Third Party Subrogation Liens
Workers’ compensation employers’ subrogation lien rights have received attention in recent years in the appellate courts. The North Carolina Supreme Court recently issued an opinion in Easter-Rozzelle v. City of Charlotte which clarified the impact of a third party settlement made without the written consent of the employer on the workers’ compensation claim, claimant’s entitlement to benefits, and the employer’s resultant lien.
David Easter-Rozzelle sustained compensable injuries while working for the City of Charlotte (hereinafter “the City”). The City requested he obtain an updated work note and on the way to pick up the note, Mr. Easter-Rozzelle sustained injuries in a motor vehicle accident (“accident”). After the accident, Mr. Easter-Rozzelle notified his supervisor and reported the accident to the City’s personnel office.
Mr. Easter-Rozzelle hired a personal injury attorney and settled the personal injury claim. The settlement proceeds were disbursed without any reimbursement to the City. Likewise, there was no Superior Court order eliminating the City’s lien and no Industrial Commission Order allowing distribution of the funds, as required under N.C.G.S. §97-10.2. Additionally, Mr. Easter-Rozzelle’s personal injury attorney alleged he was not “at work” when he sustained his injuries and the personal health insurance carrier should be responsible for those bills.
At the worker’s compensation mediation, Mr. Easter-Rozzelle’s workers’ compensation attorney first learned Mr. Easter-Rozzelle was injured while traveling to see his authorized treating physician. The attorney ultimately requested a hearing due to the City’s denial of the accident on the grounds that the City did not have notice of the accident and because Mr. Easter-Rozzelle reached a settlement with a third party and distributed funds without preserving the City’s lien.
The Deputy Commissioner found for the City, holding Mr. Easter-Rozzelle had no right to recover additional compensation from the City when the third-party settlement funds had already been disbursed. The Full Commission reversed, concluding that the City had sufficient actual notice of the accident and subsequent injuries, and should have “at a minimum” investigated whether the accident was compensable under the Act. The Full Commission also found the City was entitled to a statutory lien on recovery from the third-party proceeds of the personal injury claim, once the subrogation amount was determined by the parties’ agreement or by a Superior Court judge.
On appeal to the Court of Appeals, the City argued the Full Commission erred in concluding Mr. Easter-Rozzelle was entitled to recover additional compensation from the City for injuries sustained in the third-party accident when the settlement amount had already been disbursed in violation of N.C.G.S. § 97-10.2. The Court agreed, holding where an employee is injured in the course of his employment by the negligent act of a third party, settles with the third party, and the proceeds of the settlement are disbursed in violation of N.C.G.S. § 97-10.2, the employee is barred from recovering compensation for the same injuries from his employer in a proceeding under the Workers’ Compensation Act.
The Supreme Court reversed, finding the Court of Appeals erroneously relied upon cases that had been superseded by statute and as such, misinterpreted the Act. The Supreme Court held that an employee who: (1) had been injured at work; (2) was on his way to see his approved treating physician; (3) was injured again in an auto accident during the trip; (4) notified his employer of the new accident; and (5) settled with the third-party tortfeasor without notifying his employer was not barred from receiving workers’ compensation benefits. The Court noted that an employer’s lien interest in third-party proceeds is mandatory, so there was no windfall to the employee because the employer is entitled to recover the amount of its lien by means of a credit against the employee’s ongoing workers’ compensation benefits. The Court noted that N.C.G.S. § 97-10.2(j) contains no temporal requirement, and that either party may apply to the Superior Court judge to determine the amount of the employer’s lien.
The Court further highlighted that the City received actual notice of the accident, and as a result, had an opportunity to promptly investigate the claim and determine its compensability. Had the City done so, it would have discovered Mr. Easter-Rozzelle had suffered compensable injuries, and it could have participated in the settlement process.
Risk Handling Hint: Employers need to communicate with their TPAs and carriers regarding notice of accidents, especially car accidents, which they think may be related to the workers’ compensation claim. Likewise, carriers and TPAs need to communicate with their contacts at employers and proactively ask whether there are any accidents after the date of injury, what the circumstances are, and whether there is additional liability or exposure.