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Pennsylvania Supreme Court Limits the Right Of Workers’ Compensation Insurance Companies to Reduce Future Medical Payments After Settlement of Negligence Cases By Pennsylvania Workers’ Compensation Claimants

A common scenario in Pennsylvania Workers’ Compensation Cases involves a worker being injured as the result of some third party’s negligence. For example, a truck driver, while in the course and scope of his employment, is injured as a result of an accident caused by another driver.  In situations where a third party may be responsible for the injuries that are compensated through Pennsylvania Workers’ Compensation benefits, the Pennsylvania Legislature has given the employer and its insurance company the right of “subrogation.”  Section 319 of the Pennsylvania Workers’ Compensation Act addresses subrogation and states in relevant part:

Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employee, his personal representative, his estate or his dependents, against such third party to the extent of the compensation payable under this article by the employer; reasonable attorney’s fees and other proper disbursements incurred in obtaining a recovery or in effecting a compromise settlement shall be prorated between the employer and employee, his personal representative, his estate or his dependents. The employer shall pay that proportion of the attorney’s fees and other proper disbursements that the amount of compensation paid or payable at the time of recovery or settlement bears to the total recovery or settlement. Any recovery against such third person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employee, his personal representative, his estate or his dependents, and shall be treated as an advance payment by the employer on account of any future installments of compensation.

In short, if an injured worker receives compensation from a third party as a result of the injuries sustained in a work related injury, the Employer has a right to be paid back, by the Claimant, a portion of the benefits that the Employer paid for wage loss and medical benefits as a result of a Workers’ compensation claim.  But how about future payments of Workers’ compensation benefits that occur after settlement of a third party negligence case?

The Pennsylvania Supreme Court in the case of Whitmoyer v. WCAB, has provided some guidance on this issue.  In Whitmoyer, the injured worker sustained a work related injury in 1993 that resulted in the amputation of his arm.  The Employer paid disability and medical benefits related to the injury and the Claimant pursued a third party negligence case that resulted in a recovery of $300,000.  At the time of the third party recovery the Employer had paid the injured worker $110,583 in Workers’ compensation benefits and as a result had a lien against the third party recovery.  The third party recovery was reduced to account for counsel fees associated with obtaining the third party recovery resulting in a net lien of $81,627 which was paid to the Workers’ compensation carrier by the Claimant.  As part of that payment, Claimant and the Employer entered into a Third Party Settlement Agreement (TPSA).  The TPSA memorialized the payment for past benefits and calculated a future credit on behalf of the Employer for future medical benefits (at this point, the wage loss benefits had ended) based on the balance of the third party recovery by the Claimant.  In other words, the Employer alleged that the Claimant was responsible for paying a percentage of his future medical costs based on his recovery from the third party negligence claim.  The Claimant argued, at the time the TPSA was executed, that any future credit would be only for “future installments of compensation” as stated in Section 319.

For years after the settlement of the third party negligence case, the Workers’ compensation insurance company did not take a credit toward the payment of medical expenses incurred and continued to pay 100% of the medical benefits.  In 2012 the Workers’ compensation insurance company filed a petition to modify the Claimant’s benefits to reduce the percentage of the medical benefits it would be paying from 100% to 26% based on the recovery in the third party negligence case as well as the benefits paid subsequent to the TPSA.  The Workers’ Compensation Judge granted the petition and it was affirmed by the Workers’ Compensation  Appeal Board.  The case was appealed to the Commonwealth Court where the Claimant argued, in part, that “future installments of compensation” referenced in Section 319 did not refer to future medical payments, but only to future wage loss claims.  The Commonwealth Court disagreed.

The case was then appealed to the Pennsylvania Supreme Court.  Justice Donohue, writing for the majority, overruled the Commonwealth Court and found that the phrase “installments of compensation” is a more specific term than just “compensation” which is used in the Act to describe both wage and medical benefits.  The Court looked at the definition of the term “Installment” which is defined as “one of the parts into which a debt is divided when payment is made at intervals.” The Court also examined the nature of medical payments versus wage loss payments and recognized that wage loss benefits are paid at intervals, just like a paycheck, while payment for future medical benefits is unknown.

Accordingly, the Court held that when an injured worker recovers proceeds from a third party settlement, following repayment of compensation paid as of the date of the settlement, the Employer or insurance carrier is limited in their recovery of future benefits only to the extent that future disability benefits (wage loss) are payable to the Claimant.  In other words, if you settle a third party case with ongoing medical benefits and you reimburse the Workers’ compensation carrier for the benefits paid as of the date of the settlement, the Employer and its carrier, cannot reduce the amount of future medical benefits based on your recovery in the third party case.

If you have been injured as a result of a third party’s negligence which has resulted in a Workers’ compensation claim, you should speak with experienced Pennsylvania Workers’ Compensation attorney to discuss your options.

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