Opinion
CLAIM NO. E219812
OPINION FILED AUGUST 28, 1996
Upon review before the FULL COMMISSION in Little Rock, Pulaski County, Arkansas.
Claimant represented by the HONORABLE EDDIE H. WALKER, JR., Attorney at Law, Fort Smith, Arkansas.
Respondents represented by the HONORABLE ROBERT JONES, III, Attorney at Law, Fort Smith, Arkansas.
Decision of Administrative Law Judge: Reversed.
OPINION AND ORDER
The respondent appeals an opinion and order filed by the administrative law judge on December 27, 1995. In that opinion and order, the administrative law found that the respondent is not entitled to a credit based on a settlement entered into between the claimant and a third-party tortfeasor. After a de novo review of the entire record, we find that the respondent is entitled to a credit based on payments made to the claimant pursuant to the settlement entered into between the claimant and a third-party tortfeasor. Therefore, we find that the administrative law judge's decision must be reversed.
This claim was submitted to the administrative law judge on the following stipulated facts:
1. On August 17, 1992, the claimant was a pedestrian walking across South I Street from a parking lot to her place of employment at Sparks Regional Medical Center when she was struck by a vehicle operated by Emma Jo Couthren, resulting in injuries.
2. On December 2, 1992, the claimant filed a claim for workers' compensation benefits and on April 30, 1993, the administrative law judge issued an Opinion finding that the claimant sustained a compensable injury arising out of and in the course of her employment.
3. The respondent filed a Notice of Appeal on May 24, 1993.
4. On January 21, 1994, the Full Commission issued an Opinion and Order reversing the decision of the Administrative Law Judge finding that the claimant's injuries did not arise out of and in the course of her employment.
5. On March 5, 1995, the Arkansas Court of Appeals issued its decision reversing the Full Commission, finding that the claimant's injuries did arise out of and in the course of her employment, and remanded the case for an award of benefits.
6. While the workers' compensation claim was pending and on May 14, 1993, the claimant finalized a settlement agreement with Emma Jo Couthren and her automobile liability carrier, State Farm Mutual Automobile Insurance Company, under the terms of which the claimant received the sum of $50,000.00. Neither the claimant nor her attorneys notified the respondent or its attorney of the third party settlement until after the settlement had been agreed upon. The release that was executed in regard to said settlement fails to reserve and protect any subrogation or lien rights the respondent might be entitled to receive in the event a workers' compensation claim is allowed. The release operates as a bar to any action by the respondent herein against Emma Jo Couthren and her automobile/liability insurance carrier. The settlement was not approved by a Court or by the Arkansas Workers' Compensation Commission. The claimant never filed a lawsuit against Emma Jo Couthren and her automobile liability insurance carrier.
7. Prior to the third party settlement respondents, through their attorney, Robert Jones, III, were aware that Emma Jo Couthren had insurance coverage on the automobile that struck Joanne Wentworth.
8. Prior to the settlement of the third party claim, the respondents, through their attorney, Robert Jones, III, were aware that Joanne Wentworth had retained counsel, Jan Whitt, to represent her in the third-party claim.
9. At no time prior to the settlement of the third-party claim did the respondents request Jan Whitt to protect any subrogation or lien rights that Sparks Regional Medical Center might have in regard to the third-party case. Both claimant and her attorney, Jan Whitt, were aware that there was a workers' compensation claim litigation, but they did not notify Sparks Regional Medical Center or its attorney of the settlement of the third-party claim until after it had been agreed upon.
10. At all times prior to settlement of the third-party claim, Sparks steadfastly denied liability in regard to this workers' compensation case and fully controverted the claim.
11. On May 11, 1993, Joanne Wentworth paid Sparks Regional Medical Center $10,660.51 in regard to medical service provided her in connection with the August 17, 1992, accident.
12. After costs of collection have been deducted from the $50,000.00 settlement and after Joanne Wentworth has received one third of the remaining amount, the amount of Sparks' potential subrogation interest or lien would be $22,222.22.
13. On July 27, 1995, respondents paid $19,224.83 to claimant and $4,783.90 to claimant's attorney. These amounts were arrived at as follows: 22,670.01 2,391.95 22,222.22
TTD: 8/17/92 through 8/25/95 = $12,822.29 PPD: 25% to lower extremity = 8,346.70 Medical reimbursement = Gross benefits $43,839.00 Less 1/2 attorney's fee Net benefits $41,447.05 Less lien (paid) $19,224.83 (attorney's fee paid) $ 4,783.90 [17] The documentary evidence jointly admitted by the parties consists of a release marked Exhibit No. 1 and a release of hospital lien marked Exhibit No. 2.Respondents may be entitled to a credit under Ark. Code Ann. § 11-9-410 (1987) if a third party is actually responsible for the claimant's injury. The statutory purpose of Ark. Code Ann. § 11-9-410 is to protect the rights of both the employee and the employer or compensation carrier to assert claims and to maintain actions against third parties who are actually responsible for the injury or death of an employee. Travelers Insurance Co. v. McCluskey, 252 Ark. 1045, 483 S.W.2d 179 (1972). Therefore, the statute establishes a mechanism under which either the employee or the employer or compensation carrier can assert or maintain such claims or actions against third parties, and the statute establishes a formula which allows the employer or carrier to recoup part or all of its past and future compensation payments from any recovery from third parties. Ark. Code Ann. § 11-9-410 (1987); see also, Liberty Mutual Insurance v. Billingsley, 256 Ark. 947, 511 S.W.2d 476 (1974); Hartford Insurance Group v. Carter, 251 Ark. 680, 473 S.W.2d 918 (1971).
Ark. Code Ann. § 11-9-410 (a) (1987) preserves the right of the claimant to file an action or pursue a claim against a third party without losing his rights to receive the benefits provided under the Arkansas Workers' Compensation law. Likewise, Ark. Code Ann. § 11-9-410 (b) (1987) preserves the right of the employer to pursue an action against the third party. However, both subsections establish a formula under which the employer can obtain a lien or a credit against two-thirds of the net proceeds "recovered." Ark. Code Ann. § 11-9-410 (c) (1987) provides that any settlement of an action under subsections (a) or (b) must be approved by a court or by the Commission and that any portion of the settlement which represents payment of compensation under the Arkansas Workers' Compensation law must be approved by the Commission.
The formula established in subsections (a) and (b) of the statute applies where there has been a final extinguishment of the claimant's cause of action, either through a judicial decree or a settlement which terminates the rights of the claimant and the compensation carrier to pursue the third party. The statute applies the formula in three different situations, and in each of these situations, the statute provides that the injured employee or compensation beneficiary is entitled to two-thirds of the net amount "recovered." In this regard, the Arkansas Supreme Court has stated that the term "recover," as used in this statute, means the restoration or vindication of a right existing in a person, by the formal judgment or decree of a competent court. St. Paul Fire Marine Insurance v. Wood, 242 Ark. 879, 416 S.W.2d 322 (1967). However, the Court has also stated that a settlement is tantamount to a recovery if it extinguishes the rights of the claimant and the compensation carrier to pursue the third party. Wood, supra; Winfrey Carlile v. Mickles, 223 Ark. 894, 270 S.W.2d 923 (1954); The Travelers Insurance Co. v. McCluskey, 252 Ark. 1045, 483 S.W.2d 179 (1972). Consequently, the distribution formulas contained in subsections (a) and (b) apply to adjudications or adjustments which terminate the right of the injured employee and the insurance carrier to pursue the cause of action.
When an injured worker settles his claim against a third-party tort-feasor and executes a complete release of the third-party tort-feasor prior to filing a claim for Workers' Compensation benefits, the statutory right of the employer or compensation carrier to file suit against the third-party tort-feasor under Section 410 (b) is extinguished. Hartford Insurance Group v. Carter, 251 Ark. 680, 473 S.W.2d 918 (1971). In that situation, the provisions of Section 410 (c) will not apply, and the release will be effective regardless of whether the employee or the third party seek court approval of the settlement. Id. In addition, the sole remedy of the employer or compensation carrier is to seek a share of the settlement proceeds previously obtained by the employee, and Section 410 (a)(2) provides the procedure for application of the settlement proceeds between the employee and the employer or compensation carrier once the employee files a workers' compensation claim. Id.
However, unless the employee obtains a judgment or settlement prior to filing a claim for workers' compensation benefits, Section 410 (a)(1) provides that the employer or compensation carrier must be provided reasonable notice and an opportunity to join an action in court filed by the claimant against a third-party tort-feasor, and Section 410 (a)(1) provides the intervening employer or compensation carrier a lien on a statutory share of the net proceeds obtained in the claimant's action. However, Where the employer or carrier is provided reasonable notice of a pending third-party action and fails to intervene, the right to a credit based on the settlement is lost. Jackson Cookie Co. v. Fausett, 17 Ark. App. 76 (1986).
The Arkansas Courts have also construed Section 410 to permit an employee and a third-party tort-feasor to "settle around" the employer's or carrier's right to a lien to settlement proceeds. St. Paul Fire Marine Ins. Co. v. Wood, 242 Ark. 879, 416 S.W.2d 322 (1967); Travelers Ins. Co. v. McCluskey, 252 Ark. 1045, 483 S.W.2d 179 (1972);Liberty Mutual Ins. Co. v. Billingsley, 256 Ark. 947, 511 S.W.2d 476 (1974); Bituminous Ins. Co. v. Ga.-Pac. Corp., 2 Ark. App. 245, 620 S.W.2d 304 (1981); New Hampshire Ins. Co. v. Keller, 3 Ark. App. 81, 622 S.W.2d 198 (1981). However, in McClusky, supra, the Supreme Court recognized a number of procedural protections which must be provided to the employer or carrier when the claimant and the third party seek to "settle around" the employer and avoid an employer's lien on the proceeds of a settlement between the claimant and the third-party tort-feasor. By way of history, inMcCluskey, an injured employee filed a tort action in federal court against various parties after sustaining a work-related injury and receiving workers' compensation benefits. The employer's carrier, under the mistaken impression that the employee would protect the carrier's right to a lien in any settlement or judgment proceeds, failed to intervene in the third-party suit filed in federal court. When the case came to trial, one of the defendant parties received a directed verdict, and the employee settled his claim against a second defendant (without notifying the employer or carrier) under a settlement agreement that preserved the rights of the carrier to proceed on with the suit. When the employee subsequently filed a claim for additional workers' compensation benefits, the employer's carrier asserted a lien on the settlement proceeds. The Commission held that the carrier was not entitled to a lien because the carrier failed to intervene and assert its lien in the third-party action in federal court. Although the Arkansas Supreme Court ultimately upheld the Commission's decision, the Court also discussed and clarified the procedural protections owed to an employer or carrier when an injured employee seeks to settle an action in tort with a third-party tort-feasor, stating:
The attorneys representing all the parties who participated in the settlement of the McClusky suit in Federal court clearly thought that the decision in Wood gave the tortfeasor and the injured employee complete freedom to make any settlement of the case they agreed upon without consulting the employer or workmen's compensation carrier, so long as recognition was given to the right of the employer or carrier who was paying, or had paid, benefits to the employee to pursue its own statutory cause of action against the third-party tortfeasor.
. . .
We have held that, where a settlement was made by an injured employee with a third-party tortfeasor before the filing of a workmen's compensation claim, [Section 410 (c)] was not applicable to the third-party tortfeasor. Hartford Insurance Group v. Carter, 251 Ark. 680, 473 S.W.2d 918. The application of those cases should be confined to the particular situations there involved. Fundamental fairness, justice, and reason dictate that subsection (c) should apply to any settlement.
. . .
Since the statutory purpose of [Section 410] is to protect the rights of both the compensation carrier and the employee, we shall hereafter interpret Wood to require that as between the employer (or carrier) and employee, the proceeds of any compromise settlement of a tort claim be subject to the lien of the employer or the compensation carrier unless the settlement has been approved by a court having jurisdiction or by the Workmen's Compensation Commission, after the compensation carrier has been afforded adequate opportunity to be heard. [Emphasis added].
Thus, where the employee and third-party tort-feasor propose a settlement after the claimant has filed a claim for workers' compensation benefits, as in the present case, the employee and third party may only settle around the employer or carrier's right to a lien on settlement proceeds received by the employee where at least three conditions are met:
(1) The settlement agreement between the employee and the third party must protect the statutory right of the employer or carrier to pursue an action against the third party tort feasor. Wood, supra.
(2) The employer or carrier must be provided reasonable notice of the proposed settlement and an opportunity to be heard. McClusky, supra.
(3) The settlement agreement must be approved by a court or by the Commission. Id.
However, in John Garner Meats v. Ault, 38 Ark. App. 111, 828 S.W.2d 866 (1992), the Arkansas Court of Appeals held that an employer or carrier waives its protection to have an agreement approved by the Commission or a Court of competent jurisdiction unless the carrier or employer first intervenes in an ongoing third-party lawsuit even where the settlement agreement between the employee and the third party extinguishes the employer's right of subrogation. Id.
We find that the present case is clearly distinguishable from Ault, McClusky, and Fausett. In those three cases, the carrier or employer was provided actual notice of a lawsuit filed in court, and simply chose not to intervene in the ongoing lawsuit. In the present case, however, the claimant settled her claim against the tort-feasor and terminated the respondent's statutory right of subrogation without ever filing an action inany Court.
The claimant asserts on appeal that the respondent had reasonable notice and an opportunity to "join in" the third-party action, despite the fact that she never filed any action in court. However, in Travelers Insurance v. McClusky, supra, the Supreme Court went to great lengths to explain that for the employer or carrier, "joining in" an action, as that term is used in Section 410 (a), means actual "intervention" in ongoing judicial proceedings. In the present case, the claimant did not institute judicial proceedings prior to settling her claim, and the respondents were therefore denied their opportunity to file an intervention to assert their right to a statutory lien against the proceeds of any judgment or settlement obtained. Thus, whereas in McClusky, Fausett, and Ault the carrier or employer clearly failed to intervene in ongoing judicial proceedings, in the present case, the claimant never filed judicial proceedings into which the respondents could have intervened to assert their right to a statutory lien.
In short, the stipulated facts indicate that the claimant entered into a settlement agreement which terminated the respondent's subrogation rights against the third-party tort-feasor. The claimant did not file an action in court prior to entering the settlement agreement, and the settlement agreement was not approved by the Commission or a court of competent jurisdiction. In addition, the claimant's failure to institute judicial proceedings prior to entering a settlement agreement with the third party denied the respondents their statutory right to reasonable notice and an opportunity to intervene in an action in court to preserve their statutory lien under the provisions of Ark. Code Ann. § 11-9-410 (a)(1) (1987). Therefore, after a de novo review of the entire record, and for the reasons discussed herein, we find that, under the facts presented in the present case, the respondent is entitled to a credit to the extent of the lien provided for in Ark. Code Ann. § 11-9-410 (a)(1) (1987). Accordingly, we find that the administrative law judge's decision must be, and hereby is, reversed.
IT IS SO ORDERED.
Commissioner Humphrey dissents.