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Worker’s Compensation Lien Reduction Based Upon Employer’s Comparative Fault

Posted by Ted A. Schmidt | Nov 20, 2017 | 0 Comments

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


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.

About the Author

Ted A. Schmidt

Ted's early career as a trial attorney began on the other side of the fence, in the offices of a major insurance defense firm. It was there that Ted acquired the experience, the skills and the special insight into defense strategy that have served him so well in the field of personal injury law. Notable among his successful verdicts was the landmark Sparks vs. Republic National Life Insurance Company case, a $4.5 million award to Ted's client. To this day, it is the defining case for insurance bad faith, and yet it is only one of several other multi-million dollar jury judgments won by Ted during his career. He is certified by the State Bar of Arizona as a specialist in "wrongful death and bodily injury litigation".


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