Texas Supreme Court Addresses Subrogation Rights of Workers’ Comp Insurers in Death Cases–Texas Subrogation Attorneys

The Texas Supreme Court in a June 20, 2014 decision called State Office of Risk Management v. Carty, 2014 WL 2790810 (Tex. 2014), addressed how a workers’ compensation carrier’s future credit is calculated when more than one death beneficiary is involved in the case.

As background, in Texas, an insurance company that has paid workers’ compensation benefits to a legal beneficiary of an employee has subrogation rights that attach to a beneficiary’s claims against a 3rd party. Tex. Lab. Code § 417.001-.002 (2006). The Texas Workers’ Compensation Act defines the term “legal beneficiary” as meaning a person who is entitled to receive a death benefit under the Act. Tex. Lab. Code § 401.011(29). The workers’ compensation carrier has a right of reimbursement from the first monies paid by the 3rd party tortfeasor, whether by settlement or pursuant to judgment. Texas Mut. Ins. Co. v. Ledbetter, 251 S.W.3d 31 (Tex. 2008).

“That portion of an award or settlement which represents a workers’ compensation beneficiary’s interest”, is what a carrier’s rights are limited to. If there is a settlement that involves beneficiaries and non-beneficiaries, monies must first be allocated to each before the extent of the carrier’s rights under § 417.002 can be determined. It is important to note that a carrier has no right to any part of the distribution of a 3rd party recovery that represents a non-beneficiary’s interest. U.S. Fire Ins. Co. v. Hernandez, 918 S.W.2d 576 (Tex. App. – Corpus Christi, 1996, writ denied).

With this legal back drop, in the Carty case, the 5th Circuit had posed this question to the Supreme Court: How should a workers’ compensation carrier’s right under § 417.002 to treat a recovery as an advance of future benefits be calculated in a case involving multiple beneficiaries? Should the carrier’s right be determined on a beneficiary-by-beneficiary basis or on a collective-recovery basis?

The Court stated that in such a scenario the carrier recovers its past lien off the top any time there are multiple beneficiaries involved. The net amount recovered by a claimant should be used to reimburse the carrier for past benefits paid. With respect to future benefits, the insurance carrier’s right to claim credit is premised on the concept that a carrier is entitled to recover first money and the advance of any future benefits in a case involving several beneficiaries must be determined on a collective-recovery basis. Consequently, the future benefits credit is not determined on a beneficiary by beneficiary basis, but must be looked at as a whole.

When the apportionment of a settlement has an effect on an insurance carrier’s reimbursement rights, a court should apportion the monies based upon the relative value and merit of the various claims involved. The court cannot do so in a way that circumvents the carrier’s subrogation rights. Texas Workers’ Comp. Ins. Fund v. Travis, 912 S.W.2d 895 (Tex. Civ. App. – Fort Worth, 1995, no writ).

Language from the Ledbetter case reflects the strength of a carrier’s position in a workers’ compensation subrogation matter in Texas courts generally:
When an injured worker settles a case without reimbursing a compensation carrier, everyone involved is liable to the carrier for conversion – the plaintiffs, the plaintiffs’ attorney, and the defendants. As between those parties, we have held that generally those who received the funds unlawfully (the plaintiffs and their attorney) should disgorge them rather than making the tortfeasors pay twice. Ledbetter, supra.

It is expected that the new Supreme Court decision in Carty will be interpreted as a more clear definition of a workers’ compensation carrier’s rights under § 417.002 of The Texas Labor Code. Combined with the “club” that the “conversion” cause of action provides as reflected in Ledbetter, the Carty decision now arms insurance carriers with more clarity to go with the “club”.

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.