Opinion
BOARD NO. 06565886
Filed: June 30, 1998
REVIEWING BOARD DECISION
(Judges Wilson, Fischel and Levine)
Judge Fischel participated in panel discussions, but no longer serves as a member of the reviewing board.
Robert M. Schwartz, Esq. for the employee
William F. Caples, Esq. for the insurer
The parties cross-appeal from the decision of an administrative judge, who awarded a closed period of weekly benefits for temporary, total incapacity and several periods of compensation for partial incapacity that continues. We affirm the decision in all respects but one. We reverse the judge's order allowing a Hunter offset pursuant to § 15 for the reasons that follow.
Hunter v. Midwest Coast Transport, Inc., 400 Mass. 779 (1987).
The employee was a machine operator for the employer, Foss Manufacturing Company. On September 12, 1986, his right leg was drawn into a machine, resulting in the amputation of the leg eight inches below the knee. (Dec. 671.) He was out of work for approximately two years, during which § 34 weekly benefits for temporary, total incapacity were paid by Foss's workers' compensation insurer, Wausau Insurance Company (Wausau). Id. He returned to modified work in September 1988 as a shipper. (Dec. 672.) In December 1992, the employee was laid off and then collected unemployment benefits until their exhaustion on October 31, 1993. Since that time, the employee has been unsuccessful in his attempts to return to the labor market. (Dec. 672-673.)
Following the September 12, 1986 industrial injury, the employee and his wife filed a third party products liability suit against the manufacturer of the machine involved in the accident. (Dec. 676-677.) Mrs. Dufresne also filed a claim for loss of consortium. (Dec. 677.) Because the manufacturer was insured by a company that had become insolvent, the case was defended by The Guaranty Fund Management Services, the agency authorized pursuant to G.L.c. 175D to handle claims against the Massachusetts Insurer's Insolvency Fund. Id. Under this statute, the maximum amount available for any one claim is $300,000. See supra note 2.
General Laws c. 175D, § 1, at the time of the employee's claim, set forth the following definition of coverage by the Fund:
(2) "Covered claim," an unpaid claim . . which arises out of and is within the coverage of an insurance policy to which this chapter applies, issued by an insurer, if such insurer becomes an insolvent insurer . . . .
"Covered claim" shall not include any amount due any reinsurer, insurer, insurance pool or underwriting association . . . ." (emphasis added.)
General Laws, c. 175D, § 5(1), provided in pertinent part:
(1)The Fund shall: (a) be obligated to the extent of the covered claims against the insolvent insurer existing prior to the declaration of insolvency and arising within thirty days after the declaration of insolvency, or before the policy expiration date if less than thirty days after the declaration, or before the insured replaces the policy or requests cancellation, if he does so within thirty days of the declaration, but such obligation shall include only that amount of each covered claim which is less than three hundred thousand dollars[.]
On May 17, 1991, the third party suit was settled for $100,000 between the Fund and the Dufresnes, and was approved by the superior court. (Dec. 677.) By operation of the applicable provisions of c. 175D, the settlement agreement extinguished Wausau's $106,321 workers' compensation lien. After attorney's fees and expenses were deducted, the employee and his wife received net proceeds of $65,864.85. (Dec. 677.) There was no specific allocation in the settlement agreement for Mrs. Dufresne's loss of consortium claim. (Employee Ex. 2.)
The attorney received $25,000; $9,135,15 was allocated to expenses. (Employee Ex. 2.)
Following exhaustion of his unemployment benefits on October 31, 1993, the employee filed a claim for § 35 compensation for partial incapacity from October 31, 1993 and continuing. (Dec. 668, 680.) After a conference, the judge issued an order on May 24, 1994 awarding § 35 benefits at the rate of $180 per week from May 24, 1994 and continuing based on an average weekly wage of $440 and an assigned earning capacity of $170. (Dec. 670.) Citing its rights under § 15 and Hunter v. Midwest Coast Transport, Inc., 400 Mass. 779 (1987), Wausau unilaterally began paying 34.2% of the § 35 benefits, retaining 65.8% as an offset against the $65,864.85 third party settlement proceeds. The employee's weekly payment was thus $61.20, rather than the $180 ordered. Wausau also applied the Hunter formula and reduced payment of medical bills by the same proportion. (Dec. 668, 670, 691.) The employee appealed the conference order to a hearing de novo. (Dec. 670.)
As a general rule, under G.L.c. 152, § 15, the employee is entitled to the net "excess" of his third-party recovery. The insurer is entitled to an "offset" credit equal to the net excess against any future compensation due. The insurer is required to pay a percentage of each claim as it is submitted equal to the ratio the attorney's fee and costs bear to the third-party recovery. In that way, the share of the attorney's fee and costs paid by the insurer is commensurate with the benefit it receives.Hunter, 400 Mass. At 784.
In September 1994, the employee developed blisters on his stump which led to an inability to use his leg until the end of December 1994. (Dec. 673-674.) He consequently amended his claim and sought a closed period of § 34 compensation.
The judge conducted hearings on the employee's claims for §§ 34 and 35 compensation, as well as §§ 13 and 30 medical benefits, without any Hunter offset. The insurer's issues included the application of § 35B and entitlement to the § 15 Hunter offset. (Dec. 667-668.)
The judge issued his decision on August 25, 1995. Relying on the credible testimony of the employee and the medical opinion of Dr. Mansfield, he found the employee's impairment, the amputation of his leg and the continuing problems with the amputation site all causally related to the September 12, 1986 injury. (Dec. 693; Employee Ex. 3.) He ordered compensation for several distinct periods of incapacity, the details of which are not relevant to the issues discussed herein. Additionally, the judge concluded that the employee's worsened medical condition, which commenced in September 1994, constituted a "subsequent injury" under G.L.c. 152, § 35B. (Dec. 682, 693.) The judge thus ordered payment for the periods of incapacity arising from that 1994 "subsequent injury" at the 60% rate in effect at that time, in accordance with the amended versions of §§ 34 and 35, effective December 23, 1991. (Dec. 695-696.)
General Laws c. 152, § 35B, provides in pertinent part:
An employee who has been receiving compensation under this chapter and who has returned to work for a period of not less than two months shall, if he is subsequently injured and receives compensation, be paid such compensation at the rate in effect at the time of the subsequent injury whether or not such subsequent injury is determined to be a recurrence of the former injury.
The judge also authorized the insurer to continue taking a Hunter offset against the weekly compensation ordered until such time as its offset against the employee's third party settlement money became exhausted. (Dec. 696.) The judge, however, declined to authorize an offset against Mrs. Dufresne's loss of consortium claim. He allocated $43,046.29 of the $65,864.85 received in the 1991 settlement of the superior court action as the value of the consortium claim. The parties are now before the reviewing board in a cross-appeal from this decision.
We summarily affirm the decision as to all issues raised in the insurer's appeal. The employee asserts that the judge erred by 1) applying § 35B to lower his rate of compensation received pursuant to §§ 34 and 35; and 2) allowing the insurer a Hunter offset of $22,818.56 pursuant to § 15. See Hunter v. Midwest Coast Transport, Inc., 400 Mass. 779 (1987). We affirm the decision as to the § 35B issue, but reverse with regard to the Hunter offset.
We point out that the insurer correctly argues that the administrative judge acted outside his jurisdiction when, subsequent to the approval of the § 15 settlement agreement by the superior court, he allocated portions of the settlement to loss of consortium. Pina's Case, 40 Mass. App. Ct. 388, 391 (1996). The error is harmless, however, as we conclude that in the circumstances of this case, the insurer is not entitled to aHunter offset and thus the issue is moot.
In disposing of the § 35 B issue, we follow the recent Appeals Court decision in Taylor's Case, 44 Mass. App. Ct. 495 (1998), and conclude that the judge's interpretation of § 35B as mandating a decreased rate of compensation for the employee's 1994 "subsequent injury" — the worsening of his medical condition after returning to work for more than two months — is correct. The Appeals Court reasoned:
In Taylor's Case, id., the Appeals Court affirmed the reviewing board's conclusion that the lower rates under the 1991 Act applied to the employee's subsequent injury under § 35B, but reversed the board's grant to the employee of the option to reopen his case and retract his § 35B claim.
Where § 35B has been judicially construed to require application of rates in effect at the time of a "subsequent injury," the Legislature is presumed to have been aware of those decisions at the time it enacted St. 1991, c. 398 [citations omitted]. The Legislature is further presumed to know the effect § 35B would have upon the other sections of c. 152, in particular, § 34, as a result of the 1991 amendments [citations omitted]. The 1991 revisions to c. 152 reversed the historically upward trend in workers' compensation rates. The reductions in compensation rates under the 1991 legislation were sweeping and systematic, and came in response to declining economic conditions and rising costs of workers' compensation insurance [citation omitted] . . . . Reading § 35B in harmony with the other sections of c. 152, . . . and mindful of the cost saving purpose of the 1991 legislation, it is improbable that the Legislature did not anticipate that § 35B would result in a decrease in benefits to an employee if the prevailing rates at the time of the 'subsequent injury' were lowered.
Id. at 500-501. Hence, the employee's argument that the judge erred by applying § 35B to lower his rate of compensation for incapacity resulting from his 1994 "subsequent injury" cannot prevail under Taylor.
The employee also contends that the judge erred by allowing the insurer to offset the excess from the 1991 settlement of his suit against the Massachusetts Insurers Insolvency Fund, pursuant to G.L.c. 152, § 15, against the employee's ongoing, weekly compensation benefits. We agree with the employee that the judge's treatment of the net proceeds from that underlying lawsuit as being "offsetable," (Dec. 686), was contrary to law. We therefore reverse the judge's Order # 6.
Because the liability insurer of the manufacturer of the offending machine was insolvent, the employee was required to bring his third-party products liability action against the Massachusetts Insurers Insolvency Fund, (Dec. 677), which stands in the shoes of the insolvent insurer: "The Fund shall . . . be obligated to the extent of the covered claims against the insolvent insurer existing prior to the declaration of insolvency. . . ." G.L.c. 175D, § 5. There are, however, exceptions to that general rule. Pre-eminent for our consideration is the following part of the definition of "covered claim:" "'Covered claim', an unpaid claim . . . which arises out of and is within the coverage of an insurance policy to which this chapter applies issued by an insurer, if such insurer becomes an insolvent insurer . . . ." " 'Covered claim' shall not include any amount due any reinsurer, insurer, insurance pool or underwriting association . . . . " G.L. c. 175D, § 1 (emphasis added). In apparent recognition of this exclusion, the settlement agreement in the employee's c. 175D claim specifically stated that it was not subject to the insurer's lien of $106,321 for its payment of workers' compensation benefits. (Dec. 677; Employee's Ex. 2.) Indeed, the plain meaning of the statute bars payment of the Insolvency Fund settlement proceeds to Wausau, the workers' compensation insurer. See CNA Insurance Companies v. Semedo-Anacleto, 39 Mass. App. Ct. 271, 274-276 (1995). As the Appeals Court earlier pointed out, "[T]he design of the Fund [is] to indemnify injured persons, but not the insurance industry." Ferrari v. Toto, 9 Mass. App. Ct. 483, 387 (1980), aff'd, Ferrari v. Toto, 383 Mass. 36 (1981).
The employee and his wife received a gross amount of $100,000 in the c. 175D settlement, from which they netted $65,864.85. (Dec. 677.) As Wausau's lien for workers' compensation payments could not be recovered from the settlement proceeds under c. 175D, as normally would be the case in a § 15 third party recovery, the lien was without force and payment to the insurer was not made. The judge, however, mischaracterized this necessary operation of c. 175D when he found that the employee and his wife received a total benefit in the amount of $206,321; namely, the $100,000 settlement in addition to the unrecovered, $106,321 workers'compensation lien asserted by the insurer. The non-payment of proceeds from the settlement to the workers' compensation insurer was not a part of the negotiated settlement; it was merely the proper operation of the statutory exclusion enacted by the legislature in c. 175D. It was the only possible outcome, as a matter of law. And while it is undisputed that the prevention of double recovery, "once by way of compensation and once by way of damages[,]" McDonald v. Employers' Liability Assurance Corp., Ltd., 288 Mass. 170, 174 (1934), is a policy of considerable stature in the law, the Legislature could not have made clearer its explicit intention to remove the proceeds of a claim covered by c. 175D from its effect: "'Covered claim' shall not include any amount due any reinsurer, insurer, insurance pool or underwriting association . . . ." G.L.c. 175D, § 1. The Legislature intended that the last resort for claimants against insolvent insurance companies, the Massachusetts Insurers Insolvency Fund, pay out from its limited funds only amounts that would benefit theclaimants, not insurance companies. Furthermore, the fact that any c. 175D recovery is limited by statute to $300,000 militates against the concern of double recovery, since a recovery negotiated with an arbitrary ceiling will often be smaller, as a matter of reasonable inference, than one negotiated without any such limitation.
There was no other solvent defendant in the third party action, against which the workers' compensation lien under § 15 would still be valid. Cf. Gaeta v. National Fire Insurance Company of Hartford, 410 Mass. 592, 595 (1991).
Having erred with regard to the nature and amount of the c. 175D settlement, the judge then concluded that the insurer could offset the amount of the net proceeds from that settlement as "excess" under the provisions of G.L. c, 152, § 15. This conclusion went against the law. "[T]he [c. 175D] Fund is excused from paying claims if the ultimate beneficiary is an insurance company."Ferrari, supra at 486. We see no valid distinction between excluding the insurer's lien for workers' compensation payments from direct indemnity by way of the c. 175D settlement, and the insurer's gaining the indirect benefit of that recovery by way of an offset credit under G.L.c. 152, § 15 continuing into the future. The result is the same, with only the time frame differing. But for the corpus of that c. 175D recovery, the possibility of the offset credit would not exist. As it is based on the same underlying matter, the offset credit falls under the same analysis as does the insurer's lien, regardless of when the benefit, whether direct or indirect, is asserted.
Accordingly, the judge's conclusion that the insurer could offset the amount of the employee's net proceeds from the c. 175D settlement against ongoing compensation benefits, pursuant to § 15 and the Hunter principles, cannot stand. We reverse that determination and the judge's Order # 6 to that effect.
The decision is otherwise affirmed.
So ordered.
____________________ Sara Holmes Wilson Administrative Law Judge
_____________________ Frederick E. Levine Administrative Law Judge
FILED: JUNE 30, 1998