters filed suit and reached a 4.5 million dollar settlement.  The Court appointed an attorney ad litem for the minor son, and scheduled a settlement hearing.

Texas Mutual filed its Motion to Intervene before the settlement hearing.  On the day of the settlement hearing, but before the Judge called the case, Plaintiff’s counsel non-suited all actions save that of the estate’s.  The effect of this allocation was to deprive Texas Mutual of its lien and credit for the future workers’ compensation death benefits paid to the widow and minor son.  The final judgment ordered five insurance companies to pay annuities to six different persons or entities.  Even the minor son, represented by the attorney ad litem, received no monies.  Instead, the Court allocated $2,380,544.40 to Ledbetter’s estate, $2,063,912.66 to the Plaintiff’s attorney, and $47,542.00 to the attorney ad litem.  Both sides appealed the Court of Appeals decision.

The Texas Supreme Court recognized, “First money reimbursement is crucial to the workers’ compensation system because it reduces costs for carriers (and thus, employers and thus, the public) and prevents double recovery by workers.”  Workers’ Compensation subrogation is statutory and not subject to the Made Whole Doctrine.   The Court reiterated its previous holdings that “...until a carrier is reimbursed in full, the employee or his relatives had no right to such funds.”  Citing Texas Labor Code '417.001 et. al., the Court wrote, “There is nothing discretionary about this statute; a carrier’s right to reimbursement is mandatory.”

Further, the Texas Supreme Court found the trial court abused its discretion by depriving Texas Mutual of its statutory right to subrogation.  The Court admonished parties that any allocation of settlement failing to reimburse the compensation carrier can lead to a claim for conversion.  A suit for conversion can be filed against the settling parties, the claimant, and the claimant’s attorney.

The Court also held that the workers’ compensation insurance carrier does not have to plead a specific dollar amount.  It is incumbent upon claimants, their attorneys, and any settling defendants to investigate any outstanding workers’ compensation liens.  The Court wrote, “A Carrier’s subrogation claim should hardly ever be contested; Claimant should already know how much they have received in benefits and a carrier is entitled to reimbursement for medical payments without proof that they were reasonable and necessary.” 

The Court noted, “There is no deadline for intervention.”  The Plaintiff may non-suit their case but cannot dismiss them from the lawsuit since “…the dismissal here prejudiced the carrier’s pending claim for affirmative relief.  By statute, a carrier is entitled to first money, and that right is gone forever if the money goes first to someone else.” 

Workers’ compensation carriers are still advised to provide updated lien information to claimants, their attorneys, and third party defendants.  The workers’ compensation carrier can intervene in a lawsuit to further protect its lien.  If you should have any questions about the rights of a workers’ compensation carrier in subrogation, please feel free to contact Stuart Colburn at scolburn@downsstanford.com or at (512) 751-6017.

Comments

Stuart D. Colburn
  • 06-11-2008

So this scheme to structure a recovery to defeat the carrier's right to reimbursement under the Texas Workers' Compensation subrogation statute is not acceptable. Do you think that Ledbetter improves the prospect of greater recoveries in the subrogation area?