Court of Appeals Applies “Responsible Third Party” Finding to Carrier’s Subrogation Recovery
In a case of first impression, the El Paso Court of Appeals has considered how a finding of negligence against an employer, who was designated as a “responsible third party” in a third party action, impacts an injured worker’s recovery and the comp carrier’s subrogation interest. The opinion, New Hampshire Insurance Company, Sunsets West, Inc. and R. M. Personnel, Inc. vs Luis Alberto Rodriguez, No. 08-15-00173-CV, also addresses whether a Division decision on the claimant’s employment status can bind a potential employer who did not participate in the Contested Case Hearing process. This is a lengthy decision of significant importance that arises out of a complex fact scenario. It bears careful study.
The appeal involved claims by an employee hired by a temporary staffing agency, assigned to work for a prime contractor, who was severely injured at a construction site. The claimant received workers’ comp benefits from the carrier for the prime contractor who, the DWC determined, directed his activities and filed suit against the temporary staffing agency that hired him for the job as well as a subcontractor that he claimed negligently caused his injuries at the worksite. The employee obtained an approximately $6.1 million jury award. The prime contractor’s workers’ compensation carrier sought reimbursement of its expenses from Rodriguez’s jury award. The temporary staffing agency and the allegedly negligent subcontractor sought to vacate that jury award entirely.
After the accident, a dispute arose between the carrier for the employment agency, Liberty Mutual, and the prime contractor’s carrier, New Hampshire Insurance Company, over which carrier should be responsible for paying benefits to Rodriguez. The contested issue before the Division was: “Was RM Personnel (the temporary staffing agency) or Perspectiva (the prime contractor) the Claimant’s employer for the purposes of the Texas Workers’ Compensation Act at the time of the injury . . .?” The Division found that because Perspectiva controlled the details of Rodriguez’s work while he was at the job site, Perspectiva and not R.M. Personnel was Rodriguez’s employer under the Act. As such, Perspectiva’s carrier— New Hampshire Insurance Company—was liable for benefits and R.M. Personnel’s carrier— Liberty Mutual—was not liable. The Division ordered New Hampshire Insurance to reimburse Liberty Mutual for the benefits it paid Rodriguez, and to pay Rodriguez’s workers’ compensation benefits from that point forward. The Division’s decision was not appealed.
The prime contractor was designated a responsible third party in the plaintiff’s third party suit against the temporary staffing agency and others. There the jury found Rodriguez suffered $20,500,000 in damages. It apportioned 61 percent of the blame to the RTP, 17 percent to the temporary staffing agency, 11 percent to SWI, another contractor, and 11 percent to Rodriguez himself. The final judgment entered for $6,166,222.72 represented the 11 percent of the overall damages amount attributable to SWI ($2,255,000) and the 17 percent of the overall damages amount attributable to the temporary staffing agency ($3,485,000), plus applicable prejudgment interest. The 61 percent amount attributable to the prime contractor ($12,505,000) and the 11 percent amount attributable to the claimant himself ($2,255,000) were not included in the final judgment.
The judgment ordered the claimant’s workers’ comp carrier to continue paying workers’ compensation benefits in the amount of $11,542,588.75, plus prejudgment interest (representing the $12,505,000 minus benefits already paid by in WC benefits). Once the carrier had paid that amount, the judgment permitted the carrier to apply a credit of $4,066,648.67 (the total amount of Rodriguez’s judgment) toward future benefits. In other words, at a future date, the WC carrier could suspend WC benefits until an advance in the amount of $4,066,648.67 was exhausted. After the advance was exhausted, the WC Carrier would resume payment of workers’ compensation benefits.
The defendants and the WC Carrier brought separate challenges to the judgment in this appeal. The temporary staffing agency complained, among other arguments, that it was immune from liability because it was the claimant’s employer, as, as such, was entitled to the benefit of the exclusive remedy defense.
Rodriguez argued that the temporary staffing agency was collaterally estopped from asserting exclusive remedy immunity by virtue of the Division’s unappealed order. The Court agreed, “To hold otherwise would be to allow both R.M. Personnel and its insurance carrier to escape liability by taking inconsistent positions at various stages of litigation.”
A party asserting collateral estoppel must establish that (1) the facts sought to be litigated in the second action were fully and fairly litigated in the first action, (2) those facts were essential to the judgment in the first action, and (3) the parties were cast as adversaries in the first action. To invoke collateral estoppel on the basis of a prior administrative order, the party must show that the administrative agency was acting in a judicial capacity and resolve[d] disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate.
The temporary staffing agency did not contest that the facts about employer status were fully and fairly litigated before the Division and that the issue of employer status was essential to the order in the contested hearing. Instead, it asserted that it was not bound by the Division’s order because it was not a party to the contested case—only its insurance carrier was a party to that administrative proceeding.
The court disagreed, finding “that the interests of Liberty Mutual and R.M. Personnel are sufficiently aligned so as to allow collateral estoppel to apply vis-à-vis the issue of employer status. Indeed, R.M. Personnel and Liberty Mutual both had an aligned interest in the contested hearing: both wanted Perspectiva to be named Rodriguez’s employer so that Perspectiva’s carrier would be liable for paying Rodriguez benefits.”
In addition, the court concluded that the staffing agency had been entitled to participate in the contested case hearing had it chosen to do so based on the employer bill of rights found in § 409.011(b)(1)-(2).
We find that these provisions provided an adequate opportunity for R.M. Personnel to litigate the issue of whether Rodriguez was an employee such that its insurance carrier was liable and R.M. Personnel could later avail itself of the exclusive remedy defense. . . . R.M. Personnel did not attempt to avail itself of these opportunities to present evidence regarding employer/employee status before the Division.
Finally, the court concluded that this outcome was consistent with the Act’s overall purpose, and with common sense.
The Workers’ Compensation Act represents a tripartite balancing act among competing interests: “[t]he carrier agrees to compensate the employee for injuries sustained in the course of employment and the employee agrees to relinquish his common law rights against the employer.” . . . Allowing parties to relitigate the issue of employer status other than on direct appeal from the order itself as provided for in the Act would subvert the balance of competing interests struck by the Act and undermine the Division’s jurisdiction over controversies regarding employer status by opening the door to collateral attacks and, by extension, more costly litigation. The order should be given preclusive effect.
In the comp carrier’s appeal, the court considered the effect of the responsible third party finding upon the comp carrier’s 1) right to reimbursement for benefits paid and 2) right to apply take a holiday against further liability. It resolved the first issue against the carrier and the second issue in its favor.
The answer to the first question is determined in part by whether the carrier’s reimbursement reduction is calculated pro rata or by dollar amount. The carrier argued that the statute required the lien to be reduced only by the percentage attributable to the RTP’s negligence. The claimant argued that the statute required a dollar amount calculation, meaning that the comp carrier’s first money lien was reduced by $12,505,000. The distinction is critical because if the claimant is right, the carrier’s subrogation interest would be reduced to an amount below that which the claimant actually recovered.
The court concluded that the claimant’s interpretation of the statute was correct. Moreover, the court rejected the carrier’s arguments that the only situation in which a trial court could reduce a verdict based on “claimant” negligence is when the employer itself is the “claimant,” that is, when a self-insured employer brings a subrogation suit and is found to be contributorily negligent.
Prior to 2003, litigants could not designate a subscribing employer as a responsible third party, and since a subscribing employer was also immune from suit at large, the issue of whether and to what extent the subscribing employer was negligent could never make its way before a jury. That changed in 2003, when the Legislature adopted a slew of changes to civil litigation practice, including two that are relevant to this case. . . . First, the Legislature eliminated a prohibition in Section 33.003 of the Texas Civil Practice and Remedies Code against naming a subscribing employer as a responsible third party, meaning that even though the subscribing employer remained immune from suit, the employer’s negligence could for the first time be placed at issue before a jury and thereby (1) proportionally reduce an employee’s recovery and (2) allow other parties’ negligence to be viewed in context of all potential negligence at large. . . . Second, the Legislature amended Section 417.001(b) to include the subrogation limitation cross-referencing the newly-updated proportionate responsibility provisions at TEX.CIV.PRAC.&REM.CODE ANN. § 33.012(a), framing the subrogation interest reduction in terms of the employer’s proportionate responsibility.
The carrier’s second issue required the court to determine whether a holiday applied and, if so, when that holiday would begin. In this regard, the judgment ordered New Hampshire Insurance to continue paying workers’ compensation benefits in the amount of $11,542,588.75, plus prejudgment interest (representing the $12,505,000 minus benefits already paid by New Hampshire Insurance). Once New Hampshire Insurance paid that amount, the judgment permitted New Hampshire Insurance to apply a credit of $4,066,648.67 (the total amount of Rodriguez’s judgment) toward future benefits.
The court reversed this portion of the judgment and rendered judgment in favor of the carrier.
We disagree that the statute requires New Hampshire Insurance to pay an amount of benefits equal to the dollar amount of damages attributable to Perspectiva before the carrier can treat the $4,066,649.97 award as an advance against future benefits. The reimbursement/subrogation provisions do not create liability in the carrier when the amount of money attributable to the subscribing employer’s negligence exceeds the amount the worker receives in a third-party action, resulting in a negative reimbursement interest. Rather, the plain language of the statute simply provides that “[a]ny amount recovered that exceeds that amount of reimbursement required under Section (a) shall be treated as an advance against future benefits . . . .” Here, there is no reimbursement required. Thus, the $4,066,649.97 award recovered should be treated as an advance against future payments. The trial court erred by holding otherwise.
Chances are good, in our opinion, that the issues in this case will be appealed by all parties to the Texas Supreme Court.
FOLIO
