ADVANCED CONCEPTS IN WORKERS'COMPENSATION SUBROGATION

INTRODUCTIONBY GARY WICKERT, MOHR & ANDERSON

PRESENTED AT THE NASP 2000 CONFERENCE

Subrogation represents the only area of the insurance industry, other than underwriting, where moneyis actually paid to the carrier rather than by the carrier. In this age of bad faith litigation, soaring healthprovider costs, increased claims and even insurance fraud, subrogation is one of the insurance carrier'smost effective tools for maintaining profitability. It is not enough to carefully and prudently adjustworkers' compensation claims, keeping in mind the interest of both the carrier and the claimant. Thecarrier should attempt to fully recover its workers' compensation lien in third party cases and claim itsstatutory credit or advance against future benefits and/or medical expenses, when and where it isallowed by law. Knowing when and where it is allowed can mean the difference between making afull recovery and making none at all. Both require prompt and effective action.

This seminar is meant to serve as a supplement to the Workers' Compensation Subrogation Primer, whichwas offered earlier in this convention. While that seminar covered the basics of workers' compensationsubrogation, if there is such a thing as basics, this seminar will cover more advanced concepts, includinglien issues, indemnity, the made whole doctrine, lien reduction statutes, and defenses used at every turnby plaintiffs' attorneys and defense attorneys alike to wipe out your subrogated interest. Although thefocus of this article will be national in scope, including a survey of the application and effect ofworkers' compensation statutes of various states, it is impossible to address the concepts discussedherein under the various laws of all fifty states. Therefore, the author has chosen to illustrate many ofthe terms and advanced concepts set forth herein applying Texas law. The laws of other states will becontrasted.

Although the Texas Workers' Compensation Act, as with many workers' compensation acts, has beenaround for more than eighty years, the true benefits of the carrier's statutory rights of reimbursement,until recently, have been mostly ignored and underutilized. For example, in Texas, many insurancecarriers simply did not actively pursue subrogation. Instead, carriers let the claimants' attorneys do thework for them, or simply waited until they received a telephone call and then compromised their liens. This pattern of apathy and inactivity by the carriers in all states has resulted in a series of courtdecisions unfavorable to the carrier, awarding large portions of money, which rightfully belong to thecarrier via its subrogated interest, to plaintiffs' attorneys and claimants instead. In large part, we havedeserved this treatment. The tables, however, are turning. These decisions have wrongfully burdenedthe carrier with expenses and attorney�s fees it should not be liable for. Inactivity in subrogation hasbeen a major contributor toward losses in the insurance industry just as turning the tables on plaintiffs'attorneys and emphasizing subrogation has been instrumental in increasing overall profitability of somecarriers.

Using the Texas Workers' Compensation Act as a yardstick against which other states are measured,this seminar has as its focus the instilling of creativity and awareness with regard to recognizing andtaking action on workers' compensation subrogation. It also aims to educate claims handlers and

supervisors alike on the various issues which have become vogue in the subrogation arena and areessential for effective subrogation recoveries. A claims handler who is not familiar with subrogationlaw and its advanced concepts, will be impotent to deal with the various defenses and roadblockswhich are ultimately thrown in their way. Prompt and effective action must be taken by competentsubrogation personnel or subrogation counsel immediately upon recognition or suspicion of any thirdparty liability for a worker's compensation carrier's claimant's injuries, in order to effect a completerecovery of a worker's compensation lien.

It is my hope that these materials will be instructive and provide assistance to the insuranceprofessional in coordinating with and assisting subrogation counsel in recover of your workers'compensation subrogation interests. Any use of these seminar materials as resources or referencesshould be used with the understanding that insurance law is dynamic and rapidly changing.

THIRD PARTY LIABILITY

No where are the state-to-state subrogation rights of insurance carriers more disparate than in the areaof workers' compensation. Generally speaking, workers' compensation benefits are the exclusiveremedy against the employer for a worker injured in the course and scope of his employment. Inexchange for an employee giving up his right to sue an employer for negligence resulting in an injury,the plaintiff is given a schedule of predictable and guaranteed medical, indemnity and/or death benefitsnot contingent upon or affected by negligence of the employee or other contributory negligence. Thepurpose of these statutes are to protect the carrier, reduce the burden of insurance on the employers,and to see to it that the ultimate burden for the loss is borne by the party whose negligence caused theloss or injury in the first place. 1

The rights of a worker�s compensation carrier to subrogate and recover its benefit payments from athird-party recovery are as confusing and varied as any state law that can be found. Workers'compensation subrogation is usually granted by statute, and is usually a statute found in the workers'compensation law of the particular state involved.

1 Capitol Aggregates, Inc. v. Great American Insurance Company, 408 S.W.2d 922 (Tex. 1966).

The right of a worker's compensation insurer to be subrogated to the rights of the worker against athird party who may have caused the employee injury usually receives protection under both commonlaw and the workers' compensation statutes in most states. An example of a statute of that type isTexas Labor Code §417.001. which provides as follows:

§417.001. Third Party Liability

a) An employee or legal beneficiary may seek damages from a third party who is orbecomes liable to pay damages for an injury or death that is compensable under thissubtitle and may also pursue a claim for workers' compensation benefits under thissubtitle.

b) If a benefit is claimed by an injured employee or a legal beneficiary of the employee,the insurance car7ier is subrogated to the fights of the injured employee and mayenforce the liability of the third party in the name of the injured employee or legal

beneficiary. If the recovery is for an amount greater than that paid or assumed by theinsurance carrier to the employee or the legal beneficiary, the insurance carrier shall:

1) reimburse itself and pay the costs for the amount recovered, and2) pay the remainder of the amount recovered to the injured employee or

the legal beneficiary. 2

The policy behind this protection of the worker's compensation insurer's subrogation rights are the factthat the employer and its insurer are obligated to pay benefits to an injured employee without regardto fault. In other words, the employer and its insurer are strictly liable to the injured employee forindemnity and medical benefits under the act regardless of whether any fault on the part of theemployer contributed to the injury.3 Since an insurer pays benefits on a strict liability basis, it is entitledto recoup its payments from any recovery by the employee from a third party to the extent that thethird party caused or contributed to the injury.

2 Texas Labor Code '417.002(a) goes on to provide that the net amount recovered by a claimant in a third- party actionshall be used to reimburse the insurer for the benefits, including medical benefits, that have been paid for the compensableinjury.

3 This submission to strict liability is given in exchange for the �exclusive benefit� protection of the workers' compensationlaw s. That is, an injured employee is limited to recovery of predictable w age and medical benefits and cannot recoverdamages for pain or suffering, etc., from an employer protected by w orkers' compensation insurance.A similar provision is found in the Pennsylvania Workers' Compensation Act, 77 Pa. Stat. §671:

§671. Subrogation of Employer to Rights of Employee Against Third Person; Subrogationof Employer or Insurer to Amount Paid Prior to Award

Where the compensable injury is caused in whole or in part by the act or omission of a thirdparty, the employer shall be subrogated to the right of the employee, his personalrepresentative, his estate or his dependents, against such third party to the extent of thecompensation payable under this article by the employer, reasonable attorney�s fees and otherproper disbursements incurred in obtaining a recovery or in effecting a compromise settlementshall be prorated between the employer and employee, his personal representative, his estateor his defendants. The employer shall pay that proportion of the attorney's fees and otherproper disbursements that the amount of compensation paid or payable at the time of recoveryor settlement bears to the total recovery or settlement. Any recovery against such person inexcess of the compensation theretofore paid by the employer shall be paid forthwith to theemployee, his personal representative, his estate or his dependents, and shall be treated as anadvance payment by the employer on account of any future installments of compensation.

Where an employee has received payments for the disability or medical expense resulting froman injury in the course of his employment paid by the employer or an insurance company on thebasis that the injury and disability were not compensable under this act in the event of anagreement or award for that injury the employer or insurance company who made the paymentsshall be subrogated out of the agreement or award to the amount so paid, if the right tosubrogation is agreed to by the parties or is established at the time of hearing before a refereeor the board.

All states allow subrogation by the employer or its insurer against the responsible third party foramounts paid out in compensation. For example, see the following statutes: California, Cal. Lab.Code §3852; Florida, Fla. Stat. §440.39(2); Georgia, O.C.G.A §34-9-1 1.1 (b); Illinois, §820I.L.C.S. 3055(b); Indiana, Burns Ind. Code Ann. §22-3-2-13; Kansas, Kan. Stat. Ann. §44-504;Kentucky, Ken. Rev. Stat. §342.700; Maryland, Md. Emp. & Lab. Code Ann. §9-902; Michigan,Mich. Stat. Ann. §17.237(827); Missouri, R.S.Mo. §287.157; New York, N.Y.C.L.S. Work Comp.§29; North Carolina, N.C. Gen. Stat. §97-10.2; Ohio, O.R.C. Ann. §4123.931; Tennessee, Tenn.Code Ann. §50-6-112; Virginia, Va. Code Ann. §65.2309; Washington, Rev. Code Wash.§51.24.030, et. seq.

These statutes allow an injured employee to pursue recovery from a third-party tortfeasor withoutprecluding a claim against the employer's workers' compensation insurer. 4 However, as is the casewith all subrogation, in the absence of a waiver by the insurer, the employee is prevented fromobtaining a double recovery due to the insurer's right to recoupment of its claims to the extent of allthe compensation paid. An insurer has a statutory right to reimbursement, sometimes called a�worker's compensation lien," of the first monies paid to an injured employee or his representatives bythe third-party tortfeasor. This recovery can be obtained from either the third-party tortfeasor or theemployee (in the event the employee and the third party settle and the settlement proceeds have beenalready paid by the third party). In fact, where the third-party tortfeasor pays the settlement orjudgment to an employee who has been receiving workers' compensation benefits, the tortfeasor andthe employee are jointly and severally liable to the workers' compensation insurer for the entiresubrogation claim.5 In the event the injured employee does not elect to bring a suit against a negligentthird party, the insurer can enforce its lien by bringing the subrogation suit in the name of theemployee.6

The insurer�s right to recover is so favored that the insurer can usually recover the benefits paid outwithout actually intervening in the third-party action. Often the injured employee's counsel will enterinto an arrangement with the workers compensation insurer where the employee's counsel will pursuerecovery from the third party with the insurer�s cooperation. However, an injured employee's attorneyhas been held liable to the subrogating insurer for receiving a settlement check from the third party,made payable jointly to the employee and the attorney, and then releasing those funds without firstpaying the compensation insurees lien.7 The recovery from the lawyer was based on the assumption thathe had benefited from the settlement to the detriment of the subrogating insurer.

ALLOCATING SUBROGATION RECOVERIES

Let's face it, when money is put on the table and you are competing against an injured worker, aninsured, or a host of plaintiffs for a limited amount of funds, all of your subrogation training andexperience boils down to one simple question: Who gets what? The answer to this question and theeffect that different state laws will have on a subrogated carriers rights to recover non-workers'compensation and workers' compensation subrogated interests depends on the laws of the particularstate.

4 Watson v. Glens Falls Insurance Co., 505 S.W.2d 793 (Tex. 1974).

5 The Home Indemnity Co. v. Pate, 866 S.W.2d 277 (Tex. App.- Houston [1st Dist.] 1993).6 For example, see '29(2) of the New York Workers' Compensation Statute, providing for an assignment of an injuredemployee's cause of action against a third party to the w orker's compensation carrier w hich has paid benefits, so long asthat carrier has complied w ith certain notice requirements to the employee.7 Prew itt & Sampson v. City of Dallas, 713 S.W.2d 720 (Tex. App. - Dallas, 1986, w rit ref�d n.r.e.).

Non-Workers' Compensation

Where the insurer has paid a claim pursuant to the terms of the policy, and a subrogation recovery hasbeen made from the third party, there are various approaches set out in case law as to determining thepriority between the insurer and the insured to the subrogation proceeds obtained from the third partyresponsible for the loss. The traditional rules for making that allocation have been summarized byProfessor Keeton in his Insurance Law Treatise as follows:

1. The insurer is to be reimbursed first out of the recovery from the third party for the full amount of insurancebenefits paid to the insured, and the insured is then entitled to any remaining balance. This approach is oftenstated in connection with workers' compensation law provisions dealing with recovery on workers' compensationliens. This rule may also be employed where there is an express provision either in the insurance policy ora document executed by the insured in the course of settling an insurance claim which provides for it.

2. The recovery from the third person is to be prorated between the insurer and the insured in accordance withthe percentage of the total or original loss for which the insurer provided indemnification to the insured underthe policy. This rule is occasionally applied in contested cases and is usually a result reached by an Insuredand insurer which resort to a compromise to settle a dispute about the rights to recover from the third party.

3. The insured is to be reimbursed first out of the recovery from the third party for any loss that was not coveredby insurance, the insurer is then entitled to be reimbursed fully, and the insured is entitled to anything thatremains from the amount paid by the third party so that any �windfall" goes to the insured. This rule is themajority rule among the more recent cases.8

In pursuing its subrogation rights, the insurer is never allowed to profit at the expense of the insured. In one Texas case,9 an aviation insurer paid a claim on behalf of the insured aircraft leasing companywhere the lessee of the plane landed it negligently, causing damage which the insurer had paid and forwhich the subrogation action was maintained against the lessee. The terms of the lease allowed thelessor to recover attorney's fees from the lessee for breach of the lease. At the trial level, the courtrefused to award attorney's fees incurred by the insurer in enforcing its subrogation rights against thelessee. On appeal, the insurer contended that subrogation entitled it to all of the rights held by thelessor under the lease, including the contractual rights to recover attorney's fees in that case. TheAppellate Court agreed with the insurer, stating as follows:8 R. Keeton and Widiss, Insurance Law - Practitioner's Edition, '3.1 0(b).9 Rushina v. International Aviation Underw riters, Inc., 604 S.W.2d 239 (Tex. Civ. App. Dallas, 1980, w rit ref�dn.r.e.).

"Under the general rule, an insurer bringing suit in a subrogation action receives pro tanto the rights of itsinsured to the extent of payments made under the insurance contract. [Citations Omitted]. The questionbefore us is whether the appellee, suing on a subrogation theory, succeeds to the contractual right of its insuredto recover attorney�s fees. The insurer expended none and thus none were paid to the insured under theinsurance contact. Rather, the attorney's fees were directly incurred by the appellee [the insurer]. We holdthat the insurer may recover attorney�s fees in the subrogation action where the insurer would have beenentitled to attorney�s fees if it had prosecuted the suit."

The Rushing Court then discussed another case that set up the rationale allowing the insurer to recoverattorney�s fees as follows:

'The only case we have found which provides an analysis of the questions with which we are dealing isSafeway Rental & Sales Company v. Albina Encline & Machine Works, 343 F2d. 129 (1OthCirc. 1965). Safeway concerned a suit for personal injuries suffered by a workman when a cable brokeon a scaffold that had been leased from Safeway and owned by Albina. The injured workman recoveredagainst both. Albina's insurer, Glens Falls Insurance Company, obtained a judgment against Safeway forindemnity but the trial court refused to award attorney�s fees to the insurer. The trial court held that becausethe attorney�s fees in the suit had been paid by Glens Falls rather than the insured, Glens Falls could notrecover attorney�s fees under its right of subrogation. The Tenth Circuit of Appeals, construing Oklahomalaw, held that the insurer was entitled to recover attorney�s fees because the insured could have recovered themhad he brought the suit. The court reasoned that where, in the absence of insurance, the defendant would beliable for attorney�s fees, the defendant should not be relieved of that liability merely because the insuredcarried an insurance policy."

Based on that rationale, the Rushing Court stated that to deny attorney's fees to the insurer would onlyencourage insurers to require that the insured pay its own attorney's fees so that the insurer couldreimburse him and obtain subrogation rights. Such a rule would place form over substance. Therefore,the court held that by payment of the insured's claim, the insurer was subrogated to all of the contractrights of the insured, including the right to recover attorney�s fees. However, the insurer should neverbe allowed to make a profit under that rule. Any money recovered by the insurer in excess of what theinsurer had expended in pursuing the claim must be remitted to the insured. In Wisconsin, theWisconsin Supreme Court has concluded that the Workers' Compensation Act, Wis. Stat. §102.29(1),does not prohibit a worker�s compensation insurer from seeking reimbursement from an alleged thirdparty tortfeasor for the payments it has or will make to the employee by claiming all of the worker�sdamages flowing from the work related injury, including pain and suffering. Such a recovery ispermitted even when the employee has specifically declined to participate in the action.10 Accordingly,in many states, workers� compensation carriers are subrogated not only to first money, but also to allelements of damages recovered by the worker, regardless of their origin.

The Made Whole Principle

In non-workers� compensation scenarios, subrogation personnel will almost always have to deal the"made whole principle'. Where the insured's loss has not been paid in its entirety by insuranceproceeds, and a right of subrogation arises in favor of the insurer, the insurer, in some instances, maynot recover until the insured's entire loss is compensated. In other words, where the insured hassustained losses in excess of the reimbursement by the insurer, the insured is entitled to be "made whole"for its entire loss and any costs of recovery, including attorney�s fees, before the insurer can assert itsright of legal subrogation against the insured or the tortfeasor.11 This result is in accord with thepurpose of insurance subrogation - to prevent either the unjust enrichment of the insured through adouble recovery or a windfall benefit to the tortfeasor.

Therefore, in workers' compensation settings, the insured must usually be "made whole" before thesubrogating insurance company can recover anything from the tortfeasor. However, many states makea distinction between legal equitable subrogation and conventional contractual subrogation whenapplying the 'made whole' principle. Cases such as Ortiz v. Great Southern Fire and Casually Company,involves equitable or legal subrogation, not conventional or contractual subrogation. Some courts hold

that when the parties contract for subrogation, the equitable "made whole' principle should not apply. However, the insured usually has priority to a subrogation recovery, and only after the insured is �madewhole' can the insurer share in it. In Wisconsin, the Made Whole Doctrine applies even where theinsured has signed an assignment or 'subrogation receipt' in favor of the insurer after it has been paidthe policy proceeds.12 A contrary view has been expressed in many other states.13 The rationale forthe Made Whole Doctrine is that where the amount recovered from the third party tortfeasor is lessthan the total loss, and thus either the insured or the insurer must go to some extent unpaid, the lossshould be borne by the insurer, for that is the risk the insured has paid premiums to the insurer toassume.

10 Threshermens Mutual Insurance Company v. Page, 217 Wis. 2d 451 (1998).11 Fire and Casualty Insurance Company, 597 S.W.2d 342 (rex. 1990).12 Garrity v. Royal Mutual Insurance Company, 77 Wis. 2d 537 (1976).13 Peterson v. Ohio Farmers Insurance Company, 175 Ohio St. 34 (1963); Shifrin v. McGuire and Hester ConstructionCompany, 239 Cal. App. 2d 420 (1966).In the context of workers' compensation law, the Made Whole Doctrine is not as formidable anopponent as it is in the arena of non-workers' compensation subrogation. This is because workers'compensation subrogation is generally dictated by state legislation which spells out (or should spell out)how a subrogation recovery is to be allocated between the parties most likely to be competing for thesemonies:

1. the claimant or his beneficiaries;2. the worker's compensation carrier;3. the claimant's attorney;4. derivative claimants, such as spouses and children of the claimant; and5. other plaintiffs in the third party action.

Statutory subrogation, such as workers' compensation and hospital liens, are generally not subject tothe "made whole" rule and the insurer may generally recover under the terms of the worker'scompensation statute regardless of whether the insured is "made whole". As with anything else, thereare exceptions. We will look at some of those exceptions later in this article. In addition, group healthand disability policies subject to ERISA arguably fall outside of the "Made Whole' Doctrine becausethe state "made whole" law is preempted by the federal statute, although even this umbrella of ERISAprotection is being eroded gradually with regard to the Made Whole Doctrine in various federalcircuits.

Workers' Compensation

In most states, workers' compensation insurance is written on the 1992 Edition of the Workers'Compensation and Employer's Liability Insurance Policy Form (WC 00 00 01 A) developed by theNational Council on Compensation Insurance (NCCI).

WORKERS� COMPENSATION POLICY SUBROGATION PROVISIONPART FOUR � YOUR DUTIES IF INJURY OCCURS

Tell us at once if an injury occurs that may be covered by this policy. Your other duties arelisted here:

5. Do nothing after an injury occurs that would interfere with our right to recoverfrom others.

Source: Workers� Compensation and Employers Liability Insurance Policy, Form WC 00 00 01 A.National Council on Compensation Insurance, 1992.

Protecting the Lien

When a third party settlement or judgment results in a recovery by the worker's compensation claimant,most states grant the worker�s compensation carrier a subrogation right out of the proceeds of thatrecovery. The priority of recovery depends on the state involved. In Texas, the particular statute atissue is Chapter 417 of the Texas Labor Code, set forth in part below:

§417.002. Recovery in Third Party Action

(a) The net amount recovered by a claimant in a third party action shall be used to reimburse theinsurance carrier for benefits, including medical benefits, that have been paid for the compensable injury.

(b) Any amount recovered that exceeds that amount of the reimbursement required under Subsection(a) shall be treated as an advance against future benefits, including medical benefits, that the claimant isentitled to receive under this subtitle.

(c) If the advance under Subsection (b) is adequate to cover an future benefits, the insurance carrier isnot required to resume the payment of benefits. If the advance is insufficient, the insurance carrier shallresume the payment of benefits when the advance is exhausted.14

Acts 1993, 73rd Leg., Ch. 269, §1, Eff. September 1, 1993.

Carrier's Right to First Money

Although not the case in every state, in Texas the carriers right to recover all workers' compensationbenefits from any third party settlement or judgment is not only statutory, it is automatic. The first

money received in any settlement or judgment by the claimant, and every dollar thereafter, belongsto the carrier until the carrier is paid in full. Until the carrier is repaid in full, neither theclaimant nor his attorneys have any right to any of the funds. This is true even where theclaimant settles with only one of several defendants.15

The Texas Workers' Compensation Act authorizes a carrier to file a subrogation suit in the in thename of an injured claimant. Armed with this authority, Mohr & Anderson, S.C. urges carriers toimmediately identify subrogation and forward potential subrogation claims to subrogation counselfor early settlement or prompt filing of a lawsuit. If the plaintiff�s attorney settles the third party casein Texas without filing a lawsuit, he is guaranteed by law to receive a full 1/3 of your lien as anattorney's fee, even if you have already begun subrogation investigation. Time is of the essence.

While the Texas Act grants a "first money" right of recovery, many states do not.

Nebraska. Nebraska's Workers' Compensation Act provides for a much different and much moreuncertain distribution of proceeds.16 Nebraska statute has many favorable provisions including:

14 The Texas Act in its entirety can be found in the Appendix at Page A-1.15 Fort Worth Lloyds v. Haygood, 246 S.W.2d 865 (Tex. 1952); Capitol Aggregates, Inc. v. Great American InsuranceCompany, 408 S.W.2d 922 (Tex. 1966).16 Neb. Rev. St. §48.118 (1999).

1. The carrier is subrogated to all elements of recovery, not just the amount payable ascompensation;

2. Any recovery in excess of the lien is treated as an advance;3. Either the employee or the carrier can file suit;4. The plaintiff and the carrier will have an equal voice in the prosecution of the third party;5. If you are represented by subrogation counsel, attorney' fees will be divided between the

attorneys based on the work they each performed; and6. Any settlement must be agreed upon in writing by both the employer and the carrier.

However, despite these attractive provisions of the Nebraska Statute , it also provides that:

�If the employee or his or her personal representative and the insurer of the employer if there is one, and ifthere is no insurer, then the employer, do not agree in waiting upon distribution of the proceeds of any judgmentor settlement, the court upon application shall order a fair and equitable distribution of the proceeds of anyjudgment or settlement.�

While the "Made Whole" Doctrine does not apply to workers' compensation scenarios per say, it isobvious that the Nebraska statute has given the trial courts discretion to allocate subrogation recoveriesas they deem "fair and equitable'. This can only spell trouble for workers' compensation carriers, soearly stipulations on the heels of prompt and aggressive action on the part of subrogation counsel isadvised in any Nebraska workers' compensation claim of any appreciable size.

Arkansas. Under the Arkansas Act, 18 if either the plaintiff or the carrier institute a third party actionand there is a recovery, the act provides that the carrier's subrogation right is as follows:

They shall be entitled to a first lien upon two-thirds (2/3) of the net proceeds, recovered in the action thatremain after the payment of the reasonable costs of collection, for the payment to them of the amount paid andto be paid by them as compensation to the injured employee or his dependents."

17 The complete subrogation provision of the Nebraska Statute can be seen in its entirety in the Appendix at Page A-2.18 Ark. St. 'l 1-9-41 0 (1 999). The subrogation provision of the Arkansas Act can be found in its entirety in the Appendixat Page A-3.

In Arkansas, therefore, we are given a �first money" right, but it is not "first money" from the " grossrecovery�, but rather a �first money right of recovery" on the "net recovery". The difference isimportant, but once again we can see that the Arkansas legislature has made sure that the attorneys arepaid first. As with many states, the Arkansas Act provides for an allocation formula. That formula isas follows:

1. Reasonable costs of collection (including attorney�s fees) are deducted from the gross recovery;2. In every case, 1/3 of the remainder shall belong to the injured employee or his dependents, as

the case may be;3. The remainder, or so much as is necessary to repay the carrier, is paid to the carrier; and4. Any excess shall be belong to the injured employee or his dependents.

Under the Arkansas Act, therefore, it remains important to have subrogation counsel activelyrepresenting your interests, in order to defray the amount of attorney�s fees which may be deductedfrom your subrogated interest in payment for the plaintiffs' attorney's services.

Georgia. Under §34-9-11.1 of the Georgia Workers' Compensation Act, 19 the legislature has includeda portion of the "Made Whole" Doctrine into the third party subrogation provisions of that law. Historically, Georgia has been one of the most unfavorable states for subrogation among all lines. Section 34-9-1 1.1 provides:

(a) When a compensable injury or debt is caused by a third party, the employee may sue that third party.

(b) If the employer has fully or partially paid its worker�s compensation obligation, then the employees insurerhas a subrogation lien, not to exceed the actual amount of the compensation paid pursuant to this chapter,against such recovery. The carrier can intervene, but the carrier's recovery is limited to the amount ofdisability benefits, death benefits, and medical expenses paid, and is only recoverable if the employee has been�fully and completely compensated, taking into consideration both worker'scompensation benefits received and the amount of the recovery in the third partyclaim, for all economic and uneconomic losses incurred as a result of the injury�.

19 Ga. St. '34-9-11.1 (1999). The subrogation provision of the Georgia Statute can be found in its entirety in the Appendixat Page A-4.

It appears then that in Georgia, the carrier can subrogate only for past payments made, not any futurepayments or medical obligations. It also seems as though the carrier can only recover if the employeeis "made whole".

Indiana. Under the Indiana Statute, 20 a carrier is given a lien on any recovery, subject to its payingits pro rata share of the reasonable and necessary costs incurred in paying an attorney's fee to theplaintiffs attorney. The Indiana statute, as with other states, including Wisconsin, allows the carrierto recover not only its lien for past benefits paid, but also an amount equal to the liability of the carrierfor future payments in compensation and medical benefits. After settlement of the third party action,assuming the carrier has received payment in full, its obligation to pay future compensation and othermedical expenses terminates. All might seem well, but Indiana also has enacted a lien reduction statute which arguably applies to workers' compensation and can reduce or eliminate the recovery of thecarrier considerably. 21 We will discuss the applicability of these lien reduction statutes later in thisarticle.

Wisconsin. In Wisconsin, §102.29(l) of the Wisconsin Statutes provides in pertinent part as follows:

The employer or compensation insurer who shall have paid or is obligated to pay a lawful claim under thischapter shall have the same right [as the employee] to make claim or maintain an action in tort against anyother party for such injury or death. However, the employer or compensation insurer, or the employee makea claim shall give to the other reasonable notice and opportunity to join in the making of such claim or theinstituting of an action and to be represented by counsel�.If notice is given as provided in this subsection,the liability of the tortfeasor shall be determined as to all parties having a right to make claim, andirrespective of whether or not all parties join in prosecuting such claim.22

In Wisconsin, however, the possibility exists where a carrier may be subrogating for and actuallyrecovering more than the amount of the worker's compensation benefits it paid. The WisconsinSupreme Court held recently in Threshermens Mutual Insurance Company v. Page, 217 Wis.2d 451(1998) that a worker's compensation insurer may seek recovery of an injured employee's claims evenif the employee declines to participate in a third party action.

20 In. St. §22-3-2-13 (2000). A complete copy of this Indiana Statute can be found in its entirety in the Appendix on PageA-5.21 In. St. §34-51-2-19 entitled 'Liens or Claims to Diminish Same Proportion as Claimant's Recovery is Diminished�.22 Wis. Stat. §102.29(l) (1995-96). A complete copy of §102.29(l) can be found in the Appendix on Page A-6.

In Threshermens, the court held that the Wisconsin Workers' Compensation Act allows a carrier whichfiled an action against a third party defendant to assert the same claims against the third party as wouldhave been asserted by the insured employee, including the claims of pain and suffering, and futuremedical expenses.

Threshermens, arises out of an accident whereby an employee was injured when she fell in a parkinglot owned by her employer while in the course and scope of her employment. Threshermens MutualInsurance Company was the employer's workers' compensation carrier and, pursuant to the Workers'Compensation Act, made certain payments to the employee to compensate her for the injuries shesustained in the fall. Subsequently, Threshermens filed a subrogation action, pursuant to §102.29(1),Wis. Stats., against the parties responsible for maintaining the parking lot alleging that their negligence

caused the employee's injuries resulting in workers' compensation benefits being paid. Pursuant toWisconsin Statute, Threshermens notified the employee of the pending lawsuit and allowed her theopportunity to join in the prosecution of the claim. The employee, however, declined to activelyparticipate in the lawsuit and was subsequently joined as an involuntary plaintiff in Threshermens'action.

During the course of litigation, a dispute arose regarding which damages Threshermens would beentitled to recover at the time of trial. Specifically, Threshermens intended to present evidence andrequest recovery of damages representing the employee's pain and suffering claim as well as the futuremedical expenses claim. The defendants, on the other hand, attempted to limit the action to only thosepayments Threshermens had previously made to the employee. The defendants argued thatThreshermens was not entitled to assert a claim for pain and suffering: 1) because it was not obligatedto pay pain and suffering as workers' compensation benefits to the employee; and 2) because theemployee did not file her own independent action. In addition, the defendants argued thatThreshermens could not assert a claim for future medical expenses because such a claim would be "toospeculative".

After reviewing the language of §102.29(1), the court noted that the Wisconsin Statute allows eitherthe injured employee or the insured to commence an action against a third party tortfeasor and furthergrants each the "same rights" to make a claim or maintain an action. With regard to Threshermensclaim for future medical expenses, the court noted that the third party liability statute specificallyallows a workers' compensation carrier to recover "all payments made by it, or which it may beobligated to make in the future". The court acknowledged that while there may be some inexactitudein awarding damages for future medical expenses, if competent medical evidence is presented todemonstrate that the employer will incur future medical expenses, the workers' compensation carriermust be allowed to recover these damages. It should also be noted that in Wisconsin, §803.03 of theWisconsin Statutes requires a subrogee to be joined as a party plaintiff as an indispensable party. Asubrogee can then lose its subrogated rights if, after ft is joined, chooses neither to participate nor tohave the party that joined it represented in the lawsuit. For this reason, states such as Wisconsin whichrequire mandatory joinder of subrogees, necessitate involving subrogation counsel immediately uponbeing served with or notified about a pending third party action.

In summary, allocating subrogation recoveries in the context of workers' compensation claims is notonly complex, but it also requires an understanding of the intricacies of various state workers'compensation laws which even their own judiciary often doesn't understand. In addition, as is shownin the case of Indiana, the complexion of a perfectly normal looking workers' compensationsubrogation statute may be completely �changed� by the application of lien reduction statutes, the�Made Whole" Doctrine (in certain states), and/or the ability of the carrier to recover futureobligations as well as its past lien.

Carrier's Right to Initiate or Participate in Third Party Litigation

Whether or not a carrier has a right to initiate or participate in third party litigation is a highlycontested issue in many states. So what is the big deal? Whether or not a carrier has a right to initiateor participate in third party litigation can mean the difference between having to pay the attorney's feesof the plaintiffs attorney, being notified timely of settlements and the like, and insuring a full recoveryof your worker's compensation subrogation interest. Once again, the necessity and ability to initiate

or participate in third party litigation depends on the particular state involved.

Texas. In Hartford Casually Insurance Company v. Albertson's Grocery Stores, 931 S.W.2d 729 (Tex. App. - Fort Worth 1996), the trial court held that a workers' compensation carrier could not pursuethe third party cause of action on its own and in the employee's name. In Hartford v. Albertsons,Hartford initiated the third party lawsuit. The claimant did not participate or intervene as a party. TheCourt of Appeals held that Hartford had the right to actively pursue third party liability, and could doso in the claimant's name. Most states give the carrier a right to initiate a third party lawsuitimmediately upon paying a claim. Other states require a six-month or longer time period to pass andif the claimant doesn't file suit within that time period, then the carrier can file suit. However, themajority of states encourage and allow the worker's compensation carrier to intervene and participateto some extent in the third party litigation. Whether or not to intervene in an ongoing third partyaction remains a quandary for most subrogation personnel.

Arkansas. Under the Arkansas Statute and cases interpreting it, the failure of the carrier to interveneafter it has had a reasonable amount of time to do so effectively means that the carrier has waived notonly its rights to recover its past benefits, but also its right to a credit. 23

Wisconsin. Under Wisconsin Law, a subrogee must be joined as an indispensable party when the suitis filed, and failure to obtain subrogation counsel to represent your interests in the third party actionwill constitute waiver of your subrogated interest. 24

Intervention Necessary to Protect Lien?

Texas. Although the Texas Act doesn't speak of a right to "first money", the Texas Supreme Court hasindicated that a workers' compensation carrier is entitled to "first money" out of any recovery by reasonof the asserted liability of a tortfeasor in a third party action. Capital Aggregates, Inc. v. GreatAmerican Insurance Company, 408 S.W.2d 922 (Tex. 1996). The plaintiff has no right to anysettlement funds until the carrier has its lien repaid in full, and any settlement between the plaintiff andthe third party without payment of the lien is unlawful and contravenes the legislative purpose of thestatute, which is to protect the carrier and to prevent a double recovery on the part of the claimant. It is not necessary for a carrier to actually intervene into a third party action in order tohave the benefit of these statutory subrogation rights. Home Indemnity v. Pate, 814 S.W.2d497 (Tex. App. Houston [1st Dist.] 1991, writ denied); Travelers Insurance Company v. Seidel, 705S.W.2d 278 (Tex. Civ. App. - San Antonio 1986, writ dism'd); Kelley v. Summers, 210 F.2d 665(10th Cir. 1954); Rockwood Insurance Co. v. Williamson 596 F. Supp. 1524 (N.D. Tex. 1984);Travelers Insurance Co. v. VVilliams, 541 S.W.2@ 587 (Tenn. 1976); Home Indemnity Company v.Thompson, 407 S.W.2d 530 (Tex. Civ. App.- Texarkana 1966, no writ). An intervention by asubrogating workers' compensation carrier is allowed solely for purposes of judicial economy and toallow the carrier to benefit from many advantages of intervening, both monetary and substantive. Inshort, a carrier is entitled to reimbursement even if the plaintiff files suit and the carrier does notintervene and is not active in that suit. Zurich Insurance Company, Ltd. v. Reider, 324 S.W.2d 428(Tex. Civ. App. - Fort Worth 1959, no writ). The Texas Supreme Court has gone so far to say thatthe claimant has absolutely no right to any settlement funds or recovery until the carrier is paid in full. Capitol Aqgregates, Inc. v. Great American Insurance Company, 408 S.W.2d 922 (Tex. 1966);Rockwood Insurance Co. v. Williamson, 596 F.Supp. 1524 (N.D. Tex. 1984). This is true even though

the carrier does not intervene.

23 Ark. St. 'l 1-9410 (1999). The subrogation provision of the Arkansas Act can be found in its entirety in the Appendixat Page A-3.24 Radloff v. General Casualty Company, 147 Wis.2d 14, 432 N.W.2d 597 (Ct. App. 1988).

There is, however, one 10th Circuit case, interpreting Texas law, which asserts that this right ofsubrogation may be waived, and that this right must be protected by asserting a timely intervention intoa third party case. Black v. Texas Employers Insurance Ass'n., 326 F.2d 603 (10th Cir. 1964). The 10th

Circuit in Black, in a Kansas case construing Texas law cites Kelly v. Summers, supra, for theproposition that a worker's compensation carrier'ssubrogation right must be asserted by timely intervention. In Kelly, the workers' compensation carrierintervened, and then later dismissed intervention on the day before trial. The jury returned a verdictfor the plaintiffs. After the verdict, the insurance carrier, without obtaining leave of the court(required under the Federal Rules of Civil Procedure), refiled its intervention in substantially the samelanguage as the previous one, again asserting its workers' compensation lien. In its final judgment, thecourt indicated that the attempt of the workers' compensation carrier to intervene the second timewould be denied, and that the plaintiffs recover the amount of the verdict less the amount of theworker's compensation lien. The plaintiffs appealed from that part of the judgment, claiming thatthey were entitled to the full amount of the jury's verdict. The worker's compensation carrier appealed,claiming that they should have been awarded recovery of their lien in the judgment. The court heldthat because the carrier had dismissed its intervention, it gave up its right to have its right of recoveryadjudicated in that judgment. Kelly cites another, quite older case, which appears to set forth that ifan insurance carrier does not intervene and is not a party to a third party action, and the lien exceedsthe amount of the verdict for the plaintiff, the plaintiff should recover nothing and the judgmentshould not make any recitals about the right of recovery of the workers' compensation carrier who isnot a party to the third party action.

Arkansas. The Arkansas Statute and Arkansas cases interpreting it require that the carrier interveneas soon as is practicable after having notice of a pending third party action. Failure to do so will resultin waiver of your workers compensation subrogation interest.25

Disadvantages of Intervening (Under Texas Law).

1. The carrier runs the risk of having a judgment omit any reference to the carrier's rights. Thecarrier may then be required to spend additional fees and expenses to enforce its subrogationrights.

2. Juries can be unpredictable. Attorney�s fees and costs incurred by a workers' compensationcarrier in a case in which the plaintiff ultimately obtains no recovery are forever lost. A carrierwhich does not intervene into a subrogation case which is ultimately lost, incurs no attorney�sfees at the hands of its subrogation counsel. However, only a small fraction of cases are tried,and an even smaller number are lost at trial.

25 Ark. St. §11-9-470 (1999). The subrogation provision of the Arkansas Act can be found in its entirety in the Appendixat Page A-3.

3. A carrier which intervenes is subjected to the jurisdiction of the trial court and is treated as aparty under either the Texas or Federal Rules of Civil Procedure. Mandatory attendance atmediations, as well as incurring mediation fees may be required. The carrier is pressured to

reduce its lien at mediation in the spirit of " cooperation".4. Certain files, whether because of smaller lien amounts, additional insured endorsements,

waivers of subrogation, or simply because of insurance business decisions, will require anintervening carrier to do little or nothing by way of activity in a file. Such"donothing"filesmaynotproducesufficientactivitytoprotectthecarrier from paying a�proportionate share of expenses" or protect the carrier from a claim for attorney�s fees by theplaintiff�s attorney. However, they will still subject the carrier to the jurisdiction of the courtand require the carrier to answer discovery, attend pretrial conferences, attend mediations, andotherwise incur nominal attorney�s fees for little or no benefit.

5. Once a carrier intervenes into a third party lawsuit, it assumes the burden of proving its lien. Charter Oak Fire Insurance Company v. Currie, 670 S.W.2d 368 (Tex. App. Dallas 1984, nowrit). A carrier may prove its lien either by stipulation or by competent evidence such as oraldeposition, written deposition, or live testimony of an insurance company representative attrial. The carrier must prove that it insured the employer at the time of the incident and thatthe carrier made workers' compensation benefits under the Texas Workers' Compensation Actas a result, as well as the amount of those payments. A carrier which does not intervene is nottechnically required to "prove" its lien to the satisfaction of a judge or jury, but may be askedto submit affidavit 'proof or might even be made a third party involuntarily so as to require itto prove its lien, in any situation where there may be a question about the amount of the lien. Although it is rare that an insurance company employee will be required to testify at trial toprove up a lien, it can be costly and inconvenient to do so.

6. Intervening into a third party case in which the third party tortfeasor is a client of the insured,and the insured is a large national account providing significant revenues to the subrogatedcarrier can be both awkward and a bad business decision. Although experienced subrogationcounsel familiar with such relationships can handle these matters tactfully, there is often badblood created by intervening in such situations.

Advantages of Intervening (Under Texas Law).

1. Intervening in a third party action and maintaining an active role in the litigation is the onlymeans of striving to recover 1 00% of the subrogated workers' compensation carrier's interest. Hundreds of cases evaluating when and how to award a carrier a full recovery focus on thehistorical tendency of carriers in the early 1980's to simply sit back and obtain a "free ride" onthe coattails of the plaintiff s attorney. These practices have lead directly to a plethora of badlaw and bad decisions which has been promulgated since that time. Only recently, since theindustry has begun aggressively pursuing and insisting on fuller recoveries in these situations,has the tide begun to turn in favor of the subrogated carrier.

2. A clear reading of §417.003 indicates that an attorney which intervenes in a third party actionwill not be liable for a "proportionate share of expenses" incurred by the plaintiffs attorney. These costs can be quite significant.

3. Another reason for intervening is that the carrier will have its own counsel on which to relyon in evaluating third party liability and chances for third party recoveries. When a claimshandler must rely on the plaintiff�s attorney to give them an opinion as to third party liability

and chances of recovery, they are invariably told that liability has suddenly become weak, thatchances of recovery are slim, and that carrier should reduce its lien significantly or riskrecovering nothing at trial. Often they are not able to, and should not, rely on the plaintiffsattorney�s opinions and suggestions in these areas. Utilizing plaintiffs' counsel to represent thecarriers' interest, although provided for in §417.003 of the Labor Code, is almost invariably anextremely unwise alternative. This particular advantage to intervening is highlighted in casesinvolving high reserves and catastrophic injuries where the carrier's credit becomes ofparamount importance.

4. Intervening in third party actions is the most effective way of preventing the plaintiff�s attorneyfrom denying your subrogation recovery by gerrymandering settlements or judgments. Settlement hearings in which the judge approves allocation of damages to non-workers'compensation beneficiaries or recipients of death benefits or even awarding substantial portionsof personal injury settlements to the wives of claimants making claims for loss of consortium,can have a legally binding effect if the carrier is not there to object and protect its interests. Such maneuvers can successfully reduce or eliminate a subrogation recovery if not detected andcountered by subrogation counsel. Such cases often require filing of a separate lawsuit andstarting the process all over again in order to recover money which rightfully should have beenrepaid to the carrier from the start.

5. Intervening also provides the best-known defense against awarding or allocating settlementmonies from particular defendants who have immunity to subrogation, such as waivers ofsubrogation, additional insured endorsements, indemnity provisions and the like. Only byactively intervening in a third party case will the carrier have any ability to protect when andhow such schemes occur.

6. Although plaintiffs' attorneys have, on occasion, ran off with the carrier's money despite itsintervention, intervening and active participation in third party cases is the most successfulpreventative measure to avoid costly conversion suits when plaintiffs' attorneys flatly refuseto reimburse the carrier or otherwise abscond with your subrogation money. The chances ofthis happening while the carrier is represented in a case are very remote.

7. Another advantage to intervening is that it allows subrogation counsel to serve as watchdogover the plaintiffs attorney's activities and to make sure that discovery is pursued, that the caseis properly prepared for trial, and that the maximum recovery (carrier's credit) is obtained. Often, a claimant's attorney will file suit against only certain defendants, and not others, inorder to avoid repayment of workers' compensation lien. Other times, they will file suit, sendout written discovery, and then let the suit sit dormant for several months or years. Unlikewine, personal injury lawsuits do not improve with age.

8. If a plaintiff non-suits his cause of action without the carrier having intervened, and the statutehas run, the carrier will be barred from making any recovery. Frequently, claimants will optto take such action and accept the benefits of workers' compensation in light of a significantlien and weak liability in the third party action. This also often occurs where a third party hasminimum limits of insurance and there is no distinct advantage to making a third partysettlement. Plaintiffs frequently overlook the assets of a minimum limit's defendant, orcreative causes of action against other vicariously liable defendants such as employers, partners,joint enterprises, and co-conspirators. Instead, they look to underinsured motorist coverageor other avenues of recovery to which the carrier is not subrogated. Quality subrogationcounsel protects your interests in such situations.

9. Intervening into a third party case prevents numerous methods of reducing the statutory creditwhich a carrier is otherwise entitled to. Often, obtaining the statutory credit is more importantthan recovering the lien.

10. Intervening is the only way to combat the case of Metropolitan Transit Authority v. Plessner,682 S.W.2d 650 (Tex. App. - Houston [1st Dist.] 1984, no writ), which boldly states that aplaintiffs attorney can automatically withhold attorney's fees and costs, reducing a carrier'sstatutory lien by such amount, whenever the carrier has not hired an attorney and intervenedinto the litigation. Whenever minimum limits of insurance are involved or suspected, prudentaction on the part of a subrogated carrier requires that an immediate third party lawsuit be filedby subrogation counsel.

11. Handling subpoenas for the workers' compensation file, protecting the file from production ina complicated or sensitive third party case, and preventing harmful investigation from reachingthe hands of the defense lawyer which would otherwise torpedo and totally destroy the thirdparty case and the workers' compensation carrier's right of subrogation, can only be effectivelyaccomplished through intervention in the litigation.

12. A third party suit may be dismissed as a result of a sanction against a plaintiff�s attorney or aplaintiff. Dismissal of such a suit will prevent the carrier from making a subrogation recoveryunless the carrier had previously intervened into the case to protect its interest. A judge cannotdismiss a carrier's subrogation interests even when the plaintiff's pleadings are struck fordiscovery sanctions, provided the carrier has intervened. Cox v. Really DevelopmentCorporation, 748 S.W.2d 492 (Tex. App.- Dallas 1988, no writ).

13. Under both the old and the new Workers' Compensation Act, a carrier which is responsible forproceeding with a third party suit and obtaining a recovery cannot only recover its subrogatedinterest, but also attorney's fees and costs on top of its lien. Texas General Indemnity Companyv. Jones, 601 S.W.2d 194 (Tex. Civ. App. - El Paso 1980, no writ); Dover v. CasuallyReciprocal Exchange, 41 0 S.W.2d 306 (Tex. Civ. App. - Amarillo 1966, no writ); Jones v.Liberty Mutual Insurance Company, 745 S.W.2d 901 (Tex. 1988). This is an effective way tomaximize the carrier's net recovery and is another reason for stressing early recognition of anaction on subrogation potential. The same argument can be made for recovery of attorney'sfees and costs, either by agreement or by motion to the court, in cases where the carriersattorney, by intervention, takes the lead in proving up liability and developing a third partycase. A plaintiff�s attorney without significant incentive will not often put in the requiredamount of hard work necessary to maximize a recovery by law should go to the carrier. Failureof the plaintiff to make any recovery at all will also prevent the carrier from recoveringanything.

14. Only by intervening in third party actions will the carrier have an ability to steer clear of grossnegligence claims, negligent inspection claims, liability of additional insured, and the like. Onlyby intervention will a carrier be able to ascertain that the sole defendant against whom thecarrier has waived subrogation does not ultimately become the only defendant against whomliability is proved up. These techniques can often be so subtle that a subrogated insurancecarrier who has not actually intervened in a case may never know what hit them.

15. It is possible that a carriers subrogation rights can be disposed of summarily by a judge if it hasnot intervened into the case. (This does not necessarily mean the carrier can't recover its lien- but it will be significantly more expensive and time consuming to do so.) Once a carrier hasintervened, however, the judge cannot dispose of an intervention with a trial on the merits. Schwartz v. Taheny, 846 S.W.2d 621 (Tex. App. -Houston [1 4th Dist.] 1993, writ denied). Without an intervention, the plaintiff may argue that the carrier is estopped to assert or hasotherwise waived its right to a recovery. Without an intervention, the carrier is helpless toprevent the judge from ruling in the plaintiff�s favor.

16. A carrier which intervenes into a third party action is under no greater legal obligation tonegotiate its lien than is a carrier which does not intervene. No Texas cases have held that

failure to negotiate a lien in any way subjects a carrier to bad faith liability. No Texas casesuggests that a carrier's right to a full recovery is any less because it has intervened into alawsuit. Intervention is frequently the only way for a subrogated carrier to preserve error onappeal for any egregious wrongs committed against it in a third party action to which it was nota party, and you will rarely learn of such situations without actively pursuing subrogation.

17. In an increasing number of cases, plaintiffs' attorneys fail to bring in all of the proper defendantsfor strategic reasons. A carrier which intervenes may desire to and can effectively bring intothe lawsuit any of these defendants to serve its purposes. One example is a plaintiff who suesa premise's owner for an injury occurring in a slip and fall accident, but failing to sure doctorswho subsequently commit malpractice on the plaintiff. Texas law allows the plaintiff torecover damages caused by negligent medical care from the original tortfeasor. Nonetheless,it may be advantageous for the carrier to maintain a separate malpractice claim (or at leastpreserve the statute of limitations in same) against these other defendants. This often cannotbe done without intervening.

18. One of the most effective methods of maximizing recoveries for minimum costs is the conceptof "networking". Networking allows subrogation counsel to negotiate agreements withplaintiffs attorneys who are in the �network�, allowing for a full recovery by the carrier for aminimum investment. The carrier must intervene or file suit first to take advantage ofnetworking.

19. Intervening is the only effective way of obtaining favorable stipulations which are entered intothe record and allow for full recoveries by the carrier. These stipulations are obtained byoffering various things such as specific activity in developing the case on the part of carrierssubrogation counsel, turning over investigation conducted by the carrier, contributing a limitedamount toward expense of particular experts or other costs in the case.

20. If a judgment does not dispose of a carrier which has intervened into a lawsuit, it is not final. Nonetheless, a judgment which disposes of a third party case in which a subrogated carrier hasnot intervened, will become final. The finality of such a judgment affects the rights of theplaintiff to appeal any decisions made by the trial court, which indirectly will affect certainrights of the subrogated carrier. The carrier will have no say so about the occurrences precedingsuch a disposition if it has not intervened into the case.

21. In one case, it was held that a claimant who didn't file an actual compensation claim (hereceived only some medical expenses), but who actively pursued a third party claim, did nothave to repay a subrogated workers' compensation carrier because the carrier was notsubrogated under such circumstances. Employer's Liability Assurance Corp. v. Miller, 497S.W.2d 122 (Tex. Civ. App. - Houston [1st Dist.] 1973, no writ). A carrier which hasintervened into a third party action may have the ability to counter such a decision, eitherdirectly or indirectly, by asserting a claim for recovery of mistaken benefits, equitablesubrogation, or the like.

22. In an increasing amount of cases where the carrier has opted not to intervene, the plaintiff hastaken the opportunity to "set up" the carrier for bad faith by deposing doctors under oath onthe treatment which was recommended by them, but not authorized by the carrier.

23. Any significant loss involving large reserves will almost always run into logistical problemsregarding settlement because of the "gap theory". The "gap theory" involves the differencebetween a carrier claiming a "gross credit" as opposed to a �net credit". A carrier who hasintervened into a large third party action can indoctrinate other counsel as to the carrier's legalright to a 'gross credit", and then negotiate down to a "net credit" in exchange for significantconcessions and repayment of the lien in full. Again, this cannot be accomplished withoutintervening.

24. A claimant who is barred from recovering against a tortfeasor who claims that the claimant wasa �borrowed servant" of theirs at the time of the accident, will recover nothing. If the claimantdoes not recover, neither will the subrogated carrier. However, if a carrier has activelyintervened into such a case, it may pursue equitable subrogation recovery against the workers'compensation carrier of the third party tortfeasor who has obtained summary judgment.

25. By intervening into any third party case where limitations are an issue, for injuries occurringprior to September 23, 1992, a carrier can assert the special limitations offered in Hix v.Guillot, 812 S.W.2d 400 (Tex. App. - Houston [14th Dist.] 1991), aff�d 838 S.W.2d 230 (Tex.1992). Otherwise, the carrier will also live and die by the statute of limitations applicable onlyto the claimant.

26. If a claimant settles a third party case for an insignificant sum which will not fully reimbursethe carrier, the carrier will have no recourse unless it has intervened into the case. If it hasintervened into the case, it will be able to pursue a separate cause of action against the thirdparty for a full recovery based on the original injury. Southwestern Bell Telephone v. LosFresnos Consolidated Independent School District, 829 S.W.2d 916 Tex. App. -Corpus Christi1992, no writ). Otherwise, there will be no cause of action for "wrongful settlement�.

27. Any case in which the available insurance limits is less than the workers' compensation lienprovides an opportunity for the carrier to make a full recovery. It cannot do so if it does notintervene into the third party case and prevent the plaintiff�s attorney from recovering a fullthird of the limited proceeds, plus a proportionate share of the expenses.

28. The cases of American General Fire & Casually v. McDonald, 796 S.W.2d 201 (Tex. App. - SanAntonio 1990, writ denied) and Brandon v. American Sterilizer Co., 880 S.W.2d 488 (Tex. App. - Austin 1994, no writ) clearly allow an intervening workers' compensation carrier tosettle directly with the third party and out from under a plaintiffs attorney. This is an effectivemethod to make a full recovery for little or no expenses in cases where the defense attorney ismore interested in removing competent subrogation counsel from the case and dealing directlywith a particular plaintiff s attorney. The third party can then assert a credit for the fullamount of the workers' compensation lien. Such a maneuver is usually only feasible once thecarrier has intervened into the case and threatens to be active.

29. It is often important to have the judgment and settlement documents drafted in a mannerwhich benefits the carrier's rights to recovery of their lien and statutory credit. Intervening isthe only way to accomplish this.

Carrier is Generally Subrogated to All Elements of Damages

In most states, a claimant and his attorney may also attempt to allocate a third party settlement tospecific elements of damages, other than lost wages and medical expenses. They may claim that thecarrier's subrogation rights extend only to those two elements of damages and not to such non-compensable elements such as pain and suffering, mental anguish, punitive damages, etc.

In Texas, for example, this tactic will not be effective so as to avoid repayment of the carrier's lien. First of all, such a �rigging� or "gerrymandering" of a settlement will be in violation of AmericanGeneral Fire & Casualty Company v. McDonald.26 Second, a carriers right to �first money� of anyrecovery extends to all monies recovered regardless of which element of damage they represent.27 Forexample, a jury awards a claimant $50,000 after trial of a third party lawsuit. The verdict specifies$25,000 form mental anguish, $15,000 for pain and suffering, $5,000 for past medical expenses, $5,000for punitive damages, nothing for lost wages. If the carrier has a lien of $20,000 (representing $10,000in medical and $10,000 in indemnity benefits), it is entitled to recover its entire $20,000, even though

only $5,000 of the jury's verdict was allocated to medical expenses.

In Jacgues v. Kalmar Industries, A.B., 8 F.3d 272 (5th Cir. 1993), the court held that a workers'compensation carrier's right of subrogation under the Longshoreman and Harbor Workers'Compensation Act extends to all elements of damages, including punitive damages.

26 American General Fire & Casualty Company v. McDonald, 796 S.W.2d 201 (Tex. App. - San Antonio 1990, w ritdenied).27 Ellis v. Kenw orth Motor Truck Company, 466 F.Supp. 441 (N.D. Tex. 1979); Goodman v. Travelers InsuranceCompany, 703 S.W.2d 327 (Tex. App. - Corpus Christi 1985, no w rit); Jarbet Co. v. Hengst, 260 S.W.2d 88 (Tex. App.- Austin 1953, no w rit); and Jacques v. Kalmar Industries, A.B.,, 8 F.3d 272 (5th Cir. 1993).

CONVERSION OF WORKERS'COMPENSATION LIENS

Unfortunately, no matter how smart you are or how aggressive and proactive you are in subrogatingyour files, there is very little you can do if a plaintiff�s attorney and third party carrier decides they aregoing to conspire and settle a claim around you while they have notice of your workers' compensationsubrogation interest. The conversion and wrongful settlement laws of each state vary greatly, and manystates place great emphasis on whether or not the third party had notice, and differentiate between theliability of the claimant, the claimant's attorney, the third party, and the third party's carrier.

In states such as Texas, more than fifty years of Supreme Court cases hold that a claimant and a thirdparty are liable to the subrogating carrier if they settle a claim without reimbursing the carrier. Traders& General Insurance Co. v. West Texas Utilities Co., 165 S.W.2d 713, 716 (Tex. Comm. App. 1942,op'n adopted); Fort Worth Lloyds v. Haygood, 246 S.W.2d 865, 869 (Tex. 1952); Pan AmericanInsurance Co. v. Hi-Plains Haulers, Inc., 350 S.W.2d 644 (Tex. 1961); Capitol Aqgregates, Inc. v.Great American Insurance Co., 408 S.W.2d 922, 923 (Tex. 1966); Houston Lighting & Power Co. v.Allen & Coon Construction, 634 S.W.2d 875, 877 (Tex. App. - Beaumont 1982, no writ); andTravelers Insurance Company v. Seidel, 705 S.W.2d 278 (Tex. App. - San Antonio 1986, writ dism'd).

An argument may be made that the courts have made common law in interpreting the workers'compensation statute such that a cause of action exists for "reimbursement". This is significant becauseone case states that a reimbursement action to recover a lien has a four-year statute of limitations,which runs from the time when the parties settle and refuse to reimburse the carrier. RockwoodInsurance Company v. Williamson, 596 F.Supp. 1524, 1527 (N.D. Tex. 1984). Tex. Civ. Prac. &Rem. Code '16.004 (a)(3) provides a four-year statute of limitations for an action based on a "debt".

Two later court of appeal cases held that all parties to the settlement (claimant, claimant's attorney,third party, third party's attorney, and the third party's insurance carrier) are subject to a cause of actionfor conversion for settling without reimbursing the carrier. Prewift & Simpson v. City of Dallas, 713S.W.2d 720 (Tex. App. - Dallas 1986, writ ref'd n.r.e.); and Home Indemnity Company v. Pate, 814S.W.2d 497 (Tex. App. - Houston [14th Dist] 1991, writ denied).

Under State Bar Rule 1.14(a) Safe Keeping of Property, a lawyer has a duty to hold funds and otherproperty belonging in whole or in part to clients or third persons that are in a lawyer's possession inconnection with a representative separate from the lawyer's own property. Under Subsection (b), uponreceiving funds or other property in which a client or third person has an interest, a lawyer shallpromptly notify the person or third person. Except as stated in this rule otherwise permitted by lawor by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds

or property that the client or third person is entitled to receive and upon request by the client or thirdperson, shall promptly render a full accounting regarding such property.

This rule along with Prewift & Simpson arguably obligates a claimant's attorney to voluntarilyreimburse the carrier its lien out of the settlement proceeds. Again, the key is whether the attorney hadnotice of the lien. It should be noted that none of the Texas Supreme Court cases mention"conversion', which would be additional support for an argument that the court has created a commonlaw cause of action for 'reimbursement". Conversion has a two-year statute of limitations. The carriercan allege multiple causes of action ("right of reimbursement under Art. 8307 '6a;' conversion, unjustenrichment, money had and received, fraud, and constructive fraud), especially when there is alimitation issue.

The carrier can also seek recovery of punitive damages, which are recoverable in tort actions such asconversion and fraud. It is an open question as to whether conversion is the exclusive cause of actionto recover a lien, or whether there are other causes of action, such as reimbursement and fraud, whichhave four-year statutes of limitations.

If a claimant's attorney converts the carrier's lien, and the carrier is forced to sue the attorney to recoverthe lien, one court of appeals has held that the attorney as a matter of law forfeits his claim forattorney's fees. Prewift & Simpson v. City of Dallas, 713 S.W.2d 720 (Tex. App. - Dallas 1986, writref'd n.r.e.). Two other cases, however, although not reviewing this issue, awarded 1/3aftorney's feesto the claimant's attorney. New York Underwriters Ins. Co. v. State Farm Mutual Auto InsuranceCo., 856 S.W.2d 194 (Tex. App. - Dallas 1993, no writ); and Rockwood Insurance Company v.Williamson, 596 F.Supp. 1524 (N.D. Tex. 1984).

In the proper case, claims can be asserted against the claimant's attorney, for conversion (two-yearstatute), and perhaps on a fiduciary duty theory if he has disbursed funds. Fraud has a four-year statuteof limitations. Williams v. Khalaf, 802 S.W.2d 651 (Tex. 1990). Fraud also has a �discovery rule" totoll the statute - the cause of action does not accrue until the defrauded party discovers or reasonablyshould have discovered the fraud. Vance v. Bell, 797 S.W.2d 403, 404-05 (Tex. App. - Austin 1990,no writ). The carrier can also assert a fraud cause of action with a lesser scienter: "constructive fraud"- when a party breaches "a legal or equitable duty, which irrespective of moral guilt, tends to deceiveothers, violate confidence, or injure the public interest". Archer v. Griffith, 390 S.W.2d 735, 740(Tex. 1964).

State law is very greatly when it comes to dealing with third parties and claimants who settle aroundyour workers' compensation subrogation interests. Some states require third parties and third partycarriers to be on written notice of your subrogation interests, while others put the burden on theworkers' compensation carrier. States such as Arkansas require the workers' compensation carrier tointervene if it even has constructive notice of an ongoing third party action. Without an intervention,the workers' compensation carrier has waived its subrogation interest.

ATTORNEY�S FEES

Effective subrogation is judged only by the net amount of money you recover. If your subrogationcounsel bills you for $30,000 to recover a $40,000 lien, that is not a victory. If your subrogationcounsel charges you $1 0, 000 to recover a $40,000 lien, but then you still have to pay $15,000 to theplaintiffs attorney (thereby reducing your 'net recovery' to $25,000), that is also a loss as opposed to

a victory. A carrier cannot spend itself into a successful subrogation program. Likewise, carriers mustbe keenly aware of the application of the common fund doctrine and other various state laws regardingthe payment of attorney�s fees. If they are not, the check that they end up receiving in the final chapterof a subrogation experience may end up being much smaller then they had expected.

The Texas Workers' Compensation Act reads as follows with respect to the plaintiffs' attorneys takingpart of your lien away from you:

§417.003. Attorney's Fee for Representation of Insurance Carrier's Interest

(a) An insurance carrier whose interest in not actively represented by an attorney in a third party action shallpay a fee to an attorney representing the claimant in the amount agreed upon between the attorney and theinsurance carrier In the absence of an agreement, the court shall award to the attorney payable out of theinsurance carrier's recovery:

(1) a reasonable fee for recovery of the insurance carrier's interest that may not exceed one-thirdof the insurance carriers recovery, and

(2) a proportionate share of expenses.

(b) An attorney who represents the claimant and is also to represent the subrogated insurance carrier shallmake a full written disclosure to the claimant before employment as an attorney by the insurance carrier. The claimant must acknowledge the disclosure and consent to the representation. A signed copy of thedisclosure shall be furnished to all concerned parties and made a part of the commission file. A copy of thedisclosure with the claimant's consent shall be filed with the claimant's pleading before a judgment is enteredand approved by the court. The claimant's attorney may receive a fee under this section to which the attorneyis otherwise entitled under an agreement with the insurance carrier unless the attorney complies with therequirements of this subsection.(c) If an attorney actively representing the insurance carrier's interest actively participates in obtaining arecovery, the court shall award and apportion between the claimant's and insurance carriers' attorneys a feepayable out of the insurance carriers' subrogation recovery. In apportioning the award, the court shall considerthe benefit accruing to the insurance car7ier as a result of each attorney�s service. The total attorney�s feesmay not exceed one-third of the insurance carrier's recovery.(d) For purposes of determining the amount of an attorney�s fee under this section, only the amount recoveredfor benefits, including medical benefits, that have been paid by the insurance carrier may be considered.

Acts 1993, 73'd Leg., Ch. 269, 'I, Eff September 1, 1993.

Apportionment Hearing

In this section of the statute which allows plaintiffs' attorneys to take a large portion of a lien whichstatutorily and rightfully belongs to the workers' compensation carrier. The court is generally asked bythe plaintiff�s attorney to apportion some amount, up to 1/3, of the monies recovered by the carrierat the conclusion of a third party action. The usual step taken by the plaintiffs attorney in order torecover part of your lien as attorney's fees is filing a Motion and requesting an Apportionment Hearingin front of the court after the case is settled. Mohr & Anderson, S.C., however, regularly file a similarmotion first, giving you the advantage. The apportionment hearing can be formal or informal, andusually follows the format of a " mini trial". The awarding of fees to a plaintiff�s attorney under'417.003 has traditionally been left to the discretion of the trial judge as opposed to a jury. Twin City

Fire Insurance Company v Jones, 834S.W.2dll4 (Tex. App.- Houston[1st Dist.] 1992, writ denied). Thejudge must make only two decisions:

1. What percentage (up to 1/3) of the lien should be set aside as an attorney's fee. Thisamount could be 5%, 10%, 20% or a full 1/3.

2. How much of the portion set aside as an attorney's fee is to be given to the plaintiff sattorney as an attorney�s fee and how much is to be returned to the carrier.

The only criterion the judge has to go on is that which is given to him in the statute. The language ofthe statute says that the court in its apportionment decision "shall consider the benefit accruingto the carrier as a result of each attorney's service". Accordingly, the issue should not be whodoes the most work, but rather, who does the most of the work benefiting the carrier.

The key in apportioning a fee is the respective contributions of each attorney with regard to thesubrogation recovery, i.e., whether recovery of the lien was due entirely to one attorney's efforts orwhether both participated and to what extent.

IMPORTANTI IF A CARRIER REDUCES ITS LIEN TO PROMOTE A THIRD PARTYSETTLEMENT, ITSHOULD MAKE IT CLEAR THA T SUCH REDUCTION ISCONTINGENT UPON THERE BEING NO CLAIM FOR A TTORNERS FEES ANDIOREXPENSES MADE BY THE PLAINTIFFS ATTORNEY.

Attorney's Fees Based Upon Future Benefits/Medical Expenses in Old Law Cases

Several cases in the mid 1980's increased the subrogation stakes for insurance companies and enhancedthe reward of properly and promptly acting on subrogation potential. In the cases of Chambers v.Texas Employers Insurance Association,, 693 S.W.2d 648 (Tex. App. Dallas 1985, writ ref d n.r.e.)and Ischy v. Twin City Fire Insurance Company, 718 S.W.2d 885 (Tex. Civ. App. - Austin 1986, writref d n.r.e.), the words 'benefit accruing to the carrier" were expanded to include future benefits thatwould have been paid by the carrier but which the carrier was relieved from paying as a result of athird party recovery and the carrier's resulting credit. The Court in those two cases held that theplaintiffs attorney was allowed to claim a fee, of up to 1/3, of all of the benefits from which the carrierwas relieved from paying as a result of the advance it received when the plaintiff obtained a recoveryin his third party case. Chambers involved medical expenses that would have been paid in the futureby a carrier but were cut off by a third party recovery.

The Ischy case involved death benefits that would also have been paid in the future. Thus, in "old law"cases, if there is proof of probable future medical expenses of $30,000 and a lien of $30,000 and theCourt awards attorney's fees to the plaintiff�s attorney of 1/3, the fees would be $20,000 (1/3 past andfuture) and the carrier will recover only $10,000 out of its $30,000 lien.

In the case of Vanguard Insurance Company v. Humphrey, 729 S.W.2d 344 (Tex. Civ. App. Houston[14th Dist.] 1987, writ ref�d n.r.e.), the court followed the Chambers and Ischy cases, holding that"benefit accruing" means "the sum total of all past benefits paid and the relief from liability of any andall future benefits that would have been due and payable but for the recovery and settlement of claimsagainst the third party tortfeasor." See also, Liberty Mutual Fire Insurance Company v. Schrull, 905S.W.2d 12 (Tex. App. - Houston [14th Dist.] 1995,writdenied). Please note, that none of these threecases will apply in situations where there has been a complete settlement with no open medical or no

obligation for future benefits of any kind.

However, where there is future exposure in old law cases, it is vitally important that subrogationcounsel be allowed to actively participate in developing the third party case. If an attorney is involvedin the discovery process to the extent of participating in depositions and other discovery matters, thereis a good chance that the court will find active participation and allow recovery of the full lien by thecarrier. The plaintiff�s attorney has the advantage of having control over the plaintiff and the factswhich are known to him, and the case cannot be settled without the approval of the plaintiff throughhis attorney. This places the plaintiff's attorney in a position of control and appears to give him thelead in the race to recover the carrier's lien.

There are, however, a number of things that can be done to enhance the carrier's position.They are based primarily on taking the position that the carrier has sustained a tangible loss from thetime of the initial injury, and it is the carrier's intention to promptly investigate the incident, file suit,and collect a judgment on it as soon as possible regardless of what the claimant does.

Nebraska. Under the Nebraska Statute,28 the statute itself gives the carrier a way to combat havingto give up a portion of its lien as an attorney�s fee. The Nebraska Act provides that if the employer orthe carrier joins in the prosecution of the claim and is represented by subrogation counsel, thereasonable expenses and the attorney's fees will be divided between such attorney�s as directed by thecourt before which the case is pending. The Act also provides that if after receiving notice of the filingof a subrogation claim, the plaintiff or the carrier fails to join in the claim, it cannot claim improperprosecution or inadequacy of the settlement, and the party bringing the claim (this could be the carrier)shall be entitled to deduct from any amount recovered the reasonable expenses of making suchrecovery, including attorney�s fees. Expenses and attorney�s fees will be prorated to the amounts payableto the employer and to the amount in excess of such amount payable.

28 See Appendix Page A-2.

Arkansas. The Arkansas Statute, 29 provides that the carrier has �first money" rights to only 2/3 ofthe net proceeds recovered in the third party action. This means 2/3 of the proceeds recovered afterdeduction of reasonable costs of collection, which have been held to include attorney's fees. Judicioususe of subrogation counsel must depend on the state in which you are subrogating in, and adetermination as to whether or not subrogation counsel is going to "gain you anything". Under theArkansas statue, subrogation counsel is utilized not to maximize your subrogation recovery and defeata claim for attorney's fees, but because the Arkansas statute and supporting case law require a carrierintervene and represent its own interest as soon as is practicable after receiving notice of the pendinglitigation. Failure to do so can result in a total bar of the carrier's subrogation rights.

Intervention into almost every subrogation third party action is recommended for this reason alone,

regardless of which state you are in. If necessary, the intervention can be simply for purposes ofmonitoring and receiving notices of all developments in the case. Active intervention is required insome states, while passive participation is the most judicious route in others. Knowing the differencecan save a carrier a great deal of money.

Georgia. Under the Georgia Act,30 if there is a recovery, the plaintiff s attorney is entitled to areasonable fee. However, if the carrier has engaged another attorney to represent the carrier's interest,then the court shall apportion a reasonable fee between the two attorneys based on the servicesrendered. For this reason, despite the many negative aspects of the Georgia statute for workers�compensation subrogation intervention by subrogation counsel is almost always recommended.

29 See Appendix Page A-3.30 See Appendix Page A-4.

Indiana. The Indiana Statute, provides as follows:

The employer or the employers compensation insurance carrier shall pay its pro rate share of all costs andreasonably necessary expenses in connection with asserting the third party claim, action or suit, including butnot limited to costs of depositions and witness fees, and to the attorney at loss elected by the employee or hisdependents, a fee of 25% if collected without suit, of the amount of benefits which benefits shall consist of theamount of reimbursements, after the expenses and costs in connection with the third party claim have beendeducted therefrom, and a fee of 33@% if collected with suit of the amount of benefits after deduction of costsand reasonably necessary expenses in connection with the third party claim, action or suit.

The Act also graciously provides that a workers' compensation carrier may waive its right toreimbursement under this section and therefore do not have to pay the pro rata share of costs andexpenses. It also will not be able to recover anything in the case if it waives it rights.

Costs and Expenses

Careful attention must be paid to subrogation language and to state laws interpreting the state workers'compensation acts. Under the old Texas Act, a carrier is not responsible for any of the costs orexpenses incurred by the plaintiff s attorney in preparing the third party case for trial. Aetna CasuallySurely Company v. Harjo, 766 S.W.2d 583 (Tex. Civ. App. Beaumont 1989, no writ). However,under the new act 32 which applies to all actions occurring after January 1, 1991, the carrier isresponsible for a �proportionate share of expenses�. 33 There is no case law defining what a �proportionateshare of expenses" means. It is our opinion that this should mean a pro rata share of expenses basedon the amount of recovery sought by the plaintiff as opposed to the amount of the carrier's lien.Undoubtedly, this section will be interpreted by plaintiffs attorneys to mean ½ of all expenses. Thisis yet another reason to take prompt action on subrogation and quickly involve subrogation counsel.

31 See Appendix Page A-5.32 See Appendix Page A-1.33 §417.002.

LIEN REDUCTION STATUTES

Because of the relative inactivity of subrogation carriers who simply "held out their hand" at the endof third party cases hoping that something would be put into it, courts and legislatures have fashionedremedies which curtail, abrogate or cap carrier's subrogation rights. Many states have lien reductionstatutes which purport to reduce a carriers subrogation interest if the plaintiff cannot make a fullrecovery due to his or her comparative fault, the comparative fault of the employer, or by reasons ofuncollectability of the full value of this personal injury case either due to limited insurance proceeds,an insurance carrier's insolvency, or the like.

Indiana. Indiana has a lien reduction statute in §34-51-2-19 which for years has reduced carriers'subrogation interest among all lines of insurance except for workers' compensation.34 Section 34-51-2-

19 reads as follows:

Liens or Claims to Diminish in Same Proportion as Claimant's Recovery isDiminished

§19. If a subrogation claim or other lien or claim that arose out of the payment of medical expenses or otherbenefits exists in respect to a claim for personal injuries or death and the claimant's recovery is diminished:

(1) by comparative fault, or(2) by reasons of the uncollectability of the full value of the claim for personal injuries or death

resulting from limited insurance or from other cause; the lien or claim shag or claim shallbe diminished in the same proportion as the claimant's recovery is diminished.

The party holding the lien or claim shall bear a pro rata share of the claimant's attorney's fees and litigationexpenses.

(This section was formally '33-4-33-12 of the Indiana Statutes, and is known as §12).

As in most states, generic lien reduction statutes or laws relating to subrogation (such as the MadeWhole Doctrine or the Common Fund Doctrine), did not apply to workers' compensation statutesbecause they involve statutory subrogation, not contractual or conventional subrogation.

34 In. St. '34-51-2-19 (1999).In Indiana, however, the case of Department of Public Aid, State of Indiana v. Couch, 605 N.E.2d165, 168 (Ind. 1992), was decided by the Indiana Supreme Court. For years, old "§12" contained anexception for workers' compensation liens. However, when §12 was amended and the new statute,§34-51-2-19, was enacted, the new statute did not contain this exception. The Supreme Court inCouch held that §12 applied to all recoveries, whether before or after trial, whether by judgment orby settlement. Couch at 168. The Supreme Court held that the lien reduction statute now applies toworkers' compensation as well as to other lines of insurance. Plaintiffs and defendants now use theCouch decision to urge the court to do the following:

1 . Determine the full value of the case based on the Movant's assertion in its Petition;2. Determine the settlement amount;3. Calculate a percentage that the settlement amount bears to the plaintiffs prayer for damages in

its Petition; and4. Reduce the workers' compensation lien by that percentage.

As you can see, by coupling this new lien reduction scenario with claims that the plaintiff had to settlefor less than it would have liked to because of negligence of the employer, limited insurance, or evenliability problems, your lien can be seriously jeopardized and you may receive only pennies on the dollar. Assuming your workers' compensation lien in the amount of a $1 00,000 or more, and a third partyrecovery of only $300,000, it is easy to why there is a concerted effort to eliminate the workers'compensation carrier's lien by all parties involved. The Indiana Lien Reduction Statute, like many ofits sister statutes around the country, is being interpreted as a license to reduce the carrier's $100,000lien in the above scenario based on the comparative fault of the claimant. If the case is tried and thejury decides that the plaintiff is 40% at fault, it is argued that the lien should likewise be reducedby4O%. If the case settles and there is no finding by a judge or jury of comparative fault, the matter

is submitted to the trial court for determination of exactly what percentage of fault the plaintiff is tobear for the accident. The problem with this is that once the matter has been settled, the plaintiffsmain interest would be to show himself as much at fault as possible, in order to reduce or eliminate thesubrogation interest. "Falling on the sword" becomes common place in these situations.

Assume that, in the above scenario, the $300,000 recovery is a recovery of policy limits from the thirdparty tortfeasor, despite the fact that the claim has a value of $1 million. Under this scenario, all partieswill argue that your lien should be reduced by 70% because the plaintiffs claim was reduced by 70%. Again, the trial court will be called upon to determine the actual value of the claim to decide howmuch the lien should be reduced. Unfortunately, there is not much Indiana case law or case lawanywhere throughout country, interpreting these relatively new statutes and their effect on subrogationinterests. Parties even attempt to argue that the "uncollectability of the full value of the claim' languagealso means that in addition to reducing your subrogation interest for comparative fault, the lien shouldbe reduced further based on the fact that the plaintiff had to "settle for less" then he would have likedto.

It is the exception rather than the rule for a state to apply these lien reduction statutes to workers'compensation scenarios. Your best line of defense is active and aggressive participation in third partylitigation and zealous representation of your interests therein. Many states, including New Jersey andothers, have lien reduction statutes which do not apply or which have not been applied to workers'compensation liens.

Texas. Another way that the plaintiffs attorney may attempt to circumvent a carrier's lien is to arguethat other "liens" must be paid before the workers' compensation carrier's lien. Although somewhatconfusing, the Texas Labor Code is an example of a statute which sets forth the priority of liens andmay affect your workers' compensation lien.

§408.203. Allowable Lions

(a) An income or death benefit is subject only to the following lien or claim, to the extent the benefit isunpaid on the date the insurance carrier receives written notice of the lien or claim, in the followingorder of priority:

(1) an attorney's fee for representing an employee or legal beneficiary in a matter arising underthis subtitle;

(2) court-ordered child support, or;(3) a subrogation interest established under this subtitle.

(b) A benefit that is subject to a lien for payment of court-ordered child support shall be paid as required by.

(1) an order withholding income under §14.43, Family Code, or(2) a writ of income withholding under §14.45, Family Code. (V.A. C. S. Art. 9308-

4.08.)

Currently, there is not relevant case law construing §408.203 in a workers' compensation scenario. However,becausethestatutedoesreferenceuasubrogationinterest"generically, it has been argued that thisshould be applied to subordinate workers' compensation interests to attorney's fees and court-ordered

child support. In order to protect yourself against such arguments, representation by subrogationcounsel in third party actions is advisable and the court should be reminded that the workers'compensation carrier's subrogated interest does not belong to the claimant and cannot and should notbe used to pay child support, IRS liens, or other obligations unless and until the carrier is repaid in full.

MADE WHOLE DOCTRINE

Nearly all of the fifty states have some version of the Made Whole Doctrine. This is an equitabledoctrine which requires complete reimbursement of an insured's damages before a carrier is entitled tosubrogation. A common trick used by plaintiffs counsel is to mislead you with court decisions whichgenerically recite this equitable doctrine which is not usually applicable to the statutory subrogationrights set forth in state workers' compensation statutes.

Texas. The Supreme Court decision of Ortiz v. Great Southern Fire & Casualty Company, 597S.W.2d 342 (Tex. 1980) and Oss v. United Services Automobile Association 807 F.2d 457 (5th Cir.1987) are used by the attorneys to convince you that a workers' compensation carrier should not beentitled to subrogation unless and until the plaintiff has been 'made whole'. The important thingto remember is that this case did not deal with workers' compensation subrogation. It wasa fire insurance claim and related to a fire insurance policy and contractual insurance subrogation. Itis not applicable to the statutory subrogation rights given to a carrier under the Texas Workers'Compensation Statute. Therefore, do not let plaintiff s attorneys convince you that you are notentitled to recover your lien when the plaintiff is required to settle for some amount less than his orher total damages. This is not true, even when the available insurance limits are inadequate to fullycompensate the claimant, or when the claimant will not be "made whole". In Texas and in manystates, you have a statutory right to "first money" until you have been repaid in full, regardless of howmuch the claimant recovers. In many other states, you have a right to recover your subrogated interestaccording to the allocation formula set forth in that statute, the Made Whole Doctrinenotwithstanding.

Georgia. Of course, there are statutes, such as the Georgia Statute 35 which codify the Made WholeDoctrine within the Workers' Compensation Act itself. The Georgia Act reads as follows:

"... a carrier�s recovery is limited to the amount of disability benefits, death benefits, medical expensespaid, and is only recoverable ff the employee has been �fully and completely compensated, taking intoconsideration both worker's compensation benefits received and the amount of recovery in the third partyclaim, for all economic and non-economic losses incurred as a result of the injury.�34-9-1 1. 1 (b)

35 See Appendix at Page A-4.The case of Homebuilders Association v. Morris, Ga. App. 194 (1999) does not allow considerationof the employee's contributory negligence in determining whether or not the employee has been madewhole, in a workers' compensation context. The same could probably be argued for the contributorynegligence of the employer. The only antidote to combat states in which the Made Whole Doctrinedoes or arguably can apply, is to have subrogation counsel active in representing your interests, andattempt to enter into a stipulation regarding your interests, rights and the allocation of monies uponrecovery well ahead of any settlement or judgment. This can often be done in exchange for an agreedupon, yet limited, amount of expenses which the carrier will agree to contribute to a case whichotherwise might be too expensive for the plaintiffs attorney to handle adequately.

THIRD PARTY LITIGATION

A basic review of the mechanics of workers' compensation subrogation is helpful in understanding theeffect of many of the nuances of workers' compensation subrogation. The example below is taken withpermission from the IRMA Contractual Risk Transfer Publication.36

36 Contractual Risk Transfer, Waivers of Subrogation, International Risk Management Institute, Inc. 1997, to Gary T. Wickertw as contributing author.

SEQUENCE OF SUBROGATION ACTIONNO WAIVER OF SUBROGATION

Step 1: Work Place Injury. Walter Wounded, an office clerk of Renter & Associates(�Renter�), a tenant occupying the thirteenth floor of a luxury office tower, in injured whenhe falls getting off the elevator, suffering severe injuries to his back.

Step 2: Payment of Worker�s Compensation Benefits. Renter�s workers� compensationinsurer, F&C Insurance Company, pays $25,000 in workers� compensation benefits toWounded in the form of medical expenses and indemnity.

Step 3: Filing of Third-Party Suite. Wounded encounters I.M. Sharpe, the attorneyoccupying the penthouse of his building, and retains him to seek damages over and above hisworkers� compensation benefits. Wounded, the plaintiff, files a lawsuit against W.R.Buildings, the owner and lessor of the luxury office tower, as defendant (W. Wounded v. W.R.Buildings, Inc.). The suit is based on the alleged failure by Buildings to safely maintain thecommon areas of the building.

Step 4: Subrogation. Meanwhile, Renter�s workers� compensation insurer, F&C InsuranceCompany, having paid $25,000 in workers� compensation benefits to Wounded files anintervention action of the third-party lawsuit, Wounded v Buildings. In that intervention, F&Cseeks subrogation for the workers� compensation benefits it paid to Wounded.

Step 5: Third-Party Recovery. The jury returns a verdict of $60,000 in favor of WalterWounded, finding that Buildings was negligent in maintenance of the elevator.

Step 6: Payment of Subrogation. Pursuant to the intervention in Wounded v. Buildings,F&C Insurance Company is subrogated to the first $25,000 of Wounded�s $60,000 recovery. Wounded still receives $60,000 in compensation, made up of the $25,000 in workers�compensation benefits already paid, plus the $35,000 remaining after the $25,000reimbursement of F&C from the damages awarded in the third-party lawsuit.

WHO ARE THIRD PARTIES?

Subrogating Against UM/UIM Benefits

Every state has a system of workers' compensation to provide benefits for workers injured on thejob. These benefits are paid regardless of fault and usually according to a statutory scheme set forthin the state statute. Where the work-related injury is the result of negligence of a third-partytortfeasor, most states grant the employee a right to pursue the third-party tortfeasor for damagesresulting from the injury, and give the workers' compensation carrier some sort of subrogatedinterest, lien, or statutory scheme of reimbursement with the idea of preventing a double recoveryto the employee and reducing the burden of insurance to the employing public of the state.

Frequently, the employee will not only make a recovery from the third party, but will also make a claimagainst and recover damages from an uninsured motorist's carrier. The possibility against subrogatingagainst these UM\UIM benefits should always be explored. Even in states where the law does notpatently allow subrogating against these benefits, anyone with subrogation responsibilities should bealert for those cases which involve facts which may be favorable in changing the law. Many times, badsubrogation law is created because subrogees sit on their thumbs instead of aggressively pursuing everyopportunity for recovery.

Subrogating against UM\UIM benefits was the focus of a subrogation suit which I supervised as apartner in my former Houston law firm in 1997. 37 Employers Casualty Company was the worker�scompensation carrier for Carl Dyess, Jr., who was injured on August 14, 1990 while driving a truck inthe course and scope of his employment. Dyess was injured when he was struck by an uninsuredmotorist and subsequently collected more than $1 00,000 in worker�s compensation benefits.

Dyess sued the uninsured motorist and also sought uninsured motorist benefits from NorthbrookProperty and Casualty Company, his employer's uninsured motorist carrier. We intervened on behalfof the worker�s compensation carrier, seeking to subrogate against the UM benefits. At that time, thecase of Bogart v. Twin City Fire Insurance Company, 473 F.2d 619 (5th Cir. 1973), interpreting Texaslaw, had clearly stated that a workers' compensation carrier's subrogation rights do not extend touninsured motorist coverage. But the facts were in our favor.

37 Employers Casualty Co. v. Dyess, 957 S.W.2d 884 (Tex. App. - Amarillo 1997, w rit denied).The jury had found that the uninsured motorist was solely responsible for the accident, but amazingly,found damages of only $400. The trial court also denied Employer's subrogation claim based on theBogart case. We appealed the case to the Amarillo Court of Appeals, noting to the court the following:

1. Article 8307 §6(a) of the Texas Workers' Compensation Act provides for a third partyaction against "a person who has a legal liability to pay damages for the injury". Weargued that an uninsured motorist carrier is "a person who becomes liable to paydamages";

2. The Bogart case involved an uninsured motorist policy which the employee himselfpurchased, while in our case, Dyess's employer was the person who purchased thepolicy, and should be the one who benefits from it;

3. Northbrook was not able to enforce an offset for workers' compensation benefits itsinsured received, and Dyess therefore received a double recovery by recovering bothworker�s compensation benefits and UM benefits; and

4. Dyess had damages of only $400, according to the jury.

The court of appeals held that Employers could subrogate against UM benefits, because its subrogationrights under the statute applied to any party who was liable for the employee's injury, regardless ofwhether that liability arose in tort or contract. The court also found the clause in Northbrook'suninsured motorist policy with regard to an offset against workers' compensation benefits to beineffective and against public policy. The case changed Texas law and workers' compensation carrierscan now subrogate against UM\UIM benefits in Texas.

More than being a lesson to subrogees to be aggressive when pursuing recoveries, the briefs in the Dyesscase also contained a survey of state law from around the country with regard to workers'compensation carriers subrogating against UM\UIM benefits. Far from being black letter law, whetheror not a workers' compensation carrier can subrogate against UM benefits in many states hinges directlyon the facts of the individual case.

In some cases, the state's workers' compensation statute explicitly gives the carrier the right to recoverUM\UIM benefits. In New Hampshire, for example, for years the case of Merchant's MutualInsurance Group v. Orthopedic Professional Association, 124 NH 648, 480 A.2d 840 (NH 1984)denied a worker's compensation carrier a lien against UM benefits. But in 1994, the court in Rooneyv. Fireman's Fund Insurance Company, 138 NH 637, 645 A.2d 52 (NH 1994) held that workers'compensation carriers could subrogate against UM\UIM benefits, because §281-A:13,1 of the NewHampshire Statutes had been amended to read:

An injured employee ... may obtain damages ... against another person if the circumstances of the injurycreate ... a contractual obligation to pay benefits under the uninsured motorist provision of any motor vehicleinsurance policy.- the employer or the employer's insurance carrier shall have a lien on the amount of damagesor benefits recovered by the employee . . . '

Therefore, the legislature made the matter simple. In other states, the legislature has specificallyproscribed a workers' compensation carrier from recovering or subrogating against UMXUIM benefits. The Florida Uninsured Motorist Statute §627.27(l), prohibits UM\UIM benefits from applying tothe direct benefit of a worker's compensation carrier. The Florida Workers' Compensation Act§440.39(3)(a), establishes the subrogation rights of a worker's compensation carrier, permits onlyconsideration of the liability of the third-party tortfeasor, not a UM\UIM carrier. Likewise, thePennsylvania Workers' Compensation Act, 77 P.S. §671 prohibits a carrier from subrogating againstUM\UIM benefits because the UM carrier is not a tortfeasor. In these states and others like them, thelegislature has made it clear that carriers may not subrogate against UM\UIM benefits.

But what about where the state statute doesn't resolve the issue? In such states, the courts mustfashion a policy taking into consideration the language of the workers' compensation statute, publicpolicy's of the statute, and also the state's uninsured motorist statute. In Louisiana and Vermont,courts have held that the carrier is entitled to reimbursement out of such benefits. In Alabama, thecourts have permitted a credit against the employees liability for workers' compensation benefits to theextent that the employee's receipt of uninsured benefits would result in a double recovery. The NowJersey Workers' Compensation Act §34:15-40 refers to an employee's recovery �from the third person

or his insurance carrier�, as allowing subrogation against UM\UIM benefits. Other court decisions inNew Jersey have held that such subrogation rights exist regardless of whether the uninsured motoristpolicy was purchased by the employer or the employee. This distinction makes a significant differencein other states. In North Carolina, South Dakota, and Tennessee, courts have similarly held thatthe carrier was subrogated to the employee's claim for UM\UIM benefits. The supreme courts of atleast five states allow a workers' compensation carrier to subrogate against UM\UIM proceeds,including New Jersey, Louisiana, Delaware, Maine, and South Dakota.

Some states allow for subrogation against UM\UIM benefits, but make exceptions to the rule. NewJersey allows it only if the employee's recovery of benefits under both workers' compensation and theautomobile policy exceed the full amount of his or her damages, in other words, utilizing the "MadeWhole" Doctrine. In other states, cases have held that a carrier's right to subrogate against UM\UIMbenefits depends on who procured the UM policy under which the benefits are paid. If the policy wasprocured by the employer or a third party, case law in Delaware, Louisiana, Maine, andWashington allow subrogation, but not if the policy was purchased by the employee. In Alabama,a 1997 decision prohibiting subrogation against UM benefits seems to conflict with a 1987 case whichallowed it where the employee stood to make a double recovery. In Delaware, a 1986 decision grantsthe carrier's subrogation rights against UM\UIM benefits where the policy was purchased by theemployer, and a 1988 decision indicates that such subrogation rights are not granted where the policywas procured by the employee.

In the overwhelming majority of states where the statute does not expressly decide the issue, the courtshave held or recognized that an employer or workers' compensation carrier was not entitled to bereimbursed out of sums payable to an employee under a UM\UIM policy, because the workers'compensation law did not expressly grant such rights. Court decisions in Arizona, Arkansas,California, Colorado, District of Columbia, Georgia, Illinois, Iowa, Kansas, Kentucky,Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Mexico, NewYork, Oklahoma, Pennsylvania, Utah, and Virginia have indicated that because the statute didnot give the carrier a lien on UM\UIM benefits, such subrogation rights would not be granted.

In a related issue, but one which exceeds the scope of this article, some states have decisions whichaddress an employees right to offset uninsured motorist benefits against workers' compensation awards. States such as Oklahoma have indicated that an employer is not entitled to offset UMXUIM benefitsagainst workers' compensation awards and benefits, because public policy did not allow it.

The right of a worker's compensation carrier to subrogate against UM\UIM benefits is truly a movingtarget. Rights in individual states can change rapidly, and can be dramaticallyaffected by new court decisions, amendments to the workers' compensation statute, and amendmentsto the UM\UIM statute. Cases in which the employee is seriously injured by an uninsured motoristand the policy is purchased by the employee, make bad facts and should be carefully scrutinized beforesubrogation is attempted. The adage, "bad facts make bad law" is nowhere more relevant that in thearea of subrogation. In Texas, for example, most of the decisions limiting or constricting subrogationrights involve subrogation actions brought by universities, municipalities, and other governmententities, who seem to blindly subrogate on the tax payees dollar no matter what the facts.

We are living in an era where our subrogation rights are under attack, and in some states, legislationhas been proposed threatening to abolish subrogation all together. When subrogating for workers'compensation benefits, it is prudent to always determine whether there is a UM\UIM policy issued to

either the employee or the employer, and the state's law regarding subrogation rights against suchbenefits should be carefully looked into.

Exclusivity of Workers' Compensation Act Bars Action Against Employer

While this is one of the principles covered in the Workers' Compensation Subrogation Primer, earlierin the convention, it is important to remember that every state deals with the workers' compensationbar differently. Most states do not allow the employees negligence, if any, to even be submitted to thejury along with the negligence of the defendants and the contributory negligence of the plaintiff. Rather, most states, including Texas, allow an instruction to the jury advising them that they may findneither plaintiff nor defendant negligent if they find that the employer was the "sole proximate cause"of the injury. This is a strong tool for workers' compensation subrogation carriers, and allows forsubrogating workers' compensation claims under facts in which other lines of insurance would not eventhink of subrogating. 38

Many states also provide an exception to the workers' compensation bar if the employer is grosslynegligent and the employee dies as a result of the employee's gross negligence.39

Intentional Acts

Some states water down even further the exclusivity bar by holding that intentional acts of theemployer (usually a principal of the employer or acts of an employee which are sanctioned or ratifiedby the employer) are enough to exempt the employer from the exclusivity of the workers'compensation bar. In other words, if co-employee or the employer commits an intentional act andthereby injures the employee, the employer may be a third party for workers' compensation subrogationpurposes. 40

Dual Capacity Doctrine

While the workers' compensation bar prohibits an employee from suing an employer where theemployee is injured in course and scope of his employment and the employer is covered by workers'compensation policy, some states employ which is known as the "Dual Capacity Doctrine" to providean exception whereby the employee may sue the employer if the employer is wearing another hat otherthan or in addition to that of an employer. For instance, some states allow recovery against an employerif it is created a second persona, completely independent from and unrelated to its status as employer.41

38 See Appendix at Page A-7 for typical 'sole proximate cause' instruction in Texas.39 Texas Labor Code, §408.001 (1999).40 Ramirez v. Pecan Deluxe Candy Co., 830 S.W.2d (Tex. App. � Dallas 1992, error denied); and Rodriguez v. NaylorIndustries, Inc, 763 S.W.2d 411 (Tex. 1989).41 Rauch v. Officine Curioni S.P.A., 508 N.W.2d 12 (Wis. App. 1993).

In other states, courts have held that a company doctor bears two relationships toward anemployee, that of a co-employee and that of a doctor, allowing an employee injured in an industrialaccident to sue a company doctor for malpractice if the original injury is aggravated as a result ofthe doctor's negligence - including failure to refer him to a more qualified specialist. 42 However,the Dual Capacity Doctrine is generally inapplicable to a medical malpractice action based on acompany's doctor failure to diagnose a pre-exiting injury. 43

The courts of many jurisdictions, including California, Illinois, Louisiana, Maine, Michigan,New Hampshire, Ohio, and Pennsylvania, among others, have generally recognized that there arecircumstances where an employer may be held liable to an employee for unintentional injuries on thebasis of a cause of action separate and distinct from remedies under a workers' compensation statute,even though the provision of the applicable workers' compensation acts makes the benefits conferredby the statute exclusive. 44

Many other states reject the Dual Capacity Doctrine as a theory by which the employee may avoid theimmunity from tort actions granted to employers under workers' compensation statutes so as to bringactions at law against their employers for unintentional injuries.45 Examples of forms of conduct whichmay create liability on the part of the employer in states which apply the "Dual Capacity Doctrine"include, the following:

1 . Failure to maintain safe premises;2. Self insurer's failure to make safety inspections;3. Medical malpractice;4. Distribution of unsafe products - manufactured products;5. Negligent maintenance of vessel;6. Negligent maintenance of roads; and7. Miscellaneous conduct.

42 Duprey v. Shane, 39 Cal.2nd 781, 249 P. 8 (1952).43 Wickham v. North American Rockw ell Corporation, 8 Cal. App.3d 467, 87 Cal. Rptr. 563 (2nd Dist. 1970).44 For an exhaustive examination of the Dual Capacity Doctrine in all fifty states, see 23 A.L.R. 4th 1151 (1983).45 Indiana, Kentucky, New York, South Carolina, Tennessee and Texas are examples of states w hich reject the DualCapacity Doctrine.

Joint Ventures

In a majority of states, an employee may not sue partners in a joint venture with his employer. Texasand Wisconsin are examples of two states which prohibit suing a partnerorjointventureroftheemployerinordertocircumventtheworkers'compensationbar. In Texas, forexample, an individual partner or individual member of a joint venture can claim the workers'compensation bar to a third party claim brought by the injured employee of one of the joint venturers.46 The court in Lawler also held that the fact that the workers' compensation policy only named oneof the members of the joint venture as an insured and did preclude the other members of the jointventure from claiming employer status. The elements of a joint venture are:

1 . mutual right of control;2. community interest;3. the sharing of profits as principals; and4. sharing of losses, costs, or expenses. 47

Where Injury is Caused by Fellow Employee

Almost all workers' compensation schemes make compensation the exclusive remedy against the injuredperson's employer, in accordance with the intention to give the employee a certain recovery for anyinjury he may sustain on the job in exchange for his right to sue his employer at common law. Thereis no such uniform treatment of suits against fellow employees.

In some statutes there is no provision with regard to whether or not such suits may be maintained andit is here that the courts are sharply divided from state to state. The fellow employee is either calleda "third party" and subject to suit, or he is merged into the employer, under the Rules of Master andServant, and given the latter's immunity.

Older decisions in some states are authority for the proposition that a fellow employee maybe sued under workers' compensation statute permitting suits against third person generally. 48 Otherstates have legislated in their statutes that no suit can be brought against a fellow employee, althoughthey have differed to some degrees as to the conditions under which the immunity applies. 49

46 Law ler v. Dallas Statler-Hilton, 793 S.W.2d 27 (Tex. App. � Dallas 1990, w rit denied).47 Taylor v. GWR Operating Company, 820 S.W.2d 908, 911 (Tex. App. - Houston ([1st Dist.] 1991, w rit denied).48 See 21 A.L.R. 3d 845 (1968) for an exhaustive dissertation on some states w hich allow such an action directly.49 Alaska, California, Florida, Georgia, and I llinois are examples of states w hich have statutes prohibitingthird party actions against co-employee.

Where Third Party Insured by Workers' Compensation Carrier

Occasionally, an insurance carrier, pursuing subrogation will also insure one of the defendants. Thismay occur when the carrier insured under the workers' compensation insurance policy has contractuallyagreed to indemnify the defendant, but in can also occur simply by coincidence. When thesecircumstances arise, the carrier properly should have one adjuster handling the workers' compensationclaim/subrogation claim and another adjuster handling the liability claim. It is extremely importantthat the two files be handled independently and that the information and investigation isnot shared between the two adjusters.

As workers' compensation carriers have become more aggressive in asserting their rights of subrogation,plaintiffs' attorneys have been forced to become more creative in trying to defeat subrogation. Someplaintiffs' attorneys now allege that the insurance carrier has a conflict of interest when it pursuessubrogation against a defendant which it insures against liability, and they claim that the carrier shouldbe barred from pursuing subrogation in such cases.

However, the principle of subrogation is especially strong in Texas, perhaps stronger than in any otherstate. As a very general legal proposition, an insurance carrier cannot subrogate itself against its owninsured (e.g., where the injury was caused by the negligence of the insured). Spouting this generalproposition, some suggest that the carrier�s subrogation interest is negated completely where that carriercoincidentally carries liability insurance for the defendant in a third party action. This problem canarise under a wide variety of insurance scenarios - workers' compensation, automobile, general liability,

casualty, etc.

At present, there are no Texas cases that directly address the situation where a workers' compensationsubrogee carries applicable liability insurance for the defendant in the third party action, so resourcefulplaintiffs' attorneys often cite two Texas cases that really do not apply, McBroome-Bennet Plumbinav. Villa France, 515 S.W.2d 32 (Tex. Civ. App.-Dallas 1974, writ ref�d n.r.e.) and Stafford MetalWorks v. Cook Paint & Varnish, 418 F.Supp. 56 (N.D. Tex. 1976). To be sure, both cases contain thewell-worn proposition that an insurer cannot sue its own insured; however, neither case involvesworkers' compensation subrogation, which is a statutory right not so burdened with the slipperyequitable considerations that characterize McBroome and Stafford. That is, Texas seems to recognizethree forms of subrogation: statutory subrogation (workers' compensation, hospital liens, ERISA,etc.), conventional subrogation (which arises from an agreement of the parties such as a subrogationprovision in an insurance policy); and legal subrogation (often called �equitable subrogation�). Lexington Insurance Company v. Gray, 775 S.W.2d 679 (Tex. App.- Austin 1989, writ denied);Lockard v. American Fidelity Fire Insurance, 475 S.W.2d 286 (Tex. Civ. App.-Amarillo 1971, writref�d n.r.e.); Dietrich Industries v. U.S., 998F.2d 568 (5th Cir. 1993).

In Stafford, Continental Casualty Company was the fire insurer for Stafford and the liability insurer forCook. Cook had supplied Stafford with defective urethane foam insulation that caused a destructivefire in Stafford's plant. Continental paid Stafford's fire loss of $145,228.47 and intervened in Stafford'slawsuit against Cook alleging its subrogation rights. As a liability carrier, Continental insured againstCook's liability resulting from property damage up to $100,000.00 and was obliged to defend Cook inany related lawsuit. Continental undertook Cook's defense against Stafford (employing differentattorneys from those representing Continental's subrogation interest with Stafford). Thus, Continentalsimultaneously was defending Cook as its insured and asserting liability against Cook by way ofsubrogation for the amount paid to Stafford.

During the litigation, Continental (as carrier for Cook) settled with Stafford for $163,774.36, whichwas the amount of Stafford's original claim in excess of Continental's own subrogation interest inStafford's fire loss. The settlement exhausted Continental's coverage with Cook and required Cook topay $63,774.36 over the policy limits. Stafford then exited the lawsuit leaving only Continental'ssubrogation action against its insured Cook. Because Continental exhausted the policy limits with Cookand it fulfilled its obligation to defend Cook up to that limit, it withdrew from Cook's defense leavingCook to defend itself against its own insurer - Continental.

After noting that a carrier generally cannot sue its own insured, the court stated that �[s]ubrogation isa purely equitable doctrine and remedy�� Id. at 58. Of course, one who seeks equity must do equity,must come into court with clean hands, and cannot take advantage of his own wrong. The courtthought these equitable tenets would be violated by Continental's continuing lawsuit against Cookbecause Continental would be permitted to use premiums collected from Cook to finance its effort toobtain a judgment against Cook on the same insured risk. Further, permitting the suit would somehowjudicially bless Continental's breach of its insurance policy to Cook, would allow Continental to obtaininformation from Cook under the guise of various policy provisions and later use that information inthe subrogation action against, all of which essentially would allow Continental to take advantage ofa conflict of interest with its insured.

In Stafford, there was no mention of any insurance policy provisions that would have created inContinental a contractual or "conventional' subrogation interest upon paying the fire loss to its insured

Stafford. Thus, one can only assume that the Stafford court was dealing only with purely legal or"equitable" subrogation. Indeed, were such not the case the court's above quoted statement that�[s]ubrogation is a purely equitable doctrine and remedy�� would be inaccurate.

Legal or equitable subrogation arises by implication in equity to prevent fraud, unjust enrichment orsome other injustice, and a court considering legal subrogation therefore is directed almost exclusivelyto equitable principles. The Stafford court, plainly concerned that Continental's opportunities formischief were profound and, focusing on an equity analysis that is inapplicable to the statutory workers'compensation subrogation scheme (and probably largely inapplicable to conventional subrogation),barred Continental from pursuing subrogation against Cook. Of course, Stafford may have turned outdifferently had there been a specific subrogation provision in Continental's fire policy to Staffordand/or a provision in Continental's liability policy to Cook in which Cook expressly acknowledged that,under certain circumstances, Continental may have been called upon to cover and defend Cook in asubrogation action coincidentally brought by Continental as the insurer for an entirely different party.

Such provisions would have converted Stafford from an equitable subrogation case to a conventionalor contractual subrogation case which, in turn, would have eliminated or at least mitigated the equityanalysis that defeated Continental. That is, Texas courts generally allow a subrogee claiming againsta third party under conventional subrogation to recover without regard to the equities of the parties. Vesta Ins. Co. v. Amoco, 986 F.2d 981 (5th Cir. 1993) (permitted suit by Vesta against insuredAmoco, under conventional subrogation theory where policy contained $5,000,000 loss retention andcomplicated reimbursement provisions); Fleetwood v. Medical Center Bank, 786 S.W.2d 550 (Tex. App. - Austin 1990, writ denied); and Lexington v. Gray, 775 S.W.2d 679 (Tex. App.- Austin 1989,writ denied).

It is interesting to note that, in Stafford, Continental argued that the action was really betweenContinental and Cook's excess liability insurer, implying that Continental's payment of Cook's insurancelimits and withdrawing from Cook's defense did not prejudice Cook or otherwise leave it �hanging outto dry.� The court was unimpressed, stating that:

"This aspect of this suit points up the fallacy of Continental's argument concerning rates. Since the loss, nomatter which insurance company bears it, must be compensated for by increased premiums, it makes nodifference as a matter of public policy whether Continental or the excess liability carrier bears the loss. Public policy is influenced by whether Continental is allowed to subrogate. Such subrogation createsadministrative costs in shifting the loss between insurance carriers, which costs must be borne by the publicin the form of increased insurance rates." Id. at 62.

The court also was unimpressed by Continental's argument that, denying it subrogation would forceupon it a greater loss than it bargained for in its insurance contract. Finally, because Stafford was afederal case involving Texas law, the court was especially bound to apply strictly what it perceived tobe Texas law. �[t]his situation, if it needs to be changed, needs to be dealt with by the State of Texas- either legislatively or judicially. Having determined that Texas supports the traditional notion thatan insurer cannot subrogate against its own insured, this court is not in a position to forge a new theoryof law to deal with the situation.� Id. at 62.

Workers' compensation subrogation derives from a specific legislative enactment (Texas Labor Code417.001 et seq.) and not from general principles of equity and fairness (�legal' or unequitable�subrogation), and those general principles therefore do not govern workers' compensation subrogation.

Less clear is the extent to which equitable principles govern conventional/contractual subrogation. There are no Texas cases with facts even remotely similar to Stafford that involveconventional/contractual subrogation. Thus, although that distinction between conventional andequitable subrogation may seem clear, it is impossible to predict what a Texas court would do with acase involving facts similar to Stafford, but where policy provisions require a conventional/contractualsubrogation analysis. The subrogating carrier certainly will argue that comprehensive subrogationprovisions in the operative policy are enforceable without regard to "equities."

Equities would seem further removed from the analysis (and thus subrogation more likely permitted)in cases where the subrogee effectively is a servicer for its insured under a cost or retro scheme. Thatis, where the carrier nominally insures Big Corp. which, in reality, pays all claims plus administrativefees, the carrier is less likely to be barred from subrogating (for Big Corp.) against Little Corp., forwhom it carries liability insurance.

In this scenario, any possible subrogation problems can be preempted by comprehensive contractprovisions between the carrier and Big Corp. Among other things, such provisions could allow BigCorp. to pursue its own action against Little Corp. without regard to subrogation. Indeed, in mostsituations, the insured can prosecute its own third party claim - burdened by the carrier�s subrogationrights. Here, if Big Corp. sues Little Corp. (which is insured by carrier) the �subrogation against one'sown insured� issue never arises.

To repeat, the mere opportunities for mischief may suffice to bar a carrier in a purely equitablesubrogation situation, but those same opportunities (provided the carrier does not actually exercisethem) are not sufficient to deprive a carrier of a statutory workers' compensation subrogation right,and should not be sufficient to deprive a carrier of a conventional subrogation right. Of course, in acase where the subrogee also is the liability carrier for a defendant, the subrogating carrier mustmaintain complete separation between its subrogation arm and its defense arm. This is the so-called"Chinese Wall." In other words, a carrier that exercises its opportunity for mischief, by, among otherthings, allowing its subrogating and defending arms to share information, risks liability for a breach ofits duties to its various insureds.

Conceptually, the Stafford case is somewhat similar to the issue at hand - a carrier�s subrogation rightsin conflict with its defense and other coverage obligations. However, McBroome is much fartherafield. There, the carrier issued a builder's risk policy to a general contractor for which only the generalcontractor paid premiums and which did not specifically name the subcontractor as a co-insured. However, the policy would have covered any liability from the general to the subcontractor fordestruction of any of the subcontractors equipment located on the general's premises. In McBroome,the carrier paid the general's fire loss and then subrogated against the subcontractor, alleging that itnegligently caused the loss.

After noting the general rule that an insurer cannot sue its insured, the court permitted the subrogationaction because the subcontractor was not a named co-insured under the subject policy, even thoughthe carrier might have had an obligation to its insured which, in turn, might have had an obligation tothe subcontractor (under certain circumstances) for the subcontractors equipment loss. Thus, thecarrier had no duty to the subcontractor under the policy and further, the carrier had not issued anyseparate policy to the subcontractor under which it might have had a duty to defend the subcontractoror otherwise represent conflicting positions. Thus, apart from the dictum that an insurance carrier maynot subrogate against its insured, McBroome says nothing particularly illuminating on the subject of

subrogating where the carrier is on both sides.

Finally, resolution of these issued may well turn on the facts of each case, further complicating anysolid predictions. However, one thing is certain - the carrier always should position itself to pursueconventional subrogation instead of equitable subrogation whenever possible and thereby seek to avoidthe analysis that doomed Continental in Stafford.

Insurance companies are impenetrable, limitless money machines. They bleed society for countlessdollars which they use to finance their sprawling empires. In exchange for these "premiums' they issueinsurance policies - indecipherable collections of promises that they seek to break at every turn. Onlythe constant threat of legal reprisal, and no other sense of obligation, separates them from their moneyand, when it does, they whine plaintively, seek higher premiums, and beat the bushes for scapegoatsto reimburse them. They call this 'subrogation.'

Unfortunately, the public seems more or less to accept these fantastical views. Indeed, even mayjudges and attorneys (particularly plaintiffs personal injury attorneys) conduct themselves as thoughthey also subscribe to these notions. In short, nobody seems to like insurance companies; they areamong society's punching bags. There are those who believe that subrogation, even if it amounts toa battle between insurance companies, creates administrative costs in shifting the loss betweeninsurance carriers which are passed onto the public in the form of increased insurance rates. This publicpolicy argument does not impress individuals or business entities that are less concerned withsocialization of risks and costs than they are with their own loss histories and related insurance rates. Insurance companies that protect their subrogation rights, whether actively or passively, are servingthe public good by shifting the "blame' for a loss on the entity that is responsible (whether or not thatentity has its own insurance) which, in turn, generates a more accurate picture of a particular insured'sloss history and therefore a more equitable rate structure for that insured. Subrogation is good.

Cases wherein courts in other jurisdictions have held that the carrier can intervene and recover its lieninclude: Burt v Hartford Accident & Indemnify Co., 483 S.W.2d 218 (Ark. 1927); Coward v. NicklosDrilling Co., 112 S.Ct. 2589 (U.S. 1992) (LHWCA case). However, another case suggests that a carriercannot intervene on the plaintiff s side of a lawsuit nor is it subrogated to the rights of the claimant,when it also insures one or more of the defendants. Other cases make it clear that while the carriercannot actively participate in the lawsuit, its right of subrogation is still protected and it is entitled torecover its lien. See Harrison v. Ford Motor Company , 122 N.W.2d 680 (Mich. 1963).

One out-of-state case even suggests that the carrier would be permitted to intervene in the lawsuit ifits rights could not be adequately protected by the plaintiff�s attorney. We do not believe these caseswill be directly applied to scenarios under the Texas Workers' Compensation Act, since carriers wouldthen be forced to pay the plaintiffs' attorney's fees and expenses.

BORROWED SERVANT DOCTRINE

Defense to Third Party Liability

This doctrine will be familiar to most of you because of its application to the everyday adjusting andhandling of workers' compensation claims. In determining whether or not a carrier is responsible forworkers' compensation benefits, the claims handler must necessarily look at whose employee theinjured claimant was at the time of the injury. However, the Borrowed Servant Doctrine can be used

as a defense to third party lawsuits.

Where the injured claimant and the carrier sue a third party based on negligence, they will not be ableto recover anything where the third party shows that the claimant was, in fact, their borrowed servant. Carr v. Carroll Company, 646 S.W.2d 561 (Tex. App. - Dallas, 1982, writ ref�d n. r. e.).

Where an employee of one employer (general employer) is placed under the control of another company(special employer) for performing certain services, the employee may become the special employers'borrowed servant'. The central inquiry is whether the special employer had the right to control boththe details of the employee's work and the manner in which the employee performed this work. Whenthere is no written agreement between the employers regarding right of control, it is determined fromthe facts surrounding the employee's work at the time of his injury. These facts include:

1 . The nature of the project;2. The nature of the work to be performed by the machinery and the employees furnished;3. The length of special employment;4. The type of machinery furnished;5. Acts representing an exercise of actual control;6. The right to substitute another employee; and7. Whether the employee is doing something within the normal scope of the general or

special employers business.

Neither the right to direct the end result to be accomplished, nor the mere fact that the employee wascarried on the payroll of one party and not the other is sufficient alone to make the employee aborrowed servant. Likewise, the right of the general employer to fire or reassign the employee doesnot preclude a finding that the employee was the borrowed servant of the special employer, if it alsohad the right to fire the employee. The employee of an employer in the business of supplying temporaryworkers to other companies will almost always (with a few exceptions) be the borrowed servant ofthe other company.

Conseguences of Employee Being a Borrowed Servant

Obviously, whether a claimant is a borrowed servant bears directly on which carrier a claimant isentitled to recover benefits from. But this doctrine is often used defensively in third party lawsuits andcan affect a carrier's subrogation action. If the employee is the borrowed servant of a special employer,the Borrowed Servant Doctrine can be used as a total defense to a third party lawsuit brought by theemployee or the carrier against the special employer. If the special employer shows that the employeewas its borrowed servant, that it was a subscriber to workers' compensation insurance, and that theworkers' compensation insurance covered the injured worker, then both the worker and the generalemployees workers' compensation carrier will be barred from pursuing a third party claim against thespecial employer. However, the special employer or its workers' compensation carrier also will beresponsible for providing workers' compensation benefits to the employee.

If the special employer is responsible for providing workers' compensation, but the generalemployer's carrier has already paid workers' compensation benefits to the employee, then thegeneral employer's carrier has the right of reimbursement from the special employer, or its carrier,for all of the money that the general employer's carrier has paid out. This right of reimbursement isknown as "equitable subrogation". This right of reimbursement is also authorized under the Texas

Workers' Compensation Act. Even if the general employer's carrier voluntarily made payments tothe employee, it is not estopped from making a claim for reimbursement.

When investigating a workers' compensation claim, an adjuster for the general employer's carrier shouldalways consider the possibility that the employee in question was the "borrowed servant" of anotheremployer. This determination should be made as early as possible. If there is evidence that theemployee was the borrowed servant of another employer, the adjuster should bring this fact to theattention of the Industrial Accident Board, the other employer, and the other employer's workers'compensation carrier. The general employees� carrier then has the burden of proving that the employeewas the borrowed servant of the other employer.

Eguitable Subrogation/Contribution Among Joint Insurers

Where a carrier has paid out benefits to or on behalf of an injured claimant, and it is subsequentlydetermined by a court that the claimant was actually a borrowed servant of the third party defendant,a carrier should consider aggressively pursuing equitable subrogation against the carrier for the specialemployer with whom the employee was in the course and scope of his employment with at the timeof the injury. One of the requirements of the third party before they can be dismissed as being a specialemployer of the claimant is to prove that they were a "subscriber" under the Workers' CompensationAct. If they proved that they are a subscriber and that a workers' compensation policy was in full forceand effect, and that it covered the injured worker, then they will be properly dismissed from thelawsuit.

At that time, however, we will have knowledge as to whom their workers' compensation carrier is, andwe will be pursuing an equitable subrogation claim against them. In Texas, this involves filing a Noticeof Contraversion with the Commission (while still maintaining payment of benefits), and seeking adetermination by the Commission as to whom the proper carrier is. In Texas, this procedure isnecessary because it is jurisdictional with the Commission as to determinations of borrowedservant/coverage issues.

In Texas, If an equitable subrogation claim is successful, the claimant will actually not be able to makea recovery in the third party case because he will be barred from suing his �special employer�. Thecompensation carrier, however, will be able to proceed against the carrier for the third party �specialemployer�, and should be able to recover 100% of the workers' compensation benefits it has paid. Asan added bonus, there will be no claim for attorney's fees by any plaintiff�s attorneys out of the sumrecovered.

Some states, such as Kansas, allow such a claim for equitable subrogation or contribution, whileMissouri does not.

Employee Leasing Companies

When insuring an employee leasing company, a carrier should be alert to the peculiarities of equitablesubrogation in this area. Where a temporary employer (the company to which the employee is assignedto work for a specified period of time) pays part of the premiums for the compensation policy, or,pursuant to its written contract with the employee leasing company, is responsible for payment of partor all of the workers' compensation premiums for the injured claimant, it will be considered to be a"subscriber", and will then have the benefit of the policy written by you for your insured. Marshall v.

Toys-R-Us. Nytex, Inc., 825 S.W.2d 193 (Tex. App. - Houston [14th Dist.] 1992, writ denied).

In addition, where the temporary employer simply pays a flat hourly rate to the employee leasingcompany, but it turns out that the employee leasing company actually pays its employee a lesseramount, the difference of which is used to pay expenses, including workers' compensation premiums,the carrier for the employee leasing company will not be allowed to equitably subrogate against thecarrier for the temporary employer. This is because the carrier accepted premiums collected by theleasing company from its customer. Associated Indemnity Co. v. Hartford Accident & Indemnity., 524S.W.2d 373 (Tex. App. Dallas 1975, no writ).

This is true even where the carrier for the employee leasing company does not realize that such anarrangement exists. Texas charges the carrier with knowledge of the working arrangement of itsinsured, because under Insurance Code the carrier has the right to inspect the premises of the insuredand, therefore, have the ability to find out exactly how the insured's operation works.

Dual Employers

In the Texas Case of Brown v. Aztec Rig Equipment, Inc., 921 S.W.2d 835 (Tex. App. Houston [14th

Dist.] 1996, writ denied), the court recognized dual employment in Texas, and held that the borrowingemployer as well as the actual employer is entitled to assert the workers' compensation bar to aborrowed employer's third party claim against it. Historically, claimant's attorneys in borrowed servantcases have filed suit against both the borrowing employer and the actual employer under the belief thatonly one of the employers would be able to assert the workers' compensation bar. As such, the actualemployer was often needlessly brought into the third party claim as a defensive measure. This newdecision should obviate the need for this practice.

CONTRACTUAL LIMITATIONS TO SUBROGATION

Waiver of Subrogation

Most state workers' compensation laws, or case law construing them, allow the employer and its carrierto waive its right to subrogate against a third party which may have caused or contributed to anemployee injury. For example, the State of Indiana provides for waiver of subrogation, therebyrelieving the carrier of its obligation to pay the pro-rata share of costs and expenses, including attorneys'fees, incurred in pursuing a third-party recovery.50

Other states have reached the same result through the construction by courts of their workers'compensation acts. For example, in National Union Fire Insurance Company of Pittsburgh, PA. vPennzoil Company, 866 S.W.2d. 248 (Tex. App. - Corpus Christi, 1993, no writ), the court enforceda waiver of subrogation clause in a Certificate of Insurance executed by a worker�s compensationcarrier in favor of the oil company which had hired the insured contractor to drill a well for it. Thewaiver prevented the carrier from intervening in a third-party action brought by the contractors injuredemployee against the oil company.

Authority from other states which recognize the enforceability of waivers of subrogation include thefollowing:

Florida: Specialty Disability Trust Fund, et al. v. Comcar Industries, 675 So.2d 1019 (Fla. App. -

1996), (recognizing self-insured's waiver of lien on past benefits as well as future proceeds from third-party action in exchange for release and settlement of claim).

Georgia: Employers Commercial Union Insurance Company v. Wrenn. 132 Ga. App. 287, 208S.E.2d 124 (1974), (upholding a worker�s compensation insurer�s waiver of subrogation which wasnot included in settlement documents between the claimant and the insurer).

Illinois: Chicago Transit Authority v. Yellow Cab Company, 110 Ill. App.3d 379, 442 N.E. 2d 546(1982), (upholding a waiver in a general release of the employees subrogation rights against the thirdparty as part of a settlement of a worker's compensation claim).

50 Ind. Code §22-3-2-13.

Maryland: Heat & Power Corporation v. Air Products & Chemicals, Inc., 320 Md. 584, 578 A2d1202 (1990), (acknowledging that a general contract was intended to include a waiver of subrogationof workers' compensation liens against the owner).

Michigan: Warren v. Pickering, M.D., 192 Mich. App. 153, 480 N.W.2d. 306 (1991),(recognizing right of the carrier to waive workers' compensation lien).

New York: Comm'r of State of Insurance Fund v. Insurance Company of North America 80 NY2d992, 607 N.E.2d 795 (1992), (recognizing viability of workers' compensation insurer's waiver of lien).

North Carolina: Turner v. Ceco Corporation, 98 NC App. 366, 390 S.E.2d (1990), (upholdingwaivers of workers' compensation liens by carriers in the course of settlements of third-party actions).

Ohio: Leonard v. Peerless Insurance Company, 1993 0hio App. LEXIS 5702 (Dec.1,1993),(upholding carrier's right to waive its subrogation rights).

Tennessee: International Harvester Coml2any V. Sartain, 32 Tenn. App. 425, 220 S.E.2d 854(1948), (upholding carriers waiver of subrogation against third party without prejudice to employee'sright to pursue third party).

Virginia: F&S Electric Motor & Transformer Company v. O'Hara, 1992 Va. App. LEXIS 472 (July2, 1996), (upholding employer's right to waive subrogation in settlement of workers' compensationclaims).

Washington: Hadley v. Department of Labor & Industries, 116 Wash.2d 897, 810 P2d 500 (1991),(upholding workers' compensation department's ability to waive workers' compensation lien in lightof third-party claim).

At the same time, some states do not allow waivers of subrogation. For example, §342.700(3) of theKentucky Workers' Compensation Statute states that it is contrary to public policy and unlawful forany owner or employer(contractor) to require another employer (contractor or subcontractor) to waiveits remedies granted in that section (subrogation in favor of the employer for compensation paid againstthird parties) as a condition of receiving a contract or purchase order. Therefore, an owner orcontractor may not require a subcontractor to provide a waiver of subrogation preventing it fromrecovery on its subrogation lien in the third-party action. This provision was added to the law in 1994and so far has not been interpreted by any court.

Another state which has statutorily addressed the prohibition on waivers of subrogation is Missouri. Section 287.150(6) of the Missouri Workers' Compensation Statute states that any provision in acontract or subcontract which purports to waive subrogation rights in anticipation of future injury ordeath is against public policy and is void.

These prohibitions against waivers of subrogation are the exception, rather than the rule. Most statesallow prospective waivers of subrogation as an element of contractual relationships, as well as a partof settlement of workers' compensation or third-party claims. Many states, including Texas, however,require that the insurer actually consent to a waiver of its subrogation rights. This consent is usuallyexhibited by amending the workers' compensation policy with a waiver of subrogation endorsement.

TEXAS WAIVER OF OUR RIGHT TO RECOVERFROM OTHER ENDORSEMENET

WC 42 03 04

This endorsement applies only to the insurance provided by the policy because Texas is show n in Item 3.A of theInformation Page.

We have the right to recover our payments from anyone liable for an injury covered by this policy. We w ill notenforce our right against the person or organization named in the Schedule, but this w aiver applies only w ith respectto bodily injury arising out of the operations described in the Schedule where you are required by a w ritten contractto obtain this w aiver from us.

This endorsement shall not operate directly or indirectly to benefit anyone not named in the Schedule.

The premium for this endorsement is show n in the Schedule.

Schedule

1. ( ) Specific WaiverName of person or organization

( ) Blanket WaiverAny person or organization for w hom the Named Insured has agreed by w ritten

contract to furnish this w aiver.2. Operations:3. Premium: The premium charge for this endorsement shall be ______ percent of the premium

developed on payroll in connection w ith w ork performed for the above person(s) or organization(s)arising out of the operations described.4. Minimum Premium:5. Advance Premium:

Notes: 1. Use this endorsement to effect a wavier of recovery from others in accordance with Rule II, Section G, of the Texas Workers� Compensation Manual.

2. If blanket waiver of recovery from others is written, the following wording should be inserted followingOperations in schedule: �All Texas Operations�.

As indicated earlier in this article, most of the litigation underpinning waivers of subrogation deals withthe interpretation of the contract in which a waiver of subrogation requirement appears, or theendorsement itself, which provides the language by which the insurance carrier consents to the waiverof subrogation. The above Texas Waiver of Subrogation Endorsement has been the subject of muchlitigation. In one Texas case, Gary L. Wickert represented the interests of Hartford Accident andIndemnity Company, attempting to subrogate in a catastrophic injury case in which it had paid nearly$1.5 million.

HARTFORD ACCIDENT & INDEMNITY CO. V BUCKLAND 51

Facts: Theodore Buckland w as injured w hile w orking for Fish Engineering. Hartford w as the w orker�scompensation carrier for Fish. Fish had contracted w ith Phillips Petroleum Company to provide construction servicesat Phillips Petroleum�s facilities. The contract betw een the tw o provided that Phillips Petroleum w as entitled to thew aiver of Hartford�s subrogation rights. Buckland fell from a scaffold designed, manufactured and marketed by FiggieInternational, Inc. , and Hartford began paying w orker�s compensation benefits, ultimately paying nearly $1.5 million

in benefits. Buckland sued Phillips Petroleum and Figgie for his injuries and Hartford intervened claiming itssubrogation interests. Buckland later joined Phillips 66 Company as an additional defendant and then settled his casew ith Phillips Petroleum and Phillips 66 for approximately $3.2 milllion. Buckland settled his case w ith Figgie for$75,000. The Trail Court granted Summary Judgment against Hartford, stating that it could recover none of itssubrogation interest against Phillips 66 or Phillips Petroleum, but w as entitled to the $75,000 settlement w ith Figgie.Issues : 1. Did the w aiver of subrogation endorsement extend to Phillips 66 as w ell as

Phillips Petroleum?2. If Hartford w as not entitled ton recover its lien against Phillips 66 or Phillips

Petroleum, w as it entitled to its statutory credit for the $3.2 million recovered byBuckland?

H olding: 1. Because the w aiver of subrogation endorsement mentioned the w aiver being applicable to Phillips Petroleum, its subsidiaries, and related entities, and

because the endorsement w as drafted by and w ould be construed against Hartford, the w aiver of subrogation extended not only to Phillips Petroleum, but

also to Phillips 66.2. The court held that the language of the w aiver of subrogation w hich w aived

�subrogation rights�, also w aived Hartford�s right to an advance against futurebenefits as w ell as its right to recover its w orkers� compensation lien.

Whenever an effective w aiver of subrogation is in place, the outcome of any subrogation action is affected dramatically. It should be noted that in a third-party lawsuit, the jury is not usually allow ed to hear testimony or consider evidenceregarding the w orkers� compensation benefits received by the injured employee, w hich is regarded as coming from a�collateral source�. 52 Some states, how ever, have modified the rule to a certain extent in that they allow the judgeto make a separate determination as to the amount of w orkers� compensation benefits and then subtract that amountfrom the ultimate recovery w ithout the involvement of the jury, thus avoiding a double recovery. 53

51 Hartford Accident & Indemnity Company v. Buckland, 882 S.W.2d 440 (Tex. App. Dallas 1994, w rit denied).52 Macis v. Ramos, 917 S.W.2d 371 (Tex. App. � San Antonio, 1996, no w rit).53 Virginia Revised Statute 65.2-310.

SEQUENCE OF SUBROGATION ACTION WAIVER OFSUBROGATION IN PLACE

Step 1: Work Place Injury. Walter Wounded, an employee of Renter & Associates, isinjured on the job site.

Step 2: Payment of Worker�s Compensation Benefits. F&C Insurance Company,Renter�s worker�s compensation insurer pays $25,000 in worker�s compensation benefits toWounded.

Step 3: Filing of Third-Party Suite. Wounded hires I.M. Sharpe, an attorney, and files athird-party lawsuit against W.R. Buildings, the lessor and owner of the luxury office tower,for failure to safely maintain the common areas of the building.

Step 4: Waiver of Subrogation. The lease between Renter and Buildings includes aprovision whereby Renter waives its right to recover from Buildings for any damages arisingout of the lease. The lease also requires Renter to endorse its worker�s compensation policywith a waiver of subrogation against Buildings. Renter obtains the endorsement to its policy.

Step 5: Third-Party Recovery. The jury finds that Wounded suffered $60,000 in damagesfor medical expenses, lost wages and pain and suffering.

Step 6: No Subrogation. Due to the operation of the waiver of subrogation in the leasebetween Renter and buildings, F&C is prevented from subrogating against the recovery ofWounded in the third-party lawsuit.

The net effect of worker's compensation subrogation where a waiver of subrogation exists is that theemployer receives a double recovery. The employee has already received the worker's compensationbenefits and on top of these benefits ft receives the recovery from the third party tortfeasor, whichincludes the same elements for which it was paid worker�s compensation benefits, medical expensesand lost wages.

Please note that the above scenario becomes even more complicated when you consider the fact thata worker's compensation carrier may still intervene into a third-party lawsuit, even where a waiver ofsubrogation exists. Depending on the state, the reason for this intervention may be the following:

1 . It may attempt to claim simply a statutory credit, instead of recovery of its past worker'scompensation lien;

2. It may seek a declaration or construction of the contract language or waiver of subrogationendorsement language;

3. It may still want to proceed against third-party defendants with whom R has agreed toprovide no waiver of subrogation; and

4. The waiver of subrogation endorsement may be ambiguous and may not apply to theparticular activity that was being undertaken at the time of the loss or injury.

Efforts to Amend Waivers of Subrogation

As subrogation comes into its own in the new millennium, efforts by underwriters and carriers torefurbish subrogation language and waiver of subrogation endorsements are in full swing. In each state,careful attention must be paid to the approved endorsements, as they appear to be changing over time,each one with dramatically different results than the other.

In Texas, a statutory remedy to prevent double recovery has been enacted as part of the Texas CivilPractice & Remedies Code, and is specifically intended to address the double recovery issue. Section95.004 of that code applies to an owner's liability for acts of independent contractors. The sectionprovides as follows:

�In a trial of a case against a contractor, subcontractor or property owner for personal injury, propertydamage, or death to a contractor, a subcontractor, or an employee of a contractor or subcontractor that arisesfrom a condition or use of an improvement to real property where the contractor or subcontractor constructsrepairs, renovates, or modifies the improvement, the trial judge, outside the presence of the jury, shall receiveevidence of worker�s compensation benefits paid and shall deduct the amount of the benefits from the damagesawarded by the trier of fact. The deduction for worker�s compensation benefits does not apply unless theworker's compensation carries subrogation rights have been waived.�

In these situations, the trial judge will hear evidence as to the amount of the worker's compensationlien away from the jury, and will offset it against the award returned by the jury.

The Texas Department of Insurance has proposed an alternative waiver of subrogation endorsementfor use in Texas which compliments §95.004 of the Texas Civil Practice and Remedies Code. Thatproposed endorsement provides as follows:

�Nothing in this endorsement shall be construed as a limit on the insurance carrier's right of subrogation foradvances against future benefits, including medical benefits, received by claimants under the Texas Worker'sCompensation Act so long as that right exists under the act or common law ... This endorsement doesn't afterany duties imposed on beneficiaries of third parties under this policy with regard to an insurance carrier'ssubrogation rights.�

The effect of this language is to protect the carriers statutory credit upon a third-party settlement byan injured employee, despite the existence of a waiver of subrogation. By using this endorsement, thecarrier will not be able to recover its lien constituting past payments for indemnity medical benefits,but ft would still be entitled to receive its statutory credit. At the time of this printing, the approvalprocess has not yet been completed.

Does lnsureds Waiver of Subrogation Rights Prevent CarrierFrom Recovering Worker's Compensation Lien?

There is some divergence in state law with regard to whether a waiver of subrogation merely preventsa worker's compensation carrier from filing a subrogation lawsuit against a culpable third party torecover its lien, or whether it also prevents a worker's compensation carrier from recovering itsstatutory right to reimbursement from an injured employee's recovery, once that employee has madethe recovery. In many states, waivers of subrogation are construed to prevent both intervention intoa lawsuit, and recovery or reimbursement from an injured employee based on its statutory lien.54 Otherstates, stressing the importance of the workers compensation scheme, have indicated that an employerwho waives subrogation rights does not prevent the recovery of its statutorily conferred worker's

compensation lien, not withstanding the existence of a waiver of subrogation endorsement in thepolicy.55

54 Texas: Allen v. Texaco, Inc., 51 0 F.2d 977 (5th Cir. 1975) (Longshoreman case); Hartford Accident & IndemnityCompany v. Buckland, 882 S.W.2d 440 (Tex. App. - Dallas 1994, w rit denied).55 Alaska: McCarter v. Alaska National insurance Company, 883 P.2d 986 (Alaska 1994) (Stating that the premise behindthe statutory scheme of worker's compensation is to establish an employer's exclusive liability, not an employee's exclusiveremedy); Maine: Fow ler v. Boise Cascade Corp., 948 F.2d 49 (1'" Cir. 1991) (Stating that the employer and its insurersought to exercise their night to a statutory lien against the employee's recovery, not against the third party tortfeasor);Wisconsin: Campion v. Montgomery Elevator Co., 493 N.W.2d 244 (Wis. Ct. App. 1992).

Prohibition of Subrogation Against Insureds

The most frequently used risk transfer device is insurance, and it is often the intent of the parties toallocate as many risks as possible to an insurance company rather than to each other. It seemssomewhat incongruent, therefore, that an insurance company, after paying a loss may seek to recoverfrom a third-party tortfeasor, even though that party isprotected under the same policy of insurance. The generally accepted rule is that an insurance companyhaving paid a loss to its named insured may not proceed against its own insured in a subrogation action. This is because subrogation arises only with respect to rights of the insured against third persons towhom the insurer owes no duty.56 The problem of subrogating against one's own insured is one whicharises under a wide variety of insurance lines - worker's compensation, automobile, general liability,casualty, etc.Texas, for example, has no case which addresses precisely the situation where a worker's compensationsubrogee carries applicable liability insurance for a third-party tortfeasor. Two Texas cases have beencited for the proposition that this cannot be done, however. 57

Subrogation Against Additional Insured

Another situation in which the issue of an insurance company subrogating against its own frequentlyarises is where a contract requires one party to name R as an additional insured on the policy of anotherparty. Whether or not the carrier can subrogate against a third party who is insured by it mayultimately depend on whether or not the third party is insured under the same policy as that insuringthe insured, or under a separate policy.

One of the most frequently cited cases disallowing subrogation by the insurer against an additionalinsured is Pennsylvania General Insurance Co. v. Austin Powder Co., 68 NY 2d 465, 502 N.E.2d 982(1986). In that case, Austin Powder rented a truck from Bison Ford. Under the rental agreement,Bison Ford agreed to obtain primary insurance coverage, and Austin Powder agreed to indemnify BisonFord for liability arising out of Austin Powder�s use of the vehicle. Bison Ford insured the vehicle withboth the basic auto policy and a comprehensive automobile excess policy issued by Liberty Mutual. Austin Powder maintained a policy providing excess liability coverage for none of the owned businessvehicles and a CGL policy providing contractual liability coverage. The need for adequate coveragewas obvious when the rental truck exploded while loaded with dynamite and blasting caps outside of

a quarry, causing more than $1 million in property damage. It was alleged that the accident occurredbecause an Austin Powder employee overloaded the truck, causing the wheels and wheel wells tooverheat from friction.

56 16 Couch on Insurance 2d., §61:13657 See �Where Third Party Insured by Workers' Compensation Carrier�, supra at P. 42.Liberty Mutual paid various claims arising out of the explosion and sought recovery from AustinPowder based on the indemnification provisions contained in the truck rental agreement. In supportof its position, Bison Ford (as subrogee of Liberty Mutual) argued that the proscription againstsubrogating against an insured was inapplicable because, although Austin Powder was an additionalinsured under the Liberty Mutual policy, it was Bison Ford, rather than Austin Powder, that paid forthe coverage. The court did not buy this argument, stating that it was very likely Bison Ford'sinsurance costs were passed along to Austin Powder in the form of an increased vehicle rental price.

Many other states, on the other hand, have inconsistent opinions on the rule prescribing subrogatingagainst an additional insured. Some of these cases hold that a carrier can intervene and recover its lieneven where it also insures the third party.58 Many of these courts, in applying the equitable doctrineforbidding subrogating against an additional insured, note that a court, sifting in equity, may usuallyintervene to prevent undesirable consequences from such a conflict of interest. However, in many ofthese cases, the courtnoted that nothing in the case pointed to overreaching, duress, or misrepresentation by the subrogatingcarrier. Accordingly, these decisions allowed the carrier to not only intervene, but also to recover itslien.

Other courts, sifting in equity, have held that subrogating carriers under such circumstances may notintervene in a case in which they are subrogating against an additional insured, but may, in fact, recovertheir lien.59 In many of these cases, the court notes that there is nothing fraudulent or suspicious aboutthe facts of the case which would prevent the carrier from subrogating fairly against a party which italso insures. Some courts also require the subrogating carrier, which is attempting to subrogate its owninsured, to make proper application to the court. Other courts, as stated above, simply prohibit asubrogating carrier from intervening or proceeding against a third party it also

58 Arkansas : Burt v. Hartford Accident & Indemnity Company, 483 S.W.2d 218 (Ark. 1972); Kentucky: Old RepublicInsurance Co. v. Ashley, 722 S.W.2d 55 (Ky. App. 1986); Pennsylvania: Winfree v. Philadelphia Electric Co., 554 A. 2d485 (Pa.1989); and Longshoreman Case: Cow art v. Nicholas Drilling Co., 112 S. Ct. 2589 (June 29,1992).59 M ichigan: Harrison v. Ford Motor Co., 122 N.W.2d 680 (Mich. 1963); Alabama: Hughes v. New ton, 324 S.W.2d270 (Ala. 1975) (exception to right of carrier to subrogate against additional insured is allow ed if carrier can show it haspeculiar information to help the case or employee is not adequately represented, or is less likely to succeed w ithout carrier'shelp); Texas: Travelers Insurance Company v. Siedel, 705 S.W.2d 278 (Tex. App. - San Antonio 1986, w rit dismissed)(Case involves third party and third party carrier w rongfully settling around w orkers' compensation carrier's statutory lien- allow ed carrier to recover lien w ithout intervention � w orker�s compensation carrier also insured third party).insures, as well as forbidding it to recover its lien, statutory or not.60 Applying the proscription againstsubrogating against one's own insured, the courts usually look to the circumstances to find out if anyconflict of interest would exist if subrogation was allowed.

In Baugh-Belarde Construction Co. v. College Utilities Corp., 561 P.2d 1211 (Al. 1977), an AlaskanCourt did not allow an insurance carrier to subrogate against a subcontractor which was an additionalinsured under a builder's risk policy. In justifying its decision, it noted that a conflict of interest wouldexist if subrogation was allowed. The court also noted that the carrier might be able to use informationobtained in the course of its investigation against the subcontractor, and noting these anomalies,declined to allow subrogation under these facts.

Risk managers should be wary when making a decision to rely solely upon your company's status as anadditional insured under a policy of insurance as a means of preventing subrogation. The best rule ofthumb, where possible, is to obtain both an additional insured status and a waiver of subrogationendorsement in the policy of the party against which subrogation is being avoided. When relying solelyon the additional insured defense, careful examination should be given to the policy terms, as anyambiguity in the policy may allow subrogation against a co-insured. 61

While the rule prohibiting subrogation against an insured is fairly well established, factors such as theequitable considerations of the case involved, whether there are two or more policies, another similarconsideration often plays a part in determining whether a court will allow or prohibit subrogationunder such circumstances.62

60 Connecticut: Green v. Verven, 203 F. Supp. 607 (Conn. 1962) (Connecticut conflicts case law applying andrecognizing New York compensation law s controlling on the issue of w hether a carrier is subrogated to a recover - NewYork compensation law allow s only persons 'not in the same employ' as the claimant to qualify as a third party. Exceptfor a quirk in New York law , the carrier w ould have had a lien on the recovery, even though it w as not allow ed tointervene).61 Tumer Construction Co. v. John B. Kelly Co., 442 F. Supp. 551 (E.D. Pa. 1976).62 Other cases dealing w ith this issue include National Union Fire Insurance Co. v. Engineering Science, Inc., 884 F 2d1208 (Ninth Cir. 1989) (subrogation action by insurer for payments paid under builder's risk policy against engineering firminsured by the same insurer under a professional liability policy w as barred. [Note that the w ooden application of the anti-subrogation rule in the context of separate policies has been subject to some criticism.] In that connection, see �Extensionof the �No Subrogation Against Insured Rule'�, 56 Nebraska Law Review 765 (1977).

Subrogating Against Third Party Indemnified by Insured

As with the prohibition against subrogating against a co-insured\insured, most cases dealing with theissue of whether a subrogating carrier can pursue a claim against a party which its insured hasindemnified, base their decision on equitable considerations given the facts of the particular caseinvolved. In general, however, the mere fact that an insured has agreed to indemnify a party does notprohibit a carrier from subrogating against the indemnitee. As one Texas Court put it, an indemnityclause in and of itself does not bar a claim against the indemnitor and the indemnitee. An indemnityagreement is simply a promise to safeguard or hold the indemnitee harmless against either existingand\or future loss liability. The agreement creates a potential cause of action in the indemniteeagainst the indemnitor.63

Pre-Loss Waiver

It should be noted that an exculpatory clause is a clause between parties by which one party releasesand holds harmless another party for specific acts even prior to the act occurring. A waiver ofsubrogation, however, is often the effect of an exculpatory clause, but it can also be an agreementbetween the insured and its insurer by which the policy of insurance is endorsed or otherwise modifiedto include a waiver of subrogation because the insured has contracted with another party to providesuch a waiver. In effect, waivers of subrogation are three party agreements. The insured and anothercontracting party must agree that the insured will effect a waiver of its policy, and the insured andinsurer must also agree to a waiver, and that agreement is most frequently reflected by means of anendorsement to the policy.

In the case of Alliance Insurance Company, Inc. v. First Tape, Inc., 713 S.W.2d 718 (Tex. App. -Houston [14th Dist.] 1986, writ ref�d n.r.e.), a commercial property carrier brought a subrogation actionagainst the lessees of a leased premise alleging negligence in causing a fire which destroyed the entirebuilding owned by the lessor. The lease contained a mutual agreement wherein the lessor and lesseeagreed to release each other from any claims which could be insured against. The court noted that thecarrier's subrogation rights are derived from the rights of the insured and are limited to those rights. There can be no subrogation where the insured has no cause of action. In this case, because a releasebetween the insured and tortfeasor prior to the loss existed, the carrier's subrogation rights weredestroyed. Accordingly, it is important to distinguish between waiving a cause of action the insuredhas against another party, and simply "waiving subrogation rights the insurer has.� The former can beaccomplished, as we have seen in Alliance Insurance Co., Inc. v. First Tape. Inc. The latter cannot beaccomplished without the consent of the insurer.

63 Dresser Industries v. Page Petroleum, Inc., 853 S.W.2d 505 (Tex. 1993).Post-Loss Waiver

Under the common law of subrogation, an insured cannot act to prejudice the subrogation rights ofits insurer. In one New York case,64 a landlord leased commercial space to Tropical Aquarium. Therewas a fire at Tropical Aquarium's store, and Merchants Insurance Company, its property insurer, paidthe landlord (L&K Holding Corporation) for the loss. L&K executed two loan receipts on behalf ofMerchants and covenanted that it had not and would not execute a release or settle any claims againstthe third party who might be liable for the damages. However, when Merchants commenced an actionagainst Tropical Aquarium, suing in the name of L&K, Tropical produced a release signed by L&Kwhich released Tropical from all liability under the lease, including liability arising from fire. Therelease was executed after the fire, but before the loan receipts were executed. After discovering therelease, Merchants commenced another action against L&K to recover back the loan proceeds forbreach of the loan receipts and the insurance contract. L&K defended by asserting that the releasebetween it and Tropical pertained to an unrelated matter concerning alteration of the leased premisesand alleged that Tropical had added the language in the release relating to the fire after L&K executedit.

The court held that the release prejudiced the subrogation rights of the insurer and that L&K wasrequired to return the policy proceeds to the carrier. It based its decision on the terms of the releasewhich was broadly worded, even if the specific language relating to the fire was added without L&K'sauthorization. The insured had prejudiced the subrogation rights of its insurer and was obligated toreturn the payments made under the policy.

Waivers of subrogation are the tools by which insureds seek permission from the carrier to exculpateor otherwise release a potential tortfeasor, before or after the loss. It is also the vehicle by whichcarriers publicly assent to their knowledge of the intent to waive subrogation. Where a carrier has noknowledge of a subrogation waiver provision in a contract between an insured and a potential third-party tortfeasor, it is not barred from subrogating against the third party in the name of the insured.65

Where the insured actually waives its right of subrogation post-loss, and the subrogee is therefore notentitled to maintain its subrogation rights against the wrongdoer, the subrogee may be entitled topursue a claim against its insured for breach of contract where the policy prohibits post-loss waivers,or where it prohibits the insured from settling a claim without the knowledge and consent of theinsurer. Nevertheless, such an action by the insurer against its insured is seldom brought, largely dueto business realities that prevent an insurer from suing its own insured. However, such an action maybe filed in the case of fraud or collusion between the insured and the third-party wrongdoer.64 L&K Holding Corporation v.Tropical Aguadum of Hicksville, Inc., 192 AD 2d 643, 596 NYS 2d 468 (1993).

Elements of Effective Waivers of Subrogation

In a landmark Texas decision,66 the Fort Worth Court of Appeals heard an appeal by Seamless Floorsby Ford, Inc., a subcontractor, from a plaintiffs verdict in a subrogation suit brought by Value LineHomes, Inc. and Buchanan Brothers, Inc. (the general contractor) arising out of the loss of a buildingunder construction as a result of fire allegedly started by Seamless Floors.

In this subrogation suit, International Service Insurance Company paid for the fire loss sustained to theplaintiffs' building. Filing the subrogation suit in the name of the insureds, International ServiceInsurance Company brought suit against Seamless Floors by Ford and another subcontractor, claimingsubrogation damages. Seamless Floors argued that the contract between it and the general contractorcontained the following language:

�Owner [Buchanan] agrees to waive the subrogation rights of any insurance company against [SeamlessFloors] for damage to the property of the owner at the job site.�

Seamless Floors claim that because this was a subrogation suit, it should be barred because the insuredhad waived subrogation in the contract.

The Fort Worth Court of Appeals held that even if Seamless Floors was correct (and they probablywere not) that the contractual waiver of subrogation provision would relate to the fire loss to thebuilding in question, it still was not shown that International Service Insurance Company had anyknowledge that Buchanan had made the contract with Seamless Floors or that any circumstance wasexistent which would bind the insurance company in anyway. The court noted that subrogation occursby operation of law upon payment of an insurance claim. It noted that the right to subrogate was thatof the insurance company, and this right could not be waived unilaterally without their expressedpermission or consent. Without an endorsement to the policy, an express indication of consent to thewaiver, or other indications that the insurance company had knowledge of the waiver, such contractlanguage cannot be said to waive the subrogation rights of the insurance company. Accordingly, theelements of an effective waiver of subrogation are:

1 . A contract in writing between the insured and the third-party tortfeasor, wherein the insuredagrees to obtain a waiver of subrogation in its insurance policy;

65 Zurich-American Insurance Company v. Eckert, 770 F Supp. 269 (E.D. PA. 1991).66 Seamless Floors by Ford, Inc. v. Value Line Homes, Inc., 438 S.W.2d 598 (Tex. Civ. App. - Fort Worth, 1969).2. The insurance policy by its terms or by an endorsement to the policy must expressly provide

that the insurance company has approved, consented, or is aware of the waiver ofsubrogation; and

3. Any such waiver of subrogation endorsement and its amendment premium must be paid for bythe insured (consideration).

Scope of Waiver of Subrogation

There has been a considerable amount of litigation over the past ten years regarding the interpretationof a waiver of subrogation clauses contained in contracts between the insured and the third party, aswell as over the language of a waiver of subrogation endorsement contained in policies of insurance. It is difficult to generalize about waivers of subrogation because the language used in them variesgreatly in construction contracts, commercial leases, and the like. Recurring issues include whichparties were intended to benefit by the waiver, the extent of the waiver (what exactly it is that is beingwaived), and the particular work or activity to which the waiver applies.

In one Texas case,67 Harbor Insurance Company insured Crow-Williams under a builder's risk policywhich provided a waiver of Harbors subrogation rights against �Henry C. Beck Company, itscontractors and subsidiaries�. A defective electrical bus duct manufactured by Federal Pacific andsupplied to Fisk Electric Company, a subcontractor of Beck Company, caused a fire. Harbor InsuranceCompany, in the name of Crow-Williams brought a product liability subrogation suit against FederalPacific to recover the amount paid under its policy. Federal Pacific filed a Motion for SummaryJudgment claiming that it was a materialman supplying material, and therefore, would be considereda subcontractor under the terms of the waiver of subrogation endorsement. The issue was whether thewaiver of subrogation against contractors and subcontractors also applied to Federal Pacific.

Waivers of subrogation are interpreted under the general rules of contract interpretation. Terms usedin an insurance contract are given their plain and ordinary meaning unless the context reveals a strongreason for attaching a different meaning. In this case, Harbor VVilliams contended that a materialmanis not a subcontractor as a matter of law. But the Court, construing the ambiguous waiver ofsubrogation endorsement against its drafter, Harbor Insurance Company, concluded that there is nodistinction between a labor contractor and a material contractor. They are both subcontractors. Therefore, the court concluded that Federal Pacific was a subcontractor and that subrogation waswaived against it.

67 Crow -Williams v. Federal Pacific Electric Company, 683 S.W.2d 523 (Tex. Civ. App.- Dallas, 1984).The obvious way to avoid these unexpected results dealing with issues of who and what is insuredunder a builder's risk policy is to include the contractor and its subcontractors as insureds on thebuilder's risk policy, particularly where that policy is provided by the owner.

Use of Waiver in Claim Settlement Negotiations

A second way in which a waiver of subrogation can facilitate risk avoidances in the area of claimsettlement is where a party has negotiated in advance of the loss a waiver of subrogation with theclaimant's employer and is in a better position to settle a claim, especially in multi-party defendantsituations. The value of any offer to the plaintiffs demand is enhanced as the party with the waiveroffers �fresh money� with no reduction for a workers' compensation lien. As a result, the net valueof this settlement offer is viewed as a greater benefit to the plaintiff than the same offer by a defendantwith no waiver of subrogation.

However, it should be noted, that failure to have a waiver of subrogation included in a contractualarrangement can serve to increase the likelihood of the third party claim.

Unless the workers' compensation insurer is precluded from pursing a third party by a waiver ofsubrogation, the insurer frequently aids in the generation of a third-party action that might otherwisenot have occurred. This is especially true today when many workers' compensation acts arediscouraging the involvement of plaintiff�s attorneys who might easily recognize third-party actions. The carrier may agree to pay for legal expenses of the claimant or experts' fees and costs of a case inorder to make a marginal liability case attractive to a plaintiff s attorney. The action of the insurer canprove to be problematic when there is an ongoing business relationship between the insured employerand the third party being litigated against. Because indemnity and additional insured contractualprovisions frequently wind up in litigation, a waiver of subrogation endorsement may serve to functionas a safety net in the event that either of the other two risk transfer techniques fail.

EXTRA-TERRITORIAL SUBROGATION

Subrogating Workers' Compensation Across State Lines

In today's national and global economy, employees are traveling in the course and scope of theiremployment throughout the country, and are getting injured in states other than the state where theemployer is based. Employers with multi-state operations are regularly encountering injured workerswho are being injured and claiming benefits in states other than the state where their home office islocated. When attempting to subrogate for worker�s compensation benefits, this can result in a widearray of confusing results and application of state law.

One state may give an employer and its workers' compensation carrier first money rights of recovery(such as Texas) while another state may disallow your subrogation interest unless and until the workeris "made whole" (such as Georgia). Knowing which state's subrogation law to apply is critical inevaluating your subrogation potential and recovering your subrogation interest.

If workers have a choice they will usually choose the worker's compensation laws of the most generousstate when filing a worker's compensation claim in a multi-state context. Which state law is appliedin a multi-state worker's compensation scenario may also mean the difference between whether or notan employer can be sued or the employee is limited to workers' compensation as his exclusive remedyagainst the employer. Under the United States Constitution, each state is still considered sovereign andeach state controls the laws within its boundaries. Many states will also try to apply their laws outsideof the state if they have significant contacts with the facts or dynamics of a particular compensableinjury. When it comes to workers� compensation, states will exercise their jurisdiction generally asfollows:

1. All states will apply their worker's compensation jurisdiction if the injury happens within thatstate. For example, if a Texas employee is traveling to Louisiana and suffers an injury inLouisiana, Louisiana will still apply its state worker's compensation laws to that injury.

2. Forty-three states will apply their workers' compensation jurisdiction if the employee was hiredin that state. For example, a worker is hired in Texas and travels to Louisiana where he isinjured. Texas will allow a worker�s compensation claim to be filed under Texas law, in Texas,for the Louisiana injury.

3. Forty states will apply their jurisdiction if the employment is principally located within itsborders and the employee is injured in another state. For example, an employee who worksprincipally in Texas is sent to Louisiana to work on a project there for his employer, and isinjured in Louisiana. Texas would still allow a worker's compensation claim to be filed inTexas.

The only exception to these general rules is that fifteen states will not allow a worker's compensationclaim to be filed within its borders if an employee's employer is out of state and is covered by insurancefrom another state. However, this is the exception rather than the rule.

As you might imagine, some employees actually must make an election as to which state benefits arebest and than they proceed under the workers' compensation benefits of that state. For example, ifthe employee is injured in Louisiana but his contract of employment was signed in Texas, the employeemay make an election under either Louisiana or Texas workers, compensation law, or both. Anemployee can usually proceed in the second state after being paid benefits in the first state or file twoclaims, one in each state, with each state off setting the benefits of the other.

When you are faced with paying a workers compensation claim which occurs in another state,subrogation can become complicated. For example, a Texas insurer which is handling a worker'scompensation claim for a Texas employee who was injured in New Jersey, may be faced with a thirdparty lawsuit filed in New Jersey, applying New Jersey law. The only problem with this is, because theinsurer has paid benefits under the Texas law, it should be entitled to subrogate pursuant to Texas law. New Jersey workers' compensation subrogation law is more restrictive and less favorable for thecarrier. New Jersey judges have been slow to apply the worker's compensation laws of other states,and in the case of Texas, have been resistant to allowing Texas workers' compensation carriers tointervene into existing third party actions, because it is not used to them doing so. Under the NewJersey law, a carrier need not intervene and often is not allowed to intervene into a third party action.

Insuring that your state's worker's compensation subrogation provisions are applied to your subrogationinterests in an out of state third party action becomes a critical goal of all claims handlers and thosewith subrogation responsibilities. Procedural rules, such as when an intervention is allowed orconsidered timely, may be determined by the state where the suit is filed. Nonetheless, the actualsubstance of law regarding a worker's compensation subrogation rights, whether it is entitled to firstmoney, and whether it entitled to participate in the third party litigation, are matters which should bedetermined by the worker's compensation law of the home state where benefits are being paid.

Insuring that your subrogation rights are protected in a multi-state situation remains a complicated,confusing, and tricky endeavor. It is often critical to engage local counsel immediately upon receivingnotification of an out of state injury. This will not only facilitate and ensure proper application of

subrogation laws in the venue where the injury occurred, but it may also facilitate prompt and criticalinvestigation into a work-related injury in a far off venue.

REASONS FOR HIRING SUBROGATION COUNSEL

The most obvious reason for hiring subrogation counsel is to ensure recovery of as close to 100% ofyour workers' compensation lien as possible. The only way to accomplish this is to have subrogationcounsel actively representing your interest in a third party lawsuit. Filing an intervention and merelyattending a few depositions does not constitute "actively representing" a subrogating insurance carrier. Although such passive measures may be appropriate in some situations and some states, it is imperativethat you have subrogation counsel who will aggressively protect your interest and further theprosecution of the third party case. However, actively participating in a third party case is only partof the function of subrogation counsel. The following are some other reasons why it is imperative thatany insurance company who is interested in maximizing its subrogation recoveries obtain qualitysubrogation counsel:

1 . The carrier must have its own attorney on which to rely regarding information and evaluationin the third party lawsuit. When an adjuster must rely on the claimant's attorney to give theman opinion as to third party liability, chances of recovery, and legal rights of the insurancecarrier under various situations, the insurance company is at an extreme disadvantage. Theinsurance representative is invariably told by the plaintiff�s attorney that liability is weak, thechances of recovery are slim, and that the carrier should or must reduce its lien significantly. Insurance personnel cannot rely on the claimant's attorney's opinions regarding these matters.

2. The carrier must insure that its claim is not creatively circumvented or reduced by the claimantor his attorney. This often happens where the claimant's attorney covertly or unintentionallydiverts the bulk of settlement funds to the claimant's spouse or other plaintiffs whoconveniently are not beneficiaries of compensation or medical benefits, and to whom thecarrier is not subrogated. Occasionally, there are plaintiffs attorneys who flatly refuse toreimburse the carrier or who abscond the carrier's money, even after they have indicated thatthey would protect their interests. The chances of this happening while you are representedare very remote.

3. Quality subrogation counsel also serves as that of a watchdog over the plaintiffs attorney tomake sure that discovery is thoroughly pursued, that the case is properly prepared for trial, andthat the maximum recovery possible is obtained. This is important because the carrier isinterested in maximizing its credit. Many times a claimant's attorney will file suit, send outwritten discovery, and then let the file sit dormant for several months or years. As I have saidbefore in this article, unlike wine, personal injury suits do not improve with age.

4. Quality subrogation programs thrive on information. It is impossible to determine howsubrogation potential is looking without consistent reporting on the third party lawsuit and itsdevelopments. Quality subrogation counsel provide regular, thorough, and detailed statusreports to advise on the likelihood of recovery in a subrogation matter. This can dramaticallyaffect the carriers attitude contested or speculative compensation claims, when they know thatthere is a good likelihood for a significant recovery on the third party subrogation claim.

5. Subrogation counsel also give the carrier a tremendous negotiating power when the claimant's

attorney makes a claim for attorney's fees. In some situations, the carrier can even assert a rightto recover fees from the claimant's recovery, instead of the other way around. Claimants'attorneys often assert that they can persuade the judge to award them an entire 1/3 ofattorney's fees, past and future, wiping out a carrier's workers' compensation lien. A carrierwho has hired subrogation counsel to actively represent its interest in the third party lawsuitwill be better prepared to negotiate the settlement of its subrogation claim as well as theclaimant's claim for attorney's fees.

6. When the carrier receives a Subpoena Duces Tecum for its workers' compensation file,representation by subrogation counsel is essential. Such representation enables a carrier toproperly object to all objectionable requests and fully respond to the Subpoena, protectingundesirable portions of the file from being produced and destroying subrogation potential.

7. Subrogation counsel, involved in a third party case from the start, guarantees that investigativework product which the carrier produces after hiring such counsel, will be protected from thediscovery, possibly preventing a situation where bad investigation destroys or significantlyreduces settlement potential of a case.

8. Frequently, plaintiff's counsel files a lawsuit and later drops the suit, dismisses it, or obtains anon-suit of the case because he realizes that liability is slim and that there is a large workers'compensation lien involved. Without subrogation counsel active in the case, all opportunityto recover some or all of the carrier's lien will be lost forever because the plaintiff s attorneyis under no duty to notify the carrier that he has ceased pursuing the case. In fact, one tacticfrequently used by plaintiff�s attorneys is to threaten to non-suit the case unless aspects of theworkers' compensation claim are resolved in his favor.

9. Prompt hiring of subrogation counsel allows the carrier to file a third party suit, in the nameof the injured worker, before the plaintiffs attorney has an opportunity to do so. Thisallows the workers' compensation carrier to recover not only 100% of its lien, but alsoattorney's fees and costs, resulting in a true "full recovery".

10. Currently, Texas law and the laws of many states guarantees the plaintiffs attorney a full 1/3of your subrogated interest where he has done most of the work without filing suit. In thosestates, if you do not have subrogation counsel actively representing your interest, you willautomatically give up 1/3 of your workers' compensation lien, past and future, regardless ofyour intentions. This is true even though you may have spent hundreds of hours investigatingthe case, interviewing witnesses, and preparing for a third party lawsuit.

The only way to protect the carrier fully and guarantee that the plaintiff s attorneys will not have freereign over your subrogation interest is to have subrogation counsel file suit as soon as possible. In anycase, it is advisable to have subrogation counsel involved, to some degree, in all subrogation matters,so as to protect your interests in this volatile and rapidly developing area of subrogation law.

REASONS FOR HIRING NATIONAL SUBROGATION COUNSEL

Over the last twenty-five years we have seen a myriad of methodologies and techniques in subrogatingacross the country. Large insurance companies to small self-insureds have been changed, modified and

evolved over the years. From local subrogation efforts to national recovery centers. From intrastateto interstate underwriting to a global insurance economy. From being the "red-haired stepchild� to theinstitution of incentives of subrogation personnel. Subrogation efforts on all levels have had even morefaces than the balance of the industry as a whole.

As subrogation managers struggle to deal with recovery efforts in a republic with 51 independentbodies of subrogation law, it is frightening to think about how difficult it is to be competent in themany nuances of subrogation and recovery efforts in even one jurisdiction, let alone dozens. Over thelast 18 years, Gary Wickert has served as national subrogation counsel for dozens of insurancecompanies. National subrogation counsel provides innumerable benefits and services to anysubrogation personnel facing recovery efforts in a predominantly interstate 21" century. These include:

Subrogation Clearing House

National counsel serve as a clearing house and check valve for subrogation matters on a national basis. With local counsel in 47 states, Mexico and Canada, Mohr & Anderson, S.C. can evaluate for you themany factors which must be taken into account in assessing which subrogation action, if any, is calledfor. When action is warranted, national subrogation counsel, upon approval from the client, initiatesthe action in the appropriate venue.

Evaluating and Monitoring Local Counsel

In the post-tort reform era, when plaintiffs' attorneys, insureds, and claimants are scraping to puttogether settlements which will compensate them adequately, subrogated interests are often put on thechopping block as "expendable". On an almost daily basis., case andstatutorylawacrossourcountryisdevelopedwithaneyetowardstreamlining recoveries and shedding thesepesky subrogation interests before they can be an impediment to resolving the "real claims".

Instant Access to Individual State Subrogation Law.

As laws facilitating or debilitating subrogation efforts continue to change, national subrogation counselkeeps its thumb on the pulse of these changes through local counsel who are hand-selected as havingsubrogation experience and have the demographic makeup within their firm which allows them to actas effective subrogation counsel. Experience has shown that many large defense firms do not or willnot function as subrogation counsel unless the payout of larger defense files accompanies thesubrogation work. National subrogation counsel hand picks local counsel with the qualities anddemographics necessary to effectively subrogate and maximize your recovery in a particular venue. Local counsel in remote, rural areas are especially difficult to obtain, and national subrogation counselutilizes its network of subrogation counsel in accomplishing this.

Centralized Reporting

It is difficult enough to stay on top of, monitor, evaluate, and aggressively motivate one or two setsof subrogation counsel, let alone a hundred. National subrogation counsel, garrisons local counsel,inappropriate venues, evaluates and monitors their activity and cost effectiveness, and relieves themof responsibilities if they should ever fail to show the sort of unique dedication and techniques whichwill be necessary to subrogate effectively in the 21st century. National subrogation counsel takes onthe burden of obtaining current status on subrogation matters and forwarding that relevant andnecessary information onto the client.

Cost Containment

National subrogation counsel also serves to police spending of subrogation counsel, review and inspectlocal counsel invoices for fees and/or costs and expenses, and serves as a liaison with the client inseeing to it that only the necessary expenses are incurred, and subsequently paid. National subrogationcounsel also takes it upon themselves to consistently and repeatedly evaluate each claim for costeffectiveness, and alert the client should any potential problems be looming on the horizon. After all,you cannot spin yourself into a successful subrogation program, and the only successful subrogationresult is one which is obtained cost-effectively. Providing instant answers to subrogation issues,subrogation counsel subrogates and litigates in all fifty states. This garrisons an immeasurable amountof subrogation information and access to subrogation answers in one convenient location. Nationalsubrogation counsel is available to provide the client with answers to difficult subrogation questionson a national basis. Where the answers are not immediately known, research or conferring with localcounsel can provide the answer almost instantaneously.

Dealing With Only One Counsel

Telephone tag, numerous unretumed phone calls and unresponded to letters are the hallmarks of

attempting to communicate with subrogation counsel. Use of national subrogation counsel enables youto contact one counsel to get answers and status on subrogation matters pending anywhere withinNorth America. There are as many reporting and status update techniques and methodologies as thereare subrogation counsel. Use of national subrogation counsel enables you to efficiently obtain only thatinformation which you feel is germane to reporting in your subrogation file from the date the file isopened until recovery is had.

Use of national subrogation counsel is the hallmark of subrogation in the 21st century and in the faceof a global economy. Interstate subrogation becomes increasingly more complicated every year. Unlessyour counsel exclusively practices in the area of subrogation, it is often quite difficult to keep up withnot only the many nuances of subrogation law, but be current on the techniques to avoid efforts todistinguish or diminish your subrogation interest.

I apologize in advance if this article and its resources have not covered a subrogation issue which you may have come across in your claimshandling. The nuances of subrogation law in any one state which would fill a week long program, and it is just not feasible to provide anexhaustive survey of multi-state subrogation law in the time and space permitted. However, if you should have any questions of any naturerelated to subrogation anywhere within North American, please contact me at gwickert@mohr-anderson.com and I will behappy to answer or address any questions you may have relating to workers' compensation, health insurance, auto, property and casualty,fire losses, surety and Fidelity bonds, and the like, throughout North America.

These materials and other materials promulgated by Mohr & Anderson, S.C. may become outdated or superseded as time goes by. If you should have questions regarding the current applicability of any topics contained in this seminar or any of the newslettersdistributed by Mohr & Anderson, S.C., please call Gary Wickert at (800) 637-9176. This publication is intended for the clients andfriends of NASP and Mohr & Anderson, S.C. This information should not be construed as legal advice concerning any legal adviceconcerning any factual situation and representation of insurance companies and/or individuals by Mohr & Anderson, S.C. on specificfacts disclosed within the attorney/client relationship. These materials should not be used in lieu thereof in any way.

LABOR CODE

CHAPTER 417. THIRD-PARTY LIABILITY

Sec. 417.001. THIRD-PARTY LIABILITY.

(a) An employee or legal beneficiary may seek damages from a third party who is or becomes liable to paydamages for an injury or death that is compensable under this subtitle and may also pursue a claim forworkers� compensation benefits under this subtitle.

(b) If a benefit is claimed by an injured employee or a legal beneficiary of the employee, the insurance carrier issubrogated to the rights of the injured employee and may enforce the liability of the third party in the name ofthe injured employee or the legal beneficiary. If the recovery is for an amount greater than that paid orassumed by the insurance carrier to the employee or the legal beneficiary, the insurance carrier shall:

(1) reimburse itself and pay the costs from the amount recovered; and(2) pay the remainder of the amount recovered to the injured employee or the legal beneficiary.

(c) If a claimant receives benefits from the subsequent injury fund, the commission is:

(1) considered to be the insurance carrier under this section for purposes of those benefits;(2) subrogated to the rights of the claimant; and(3) entitled to reimbursement in the same manner as the insurrance carrier.

(d) The commission shall remit money recovered under this section to the state treasurer for deposit to the creditof the subsequent injury fund (V.A.C.S. Arts. 8308-4.05(a), (b), (c).)

Sec. 417.002. RECOVERY IN THIRD-PARTY ACTION.

(a) The net amount recovered by a claimant in a third-party action shall be used to reimburse the insurance carrierfor benefits, including medical benefits, that have been paid for the compensable injury.

(b) Any amount recovered that exceeds the amount of the reimbursement required under Subsection (a) shall betreated as an advance against future benefits, including medical benefits, that the claimant is entitled to receiveunder this subtitle.

(c) If the advance under Subsection (b) is adequate to cover all future benefits, the insurance carrier is not requiredto resume the payment of benefits. If the advance is insufficient, the��.

A-1

NEBRASKA REVISED STATU TES OF 1943CH APTER 48. LABOR

ARTICLE A. WORKERS� COM PENSATION.PART II-ELECTIVE COM PENSATION

(B) RIGH TS AND LIABILITIES OF TH IRD PERSONS

§48-118. Employer; liability of third person; subrogation; procedure; attorney�s fees; settlement requirements;distribution of proceeds.

When a third person is liable to the employee or to the dependents, for the injury or death, the employer shall be subrogated to the right of the employeeor to the dependents against such third person, and the recovery by such employer shall not be limited to the amount payable as compensation to suchemployee or dependents, but such employer may recover any amount which such employee or his or her dependents should have been entitled to recover. Any recovery by the employer against such third person, in excess of the compensation paid by the employer after deducting the expenses of makingsuch recovery, shall be paid forthwith to the employee or to the dependents, and shall be treated as an advance payment by the employer, on account of anyfuture installments of compensation. Nothing in the Nebraska Workers� Compensation Act shall be construed to deny the right of an injured employeeor of his or her personal representative to bring suit against such third person in his or her own name or in the name of the personal representativebased upon such liability, but in such event an employer having paid or paying compensation to such employee or his or her dependents shall be made aparty to the suit for the purpose of reimbursement, under the above provided right of subrogation, of any compensation paid. Before the making of aclaim or the bringing of suit against such third person by the employee or his or her personal representative or by the employer or his or her insurer,each shall give to all others, unless waived in writing, notice of not less than thirty days, by certified or registered mail, an opportunity to join the makingof such clamn or the instituting of an action and to be represented by counsel. If a party entitled to notice cannot be found, the clerk of the NebraskaWorkers� Compensation Court shall become the agent of such party for the giving of such notice as required in this section, and the notice when given tothe clerk of the Nebraska Workers� Compensation Court shall include an affidavit setting forth the facts, including the steps taken to locate such party. After the expiration of thirty days, for failure to receive notice or other good cause shown the district court before which the action is pending shall alloweither party to intervene in such action, and if no action is pending then the district court in which it could be brought shall allow either party tocommence such action. Each shall have an equal voice in the claim and the prosecution of such suit and any dispute arising shall be passed upon by thecourt before which the case is pending and if no action is pending then by the district court in which such action could be brought. If either party afterthe giving of such notice fails, by and through is or her attorney, to join in the making of such claim and the prosecuting of the suit, such party shallwaive any and all claims or causes of action for improper prosecution of such suit or inadequacy of a settlement made in accordance herewith, and theparty bringing the claim or prosecuting the suit shall be entitled to deduct from any amount recovered the reasonable expenses of making such recovery,including a reasonable sum for attorney�s fees, which expenses and attorney�s fees shall be prorated to the amounts payable to the employer or his or herinsurer under the above right of subrogation and to the amount in excess of such amount payable to the employer or his or her insurer under his or herright of subrogation, and which expenses and attorney�s fees shall be apportioned by the court between the parties as their interests appear at the time ofsuch recovery. If either party makes the claim or prosecutes such action without the giving of a notice to the other party, the party bringing the claim andprosecuting such action shall not deduct expenses or attorney�s fees from the amount payable to the other party.

If the employee or his or her personal representative or the employer or his or her compensation insurer join in the prosecuting of such claim and arerepresented by counsel, the reasonable expenses and the attorney�s fees shall be, unless otherwise agreed upon, divided between such attorneys as directedby the court before which the case is pending and if no action is pending then by the district court in which such action could be brought. A settlement ofany lawsuit commenced under this section shall be void unless (1) such settlement is agreed upon in writing by the employee or his or her personalrepresentative and the insurer of the employer is there is one and if there is no insurer, then by the employer, or (2) in the absence of such agreement, thecourt before which the action is pending determines that the settlement offer is fair and reasonable considering liability, damages, and the ability of thethird person and his or her liability insurance carrier to satisfy any judgment.

If the employee or his or her personal representative and the insurer of the employer if there is one, and if there is not insurer, then the employer, do notagree in writing upon distribution of the proceeds of any judgment or settlement, the court upon application shall order a fair and equitable distributionof the proceeds of any judgment or settlement.

In any case in which injured employee is entitled to benefits from the Second Injury Fund for injuries occurring before December 1, 1997, as provided

in Section 48-128 and recovery is had against the third party liable to the employee for the injury, the Second Injury Fund shall be subrogated to therights of the employee against such third party to the extent of the benefits due to him or her or which shall become due to her or her from such fund,subject to the rights of the employer and his or her insurer.

A-2ARKANSAS CODE OF 1987 ANNOTATED

TITLE 11. LABOR AND INDUSTRIAL RELATIONSCHAPTER 9. WORKERS� COMPENSATION

SUBCHAPTER 1. EMPLOYER LIABILITY � INSURANCE

11-9-410 Third party liability.

(a) Liability Unaffected.

(1)(A) The making of a claim for compensation against any employer or carrier for theinjury or death of an employee shall not affect the right of the employee, or his dependents,to make a claim or maintain an action in court against any third party for the injury,but the employer or his carrier shall be entitled to reasonable notice and opportunity to joinin the action.

(B) If they, or either of them, join in the action, they shall be entitled to a first lien upontwo-thirds (2/3) of the net proceeds recovered in the action that remain after the payment ofthe reasonable costs of collection, for the payment to them of the amount paid and to be paid bythem as compensation to the injured employee or his dependents.

(2) The commencement of an action by an employee or his dependents against a thirdparty for damages by reason of an injury to which this chapter is applicable, or the adjustment ofany claim, shall not affect the rights of the injured employee or his dependents to recovercompensation, but any amount recovered by the injured employee or his dependents from athird party shall be applied as follows:

(a) Reasonable costs of collection shall be deducted;(b) Then, in every case, one third (1/3) of the remainder shall belong to the injured

employee or his dependents, as the case may be;(c) The remainder, or so much as is necessary to discharge the actual amount of the

liability of the employer and the carrier; and(d) Any excess shall belong to the injured employee or his dependents.

(b) Subrogation.(1) An employer or carrier liable for compensation under this chapter for the injury or death

of an employee shall have the right to maintain an action in tort against any third partyresponsible for the injury or death. However, the employer or the carrier must notify theclaimant in writing that the claimant has the right to hire a private attorney to pursue anybenefits that the claimant is entitled to in addition to the subrogation interest against anythird party responsible for the injury or death.

(2) After reasonable notice and opportunity to be represented in the action has been given tothe compensation beneficiary, the liability of the third party to the compensationbeneficiary shall be determined in the action, as well as the third party�s liability to theemployer and carrier.

(3) (A) After recovery shall be had against the third party, by suit or otherwise, the

compensation beneficiary shall be entitled to any amount recovered over and above theamount that the employer and carrier have paid or are liable for in compensation, afterdeducting reasonable costs of collection.(B) In no event shall the compensation beneficiary be entitled to less than one-third (1/3)of the amount recovered from the third party, after deducting the reasonable cost ofcollection.

(4) An employer or carrier who is liable for compensation under this chapter on account ofinjury or death of an employee shall be entitled to maintain a third party action against theemployer�s uninsured motorist coverage or underinsured motorist coverage.

(5) The purpose and intent of this subsection is to prevent double payment to the employee.(c) Settlement of Claims. (1) Settlement of claims under subsections (a) and (b) of this

section must have the approval of the court or of the commission, except that thedistribution of that portion of the settlement which represents the compensationpayable under this chapter must have the approval of the commission. (2) Whereliability is admitted to the injured employer or his dependents by the employer orcarrier, the cost of collection may be deducted from that portion of the settlementunder subsections (a) or (b) of this section representing compensation, upon directionand approval of the commission. (3) No party shall settle a claim under subsections (a)and (b) of this section without first giving three (3) days� written notice to all partieswith an interest in the claim of the intent to settle. (4) Each party with an interest in aclaim under subsections (a) and (b) shall cooperate with all other parties in litigation orsettlement of such claims.

A-3

CODE OF GEORGIATITLE 34. LABOR AND INDU STRIAL RELATIONS

CH APTER 9. WORKERS� COM PENSATIONARTICLE 1. GENERAL PROVISIONS

34-9-11.1 Employee�s or survivor�s right of action against person other than employer; subrogation lien ofemployer; rights of employer or insurer upon failure of employee to bring action; attorney fees;retroactive application.

(a) When the injury or death for w hich compensation is payable under this chapter is caused under circumstancescreating a legal liability against some person other than the employer, the injured employee or those to w hom suchemployee's right of action survives at law may pursue the remedy by proper action in a court of competent jurisdictionagainst such other persons, except as precluded by Code Section 34-9-11 or otherw ise.

(b) In the event an employee has a right of action against such other person as contemplated in subsection (a) of thisCode section and the employer's liability under this chapter has been fully or partially paid, then the employer or suchemployer's insurer shall have a subrogation lien, not to exceed the actual amount of compensation paid pursuant to thischapter, against such recovery. The employer or insurer may intervene in any action to protect and enforce such lien. How ever, the employer's or insurer's recovery under this Code section shall be limited to the recovery of the amount ofdisability benefits, death benefits, and medical expenses paid under this chapter and shall only be recoverable if theinjured employee has been fully and completely compensated, taking into consideration both the benefits received underthis chapter and the amount of the recovery in the third-party claim, for all economic and non-economic losses incurredas a result of the injury.

(c) Such action against such other person by the employee must be instituted in all cases w ithin the applicable statuteof limitations. If such action is not brought by the employee w ithin one year after the date of injury, then the employeror such employer's insurer may but is not required to assert the employee's cause of action in tort, either in its ow nname or in the name of the employee. The employer or its insurer shall immediately notify the employee of its assertionof such cause of action, and the employee shall have a right to intervene. If after one year from the date of injury theemployee asserts his or her cause of action in tort, then the employee shall immediately notify the employer or its insurerof his or her assertion of such cause of action, and the employer or its insurer shall have a right to intervene. In anycase, if the employer or insurer recovers more than the extent of its lien, then the amount in excess thereof shall be paidover to the employee. For purposes of this subsection only, "employee" shall include not only the injured employee butalso those persons in w hom the cause of action in tort rests or survives for injuries to such employee.(d)In the event of a recovery from such other person by the injured employee or those to w hom such employee's rightof action survives by judgment, settlement, or otherw ise, the attorney representing such injured employee or those tow hom such employee's right of action survives shall be entitled to a reasonable fee for services; provided, how ever, thatif the employer or insurer has engaged another attorney to represent the employer or insurer in effecting upon applicationapportion the reasonable fee betw een the attorney for the injured employee and the attorney for the employer or insurerin proportion to services rendered. The provisions of Code Sections 15-19-14 and 15-19-15 shall apply.(e) t is the express intent of the General Assembly that the provisions of subsection (c) of this Code section be appliednot only prospectively but also retroactively to injuries occurring on or after July 1, 1992.

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WEST�S ANNOTATED INDIANA CODETITLE 22. LABOR AND INDU STRIAL SAFETY

ARTICLE 3. WORKER�S COM PENSATION SYSTEMCH APTER 2. WORKER�S COM PENSATION: APPLICATION, RIGH TS, AND REM EDIES

22-3-2-13 Claims against third persons; subrogation; procedures

Sec. 13. Whenever an injury or death, for which compensation is payable under chapters 2 through6 of this article (FN1) shall have been sustained under circumstances creating in some other personthan the employer and not in the same employ a legal liability to pay damages in respect thereto, theinjured employee or his dependents, in case of death, may commence legal proceedings against theother person to recover damages notwithstanding the employer�s or the employer�s compensationinsurance carrier�s payment of or liability to pay compensation under chapters 2 through 6 of thisarticle. In that case, however, if the action against the other person is brought by the injuredemployee or his dependents and judgment is obtained and paid, and accepted or settlement is madewith the other person, either with or without suit, then from the amount received by the employeror dependents there shall be paid to the employer or the employer�s compensation insurance carrier,subject to is paying its pro-rata share of the reasonable and necessary costs and expenses of assertingthe third party claim, the amount of compensation paid to the employee or dependents, plus themedical, surgical, hospital, and nurses� services and supplies and burial expenses paid by theemployer or the employer�s compensation insurance carrier and the liability of the employer or theemployer�s compensation insurance carrier to pay further compensation or toher expenses shallthereupon terminate, whether or not one (1) or all of the dependents are entitled to share in theproceeds of the settlement or recovery and whether or not one (1) or all of the dependents couldhave maintained the action or claim for wrongful death.

In the event the injured employee or his dependents, not having received compensation or medical,surgical, hospital or nurses� services and supplies or death benefits from the employer or theemployer�s compensation insurance carrier, shall procure a judgement against the other party forinjury or death, which judgement is paid, or if settlement is made with the other person either withor without suit, then the employer or the employer�s compensation insurance carrier shall have noliability for payment of compensation or for payment of medical, surgical, hospital or nurses�services and supplies or death benefits whatsoever, whether or not one (1) or all of the dependentsare entitled to share in the proceeds of settlement or recovery and whether or not one (1) or all ofthe dependents could have maintained the action or claim for wrongful death.

In the event any injured employee, or in the event of his death, his dependents, shall procure a finaljudgment against the other person other than by agreement, and the judgement is for a lesser sumthan the amount for which the employer or the employer�s compensation insurance carrier is liablefor compensation and for medical, surgical, hospital, and nurses� services and supplies, as of the datethe judgement becomes final, then the employee, or in the event of his death, his compensationinsurance carrier for compensation previously drawn, if any, and repaying the employer or theemployer'� compensation insurance carrier for medical, surgical, hospital and nurses� services andsupplies previously paid, if any, and of repaying the employer or the employer'� compensationinsurance carrier the burial benefits paid, if any, or of assigning all rights under the judgement to theemployer or the employer�s compensation insurance carrier and thereafter receiving allcompensation and medical, surgical, hospital and nurses� services and supplies, to which theemployee or in the event of his death, which his dependents would be entitled if there had been noaction brought against the other party.

If the injured employee or his dependents shall agree to receive compensation from the employer orthe employer�s compensation insurance carrier or to accept from the employer or the employer�scompensation insurance carrier, by loan or otherwise, any payment on account of thecompensation, or institute proceedings to recover the same, the employer or the employer�scompensation insurance carrier shall have a lien upon any settlement award, judgment or fund outof which the employee might be compensated from the third party.

The employee, or in the event of his death, his dependents, shall institute legal proceedings againstthe other person for damages, within two (2) years after the cause of action accrues. If, after theproceeding is commenced, it is dismissed, the employer or the employer�s compensation insurancecarrier, having paid compensation or having become liable therefor, may collect in their own name,or in the name of the injured employee, or, in case of death, in the name of his dependents, fromthe other person in whom legal liability for damages exists, the compensation paid or payable to theinjured employee, or his dependents, plus medical, surgical, hospital and nurses� services andsupplies, and burial expenses paid by the employer or the employer�s compensation insurance carrieror for which they have become liable. The employer or the employer�s compensation insurancecarrier may commence an action at law for collection against the other person in whom legalliability for damages exists, not later than one (1) year from the ate the action so commenced hasbeen dismissed, notwithstanding the provisions of any statue of limitations to the contrary.

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If the employee, or, in the event of his death, his dependents, shall fail to institute legal proceedingsagainst the other person for damages within two (2) years after the cause of action accr4ues, theemployer or the employer�s compensation insurance carrier, having paid compensation, or havingbeen liable therefor, may collect in their own name or in the name of the injured employee, or inthe case of his death, in the name of his dependents, from the other person in whom legal liabilityfor damage exists, the compensation paid or payable to the injured employee, or to his dependents,plus the medical, surgical, hospital and nurses� services and supplies, and burial expenses, paid bythem or for which they have become liable, and the employer or the employer�s compensation

insurance carrier may commence an action at law for collection against the other person in whomlegal liability exists, at any time within one (1) year from the date of the expiration of the two (2)

years when the action accrued to the injured employee, or, in the event of his death, to hisdependents, notwithstanding the provisions of any statue of limitations to the contrary.

In actions brought by the employee or his dependents, he or they shall, within thirty (30) days afterthe action is filed, notify the employer or the employer�s compensation insurance carrier by personalservice or registered mail, of the action and the name of the court in which such suit is brought,filing proof thereof in the action.

The employer or the employer�s compensation insurance carrier shall pay its pro rata share of allcosts and reasonably necessary expenses in connection with asserting the third party claim, action orsuit, including but not limited to cost of depositions and witness fees, and to the attorney at lawselected by the employee or his dependents, a fee of twenty-five percent (25%), if collectedwithout suit, of the amount of benefits actually repaid after the expenses and costs in connectionwith the third party claim have been deducted therefor, and a fee of thirty-three and one-thirdpercent (33 1/3%), if collected with suit, of the amount of benefits actually repaid after deductionof costs and reasonably necessary expenses in connection with the third party claim action or suit. The employer may, within ninety (90) days after receipt of hearing and judgment shall be made forhis protection. An employer or his compensation insurance carrier may waive its right toreimbursement under this section and, as a result of the waiver, not have to pay the pro-rata shareof costs and expenses.

No release or settlement of claim for damages by reason on injury or death, and no satisfaction ofjudgment in the proceedings, shall be valid without the written consent of both employer or theemployer�s compensation insurance carrier and employee or his dependents, except in the case ofthe employer or the employer�s compensation insurance carrier, consent shall not be required wherethe employer or the employer�s compensation insurance carrier has been fully indemnified orprotected by court order.

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102.29 Third party liability.(1) The making of a claim for compensation against an employer or compensationinsurer for the injury or death of an employee shall not affect the right of the employee, the employee�spersonal representative, or other person entitled to bring action, to make claim or maintain an action in tortagain any other party for such injury or death, hereinafter referred to as a third party; nor shall the making ofa claim by any such person against a third party for damages by reason of an injury to w hich ss. 102.03 to102.64 are applicable, or the adjustment of any such claim, affect the right of the injured employee or theemployee�s dependents to recover compensation. The employer or compensation insurer w ho shall havepaid or is obligated to pay a law ful claim under this chapter shall have the same right to make claim ormaintain an action in tort against any other party for such injury or death. 102.81(1), the department shallalso have the right to maintain an action in tort against any other party for the employee's injury or death. How ever, each shall give to the other reasonable notice and opportunity to join in the making of such claimor the instituting of an action and to be represented by counsel. If a party entitled to notice cannot befound, the department shall become the agent of such party for the giving of a notice as required in thissubsection and the notice, w hen given to the department, shall include an affidavit setting forth the facts,including the steps taken to locate such party. Each shall have an equal voice in the prosecution of saidclaim, and any disputes arising shall be passed upon by the court before w hom the case is pending, and ifno action is pending, then by a court of record of by the department. If notice is given as provided in thissubsection, the liability of the tortfeasor shall be determined as to all parties having a right to make claim,and irrespective of w hether or not all parties join in prosecuting such claim, the proceeds of such claim shallbe divided as follow s: After deducting the reasonable cost of collection, one-third of the remainder shall inany event be paid to the injured employee or the employee�s personal representative or other person entitledto bring action. Out of the balance remaining, the employer, insurance carrier, or, if applicable uninsuredemployers fund shall be reimbursed for all payments made by it, or w hich it may be obligated to make inthe future, under this chapter, except that it shall not be reimbursed for any payments of increasedcompensation made or to be made under s.102.18 (1)(bp), 102.33, 102.35 (3), 102.57 or 102.60. Anybalance remaining shall be paid to the employee or the employee�s personal representative or other personentitled to bring action. If both the employee or the employee�s personal representative or other personentitled to bring action, and the employer, compensation insurer or department, join in the pressing of saidclaim and are represented by counsel, the attorneys� fees allow ed as a part of the costs of collection shall be,unless otherw ise agreed upon, divided betw een such attorneys as directed by the court or by thedepartment. A settlement of any third party claim shall be void unless said settlement and the distributionof the proceeds thereof is approved by the court before w hom the action is pending and if no action ispending, then by a court of record or by the department.

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SOLE PROXIMATE CAUSE INSTRUCTION TO JURY

In Sappington v.YoungerTransportation, Inc.,758 S.W.2d 866(Tex. App.- Corpus Christi 1988), thecourt approved the following instruction in its charge to the jury where the employer was thought tobe contributorily negligent in causing the employee's injuries:

�There may be more than one proximate cause of an event but there can only be onesole proximate cause. If an act or omission of any person was the sole proximatecause of an occurrence, then no act or omission of any other person could have beena proximate cause."