Nebraska Supreme Court Issues Strong Opinion on Employers’ Subrogation Rights Pursuant to Neb. Rev. Stat. § 48-118

Recently, the Nebraska Supreme Court issued a strong opinion in favor of employers’ subrogation rights in Kroemer v. Omaha Track Equipment LLC, 296 Neb. 972 (2017). As you may be aware from some of our prior blog entries, the Nebraska Court of Appeals in an earlier case, in re Estate of Evertson, had essentially indicated that pursuant to the “fair and equitable” distribution standard pursuant to Neb. Rev. Stat. § 48-118, a workers’ compensation insurer was not entitled to any recovery of a subrogation interest in that particular case. That case was previously reversed by the Nebraska Supreme Court but only on jurisdictional grounds and the unreasonable application of Neb. Rev. Stat. § 48-118 was not discussed by the Nebraska Supreme Court.

However, in Kroemer, the Nebraska Supreme Court directly addressed the same. In Kroemer, an employee was injured by a third party while working for the employer. The employee settled its third party claim with the tortfeasor for $150,000.00 despite the fact that the workers’ compensation insurer had paid over $200,000.00 in benefits.

The matter went before a Nebraska District Court which determined that the settlement amount with the third party was appropriate and in considering the employer’s subrogation interests under the “fair and equitable” distribution standard, determined that the employer would receive no portion of the third party settlement.

This decision was reversed by the Nebraska Supreme Court. The Nebraska Supreme Court noted that “the beneficent purposes of the [Nebraska Workers’ Compensation] Act concerned the employee’s ability to promptly obtain workers’ compensation benefits – not the employee’s ability to additionally retain recovery against negligent third parties…” The Court noted that there was no reason to conclude that the Nebraska Workers’ Compensation Act would by its very nature require the Court to narrowly interpret the employer’s statutory subrogation rights. In fact, the Court argued that the Nebraska Workers’ Compensation Act mandated the very opposite – that a liberal construction in favor of the employer’s statutory right to subrogation should be considered in an effort to balance the rights of injured employees against the cost to employers. The Court noted that Neb. Rev. Stat. § 48-118 was enacted for the benefit of the employer.

Criticizing the Court of Appeals prior reasoning in Evertson, the Nebraska Supreme Court noted that assessing “the comparative risk between an insurance company and employee” in determining what is a fair and equitable distribution is an inappropriate consideration. The Nebraska Supreme Court also noted that the Court of Appeals in Evertson incorrectly considered the employer’s participation in obtaining the settlement in determining whether a subrogation right existed.

The Nebraska Supreme Court in Kroemer noted that Neb. Rev. Stat. § 48-118 gives the employer the option to actively prosecute its subrogation claim or to allow the employee to prosecute the claim but that an employer’s right to reimbursement is preserved even if it does not actively participate in the same. This of course is a different analysis as to whether Claimant’s counsel would be entitled to an attorney’s fee for that recovery however.

Finally, the Nebraska Supreme Court in Kroemer noted that Neb. Rev. Stat. § 48-118 encourage prompt payment of benefits even when a third party is liable as it provides an employer or insurer with the means to recover at least a portion of its worker compensation benefits paid. The Nebraska Supreme Court reasoned that to not allow the insurer to recover any of its payout was unreasonable as a matter of law. The Court went on to state that “frankly, it is difficult to imagine a situation in which allocation of zero dollars to an employer or insurer with a sizable subrogation interest would be a fair and equitable distribution of proceeds.”

We feel that this is appropriate, and frankly, well informed, decision by the Nebraska Supreme Court as to employers subrogation rights under Neb. Rev. Stat. § 48-118. Baylor Evnen and Nebraskans for Workers’ Compensation Equity and Fairness were active in obtaining reversal of the prior Evertson dismissal on jurisdictional grounds. However, the Nebraska Supreme Court’s decision in Kroemer provides a very strong basis for employers to push back in third party settlement situations when the employer’s interest is not being adequately considered. The Nebraska Supreme Court’s suggestion that a zero dollar recovery is untenable should be remembered whenever an employer/insurer is negotiating with third party counsel regarding the amount and extent of its third party interest.

For questions regarding employers workers’ compensation subrogation interests under Neb. Rev. Stat. § 48-118, please don’t hesitate to contact Nebraska workers’ compensation attorneys Paul Barta or Dallas Jones at Pbarta@baylorevnen.com or Djones@baylorevnen.com or call (402) 475-1075.