Court of Appeals Erodes Employers’ Subrogation Interest Under § 48-118
On March 8, 2016 the Nebraska Court of Appeals issued a decision which has the potential to significantly impact the subrogation interest of employers and workers’ compensation insurers. The Court held in In Re Estate of Evertson: Travelers Indemnity Co., v. Wamsley, as personal representative of the Estate of Bruce Evertson, 23 Neb. App. 734 (March 8, 2016), that unless the recovery against a tort-feasor is made “by the employer or workers’ compensation carrier”, the employer or carrier is not entitled to a credit against future compensation that is payable to the employee, by virtue of the tort proceeds payable to the employee.
Bruce Evertson. was the CEO of Evertson Well Service, Inc. and was killed in a motor vehicle accident while performing work duties, as a result of the negligence of Dennis Dobrinski. Travelers was the workers’ compensation carrier for Evertson Well Service, Inc. and paid workers’ compensation indemnity benefits to Evertson’s surviving spouse, and those benefits continue as the claim remains open.
Evertson’s estate eventually settled its wrongful death claim against Dobrinski’s insurance carrier in the sum of $500,000. Travelers consented to the settlement. Evertson’s estate distributed $250,000 to his surviving spouse and the balance to his children.
Travelers claimed entitlement to a portion of the $250,000 distributed to the spouse, and a credit against future death benefits, pursuant to Neb. Rev. Stat § 48-118. The county judge, before whom the estate proceedings were held, conducted a hearing to determine a “fair and equitable distribution of the recovery made by the surviving spouse.
The county court allocated $42,583.31 in attorney’s fees to the spouse’s attorneys and the remainder to the spouse. Citing (1) the marital connection of the Evertons (i.e., 25 year marriage, love of travel, recent purchase of a dream home); (2) Travelers is in the business of assuming risks and received premiums in exchange for their assumption of the same; and (3) Travelers did not expend any funds in securing the settlement, the county court determined that a “fair and equitable” distribution required no allocation of any settlement proceeds to Travelers.
Travelers appealed the decision to the Nebraska Court of Appeals. The Court of appeals held that Neb. Rev. Stat § 48-118 “does not prescribe an exact formula” which must be followed to make a fair and equitable distribution. Accordingly, it concluded that the county court did not abuse its discretion when it determined that a “fair and equitable distribution” to Travelers was $0, in light of the facts the county court considered.
With regard to Travelers’ assertion that the spouses’ recovery should entitle Travelers to a credit against its obligation to pay future indemnity payments, the Court of Appeals held that Travelers was not entitled to a credit under the plain language of the statute. It reasoned that the statute provides for a credit only when the recovery is made “by the employer against such third person . . . .” And because “the recovery against the tort-feasor was not made by the employer or workers’ compensation carrier; rather, it was made by the employee’s personal representative on behalf of the estate”, Travelers was not entitled to a credit, and the determination of the county court was affirmed.
This decision is significant because it basically means that in the typical case where a recovery is made against a tort-feasor and the workers’ compensation claim remains open, the workers’ compensation carrier or employer is not entitled to a credit as against future benefits by virtue of the employee’s receipt of tort proceeds. In virtually every situation where a claim is made against a tort-feasor, the employee drives the claim. The employer and its workers’ compensation carrier assume varying levels of involvement, but rarely drive the claim against the tort-feasor. Eventually the employee and the tort-feasor, with input from the workers’ compensation carrier, reach an agreement to resolve the respective interests of the employee and the workers’ compensation carrier, against the tort-feasor. That is what occurred in Evertson. The result will presumably be the same as in Evertson—the employee will be deemed to have made the recovery, and as such, the workers’ compensation or employer will be denied a credit as against any future benefits it is obligated to pay to the employee.
Arguably the Court of Appeals’ ruling is inconsistent with the underlying principles of subrogation and the intent of Neb. Rev. Stat § 48-118. A number of employers, associations and workers’ compensation insurers have consulted with us about the possibility of filing an amicus curiae brief on their behalf, to urge the Nebraska Supreme Court to overturn the holding in Evertson. If you have questions about the decision or are interested in participating in the effort to file an amicus curiae brief, please contact Dallas Jones (firstname.lastname@example.org) or David Dudley (email@example.com), or call our offices at 402-475-1075.