Workers Comp Lien—Apportionment of Fault

Twin City Fire Ins. Co. v. Leija, __Ariz. Adv. Rep. __ No. CV-17-0280-PR (App. Div. I, August 2, 2018) (J. Pelander)

TORT VICTIM HAS NO RIGHT TO POST-SETTLEMENT APPORTIONMENT OF EMPLOYER'S FAULT HEARING TO REDUCE WORKERS COMPENSATION LIEN AGAINST SETTLEMENT WITH THIRD PARTIES

Defendants' decedent died when a scaffold collapsed and he fell while washing windows. Plaintiff insurer will ultimately pay approximately $575,000 in workers compensation benefits to the defendants. Pursuant to A.R.S. § 23-

1023(A), defendants brought a negligence action against the City of Glendale which owned the building, the building property manager, maintenance company and scaffold company. Plaintiff asserted a right to a lien on any settlement. Pursuant to A.R.S. § 23-1023(D) an insurance carrier paying workers compensation benefits has a lien on any claim the injured or deceased worker's survivors has against a third party for the amount of benefits paid (less reasonable expenses incurred in obtaining the recovery).

 An employer complying with the Workers Compensation Act and providing such coverage to its employees is generally immune from tort liability. A.R.S. § 23-906(A). However, third parties sued in tort for injury or death of a worker can designate the employer as a nonparty at fault and require the jury to consider apportioning fault against that non party thus reducing a tort victim's recovery.   A.R.S. § 12-2506. To avoid a tort victim suffering the inequity of having a recovery reduced by the employer's fault then further reduced by the workers compensation lien the court in Aitken v. Industrial Commission, 83 Ariz. 387, 392 (1995) held “a carrier may assert a lien on a third  party recovery only to the extent that the compensation benefits paid exceed the employer's proportionate share of the total damages fixed by verdict in the [underlying] action.” 

 Here, the plaintiff workers compensation insurer offered to reduce its lien by 5% to account for the employer's fault. Defendants rejected this offer and settled with the third parties for $1.6 million.

 The plaintiff insurance carrier then brought this suit asserting its right to full payment on its lien. Defendants counterclaimed alleging plaintiff breached its duty of good faith and fair dealing by refusing to reduce the lien commensurate with the employer's fault and alternatively requesting a trial to establish the percentage of fault attributable to the employer. On cross motions for summary judgment the trial court ruled in the plaintiff's favor finding a separate action after settlement is not the proper vehicle for allocating fault against an employer in the face of a workers compensation lien and that an insurance carrier has no duty of good faith which requires it to reduce its lien based upon the employers percentage of fault in the settlement context.

 The Arizona Court of Appeals reversed holding that apportionment could be litigated in this fashion under principles of equitable apportionment. The Arizona Supreme Court accepted review and affirmed the trial court while affirming in part and vacating in part the court of appeals.

 The supreme court held that the right to equitable apportionment applies only to the situation where the third party claim is tried to verdict and the jury apportions fault against the nonparty employer as reflected in its verdict. Neither the statutes nor Aitken authorize application of this doctrine to a settlement. 

 A settlement, unlike a jury trial, may or may not include considerations of the employer's fault. A settlement may be motivated by all sorts of reasons that have nothing to do with the employer's fault. For example,the injury may not be severe, fault or causation might be difficult to prove, or the tort victim may simply be risk-averse and not want to try the case. 

 Likewise, to allow a post settlement trial on the employer's fault invites “perverse incentives and inequities.” In a trial of the third party's fault the tort victim is incentivized to maximize the fault on the third party and minimize the fault of the employer.  The converse would be true if the case settles. In settlement the tort victim is motivated to maximize fault on the third party but then if allowed a subsequent proceeding on fault of the employer would be incentivized to maximize fault on the employer.

 Finally, the court found that, even in the settlement context, a workers compensation carrier does indeed have a duty to act in good faith toward the claimant by giving equal consideration to the claimant's interests. “Good faith  might entail a workers' compensation insurer considering and reasonably acting on a claimant's request to reduce the lien on third-party settlement proceeds, particularly when evidence of employer's fault is clear , undisputed, and substantial.” However here defendants did not preserve or argue before the supreme court any issue  relating to the bad faith claim, so the court had no basis to overturn the court of appeals on this point.

 It should be noted that in a concurring opinion, Justice Bollick argued Aitken should be overruled and the entire issue of equitable apportionment should be addressed by the legislature if at all.