Supreme Court Denies Rehearing Motion in Wedel, the Waiver of Subrogation Case
The Texas Supreme Court has denied the workers’ comp carrier’s motion for rehearing in Wausau Underwriters Insurance Co. v. James Wedel and Michelle Wedel (No. 17-0462), a case involving the question of the validity of a waiver of subrogation endorsement. The denial comes in spite of the filing of an amicus brief filed by the National Council on Compensation Insurance that sided with the carrier’s motion for rehearing.
In Wedel, which was decided June 8, 2018, Texas Supreme Court held that a workers’ compensation carrier that executed a waiver of subrogation endorsement was precluded not only from recovering its subrogation interest from the third party defendant, but also from the injured worker.
Under the endorsement, the waiver of a carrier’s “right to recover” from the third party named in the schedule includes both a direct recovery from the third party and an indirect recovery from proceeds the third party pays to an injured employee. There is no meaningful difference between the two. Under either scenario, the reimbursement the carrier attains flows from the third party. True, the waiver speaks to the carrier’s right to recover from liable third parties, not injured employees. But any settlement the employee receives from the carrier is a recovery from a liable third party. Once paid, the money belongs to the employee, but it did not exist before the third party made the payment to dispose of the employee’s lawsuit. The waiver’s language does not compel us to ignore the source of the proceeds the carrier seeks to capture simply because they flowed through the employee.
Wausau filed a motion for rehearing June 18, 2018 in which it argued that the court’s opinion ignored “decades of settled Texas law regarding ‘plain language’ contract construction and policy interpretation.”
Simply put, words matter. This Court has always applied the plain language of unambiguous policy provisions until now. The Majority effects a radical change in Texas law without discussing Fiess [v. State Farm Lloyds, 202 S.W.3d 744, 753 (Tex. 2006), where the court had previously held that “the rules for construing insurance policies have been around for a long time, long before this dispute arose. Those rules require us to construe a policy according to what it says, not what regulators or individual insurers thought it said”] or the applicable principles of contract construction and without acknowledging the change in its interpretive framework. There is no doubt, however, that litigants, practitioners and the courts will note this change in Texas law and it could have significant unintended consequences in future contract cases.
NCCI’s amicus brief elaborated on this argument. NCCI advised the court that it had filed its amicus brief “out of concern that this Court has issued an opinion that interprets language in the waiver endorsement that is unnecessary to resolving the case before it, and in a manner that could disrupt the carefully-balanced workers’ compensation system in Texas.” The brief argues that the court’s opinion “appears to be largely based on the notion that the courts of this state have already decided the proper interpretation of the waiver endorsement through ‘over twenty years of case law unanimously interpreting it.’” NCCI argues, however, that an examination of the cases reveals that this unanimity of the courts is “illusory.” NCCI offers the court an alternative method of addressing the question.
NCCI submits that the motion for rehearing should be granted, and this Court should re-examine the case based upon the more straightforward and undisputed text of the waiver endorsement prohibiting any “direct or indirect benefit” of the waiver to a person not named in its Schedule. Such an approach would be entirely consistent with the existing policy against double recovery expressed by multiple statutes enacted by the legislature, as well as the intent of the text of the waiver endorsement as it was drafted and published by NCCI, and later adopted by TDI. A requirement that settling parties intending to rely upon a carrier’s waiver endorsement present to the court the actual benefits paid by the workers’ compensation carrier and to be paid in future benefits, and a finding by the trial court that those amounts are specifically excluded from the settlement and not duplicated would mirror the procedure enacted by the Texas legislature in CIV. PRAC. & REM. CODE § 95.004. Such procedural safeguards would protect against any possible double recovery and preserve the central principle of the exclusive remedy in the Texas workers’ compensation system, while giving full effect to the plain language of the endorsement prohibiting “direct or indirect benefit” to an unnamed party.
The case has previously drawn an amicus brief on behalf of the Wedels from the Texas Trial Lawyers Association, an amicus brief from Texas Mutual Insurance Company, an amicus brief from Exxon Mobil Company, as well as several additional briefs in reply or response to the amici. In addition, two justices dissented from the court’s original opinion. The dissent argued that there was a decided and recognized difference between an insurer’s subrogation right and its right of reimbursement. It reasoned that the endorsement in this case had only waived the statutory subrogation right afforded Wausau by Workers’ Compensation Act. But, the dissenting justices wrote, the endorsement did not waive the separate statutory right to reimbursement afforded by the act.
Absent a legislative change, the Court’s denial of the carrier’s motion for rehearing would appear to settle the question of the meaning of the waiver of subrogation endorsement in Texas.
FOLIO
