Twin City Fire Ins. Co. v. Leija, 772 Ariz. Adv. Rep. 17 (App. Div. I, August 31, 2017) (J. Johnsen)

INJURED WORKER ENTITLED TO JURY TRIAL REGARDING APPROPRIATE REDUCTION OF WORKER'S COMP LIEN BASED UPON EMPLOYER'S COMPARATIVE FAULT

Victor Leija fell three stories to his death when trying to secure a scaffolding on a City of Glendale building in order to wash windows. Over time, the workers compensation insurer [the carrier] will pay the surviving Leija family $570,000 in workers comp benefits.

The State Division of the Occupational Safety & Health Administration found Leija's employer at fault in the death. 

The Leijas sued a number of third parties including the City of Glendale, and settled with all these defendants for $1.6 million. All defendants excepting the City paid policy limits.

The  carrier then brought this action seeking to enforce its lien for full reimbursement of past payments and credit for all future payments and the defendants cross claimed alleging the carrier committed bad faith in failing to reduce the lien commensurate with the employer's percentage of fault and breached its promise to consider compromising  the lien. The trial court ultimately granted the City's motion for summary judgment finding there was no good faith obligation to compromise the lien and no promise to consider doing so.  The Arizona Court of Appeal reversed in part and affirmed in part.

The court of appeals observed that an employee should not be forced to endure the combined effect of first having his or her award reduced by reason of the employer's fault, and thereafter having to satisfy a lien against this diminished recovery in favor of the employer and its carrier to the full extent of compensation benefits provided. Accordingly, the trial court erred in refusing to grant the Leija's request for a jury trial to determine an appropriate lien reduction commensurate with the proven percentage of fault to be apportioned against the employer.

On the other hand the trial court properly rejected the Leija's bad faith claim. Absent a fair adjudication of damages and employer comparative fault, a workers' compensation carrier owed an injured worker no duty to compromise or reduce the lien that §23-1023 grants the carrier.