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WORKERS' COMPENSATION SUBROGATION:
THE AMENDMENTS OF 2000
by Michael D. Barrett
Introduction
When an employee becomes injured while in the course and scope of employment, he may have two causes of action. First, a claim may be brought against the employer for payment of workers' compensation benefits. Minn. Stat. § 176.031. Second, the employee may bring an action against responsible third parties whose conduct caused or contributed to the injury. Minn. Stat. § 176.061, subd. 5(a). The employee will often pursue both causes of action simultaneously. In such cases, the interplay between the workers' compensation system and tort liability system produces many problems and sorting them out is often very confusing. The Legislature in the first year of a new millennium made significant amendments to Minnesota Statutes section 176.061, the statute governing third-party tort actions. This article explores the current state of the law following those amendments.
The Origin of the Subrogation Interest
The third party liability statute, Minnesota Statutes section 176.061, presents a comprehensive plan for asserting the claims of both employee and employer1 against third parties and for distributing any sums recovered. Allstate Insurance Co. v. Eagle-Picher Industries, Inc. 410 N.W.2d 324, 327 (Minn. 1987). The employee may institute an action against third parties who caused or contributed to the employee's injury and the employer, upon payment of benefits, becomes subrogated to the injured employee's claim or enjoys a right of indemnity against the third parties. Minn. Stat. § 176.061, subds. 3, 5, 7 and 10. Full compensation of the employee is not a pre-requisite for employer subrogation. Kliniski v. Southdale Manor, Inc., 518 N.W.2d 7 (Minn. 1994); Paine v. Water Works Supply Co., 269 N.W.2d 725 (Minn. 1978). The employer also has a separate, additional cause of action against responsible third parties for any increase in workers' compensation premiums caused by the employee's injury, or to be more precise, caused by the payment of required workers' compensation benefits due to the injury. Recovered premiums belong to the employer alone and are not subject to any distribution formula. See Minn. Stat. § 176.061, subd. 5(b).
The commencement of a lawsuit by the employee against responsible third parties is viewed as also asserting the employer's subrogation claims. Liberty Mutual Ins. Co. v. Nutting Truck and Castor Co., 295 Minn. 211, 203 N.W.2d 542 (1975); Gullickson v. Lutsen Resort, Inc., 474 N.W.2d 216 (Minn. App. 1991). The employee and employer are "co-plaintiffs" in the action, although the employer may not be identified in the case caption. The employer may choose to formally intervene in the employee's action to take a more visible and active role in the litigation, and the right to do so is well recognized. Lang v. William Bros. Boiler & Mfg. Co., 250 Minn. 521, 85 N.W.2d 412 (1957); Norman v. Refsland, 383 N.W.2d 673 (Minn. 1986). However, the employer's participation at trial may be restricted to preserve fairness to the third parties. Groswitz v. Fiedler, 435 N.W.2d 857 (Minn. App. 1989). The employer may also commence a separate action. See Jackson v. Zurich American Insurance Co., 542 N.W.2d 621, 623 (Minn. 1996); Folstad v. Eder, 467 N.W.2d 608, 611 (Minn. 1991). Whether named in the action or sitting on the sidelines, the interests of the employer must be respected and taken into account by the parties in the trial or settlement of the action. See Jackson (employee cannot settle all claims without consent or participation of employer/insurer).
In cases where the employer's negligence may have contributed to the employee's injury, the third party may formally bring the employer into the action as a third-party defendant for contribution. Lambertson v. Cincinnati Corp., 257 N.W.2d 679 (Minn. 1977); Minn. Stat. § 176.061, subd. 11 (2000). For a description of an employer's duties upon which such a claim may be based, See Minnesota Statutes section 182.653, subdivision 2. The employer's fault can also include the fault of co-employees under the doctrine of respondeat superior, but the injured employee's fault is not considered part of the employer's fault. Hafner v. Iverson, 343 N.W.2d 634 (Minn. 1984).
Settlement Options
If the action is tried to a verdict or settled in its entirety as to all claims and interests, the total verdict or settlement amount typically is distributed between the employee and the employer in accordance with the formula outlined in Minnesota Statutes section 176.061, subdivision 6. This is by far the most common resolution in these cases. After subtracting costs of collection including attorney fees, the formula provides one third of the amounts remaining to the injured employee free from the employer's subrogation claim. The employer's subrogation claim (less a proportionate share for cost of collection) is paid next. If any amounts remain, they are paid to the employee with a credit to the employer against future workers' compensation payable to the employee.
In some cases, the employee may ask the district court to allocate the total settlement amount or verdict between damages "recoverable" and "not recoverable" under the Minnesota Workers' Compensation Act. When that is done, only the amounts allocated to the "recoverable" category are run through the statutory formula and thereby available to reimburse the employer. Henning v. Wineman, 306 N.W.2d 550 (Minn. 1981); Drake v. Reile's Transfer and Delivery, Inc., 613 N.W.2d 428 (Minn. App. 2000). In order to take advantage of this approach for settlements, the employee must secure the employer's agreement that the amount of the settlement, as a whole, is reasonable. Sargent v. Johnson, 323 N.W.2d 767 (Minn. 1982). A policy limits settlement when the tortfeasor has no other assets will be deemed to be a reasonable settlement. See Hewitt v. Apollo Group, 490 N.W.2d 898 (Minn. App. 1992).
The allocation between damages "recoverable" and "not recoverable" under the Workers' Compensation Act is made by the court based upon the unique facts of each case, but must be reasonable in light of the total settlement and not patently arbitrary. Krause v. Merickel, 344 N.W.2d 398 (Minn. 1984). Although the district court retains wide latitude in determining the allocation, generally speaking at least some of the settlement must be allocated to the "recoverable" category since the total amount includes the employer's claims. See Kliniski, supra.
There are potential advantages to the employee in electing this approach. The employee may retain more of the settlement amount if the damages that tend to fall into the "not recoverable" category, such as loss of consortium or pain and suffering, are large relative to the amounts in the "recoverable" category. Electing this approach might also result in a lower future credit for the employer to apply against workers' compensation benefits payable in the future. But the trade-off for the employee is the forfeiture of the employee's right to a guaranteed one-third share of the settlement amount remaining after the costs of collection are subtracted. See Henning at 553.
It is now clear that both the employee and the employer have separable damage claims and each can separately settle their claims against third parties. See Liberty, 295 Minn. at 216, 203 N.W.2d at 545; Naig v. Bloomington Sanitation, 258 N.W.2d 891, 894 (Minn. 1977); Folstad v. Eder, 467 N.W.2d 608, 611 (Minn. 1991). The employee may make a "Naig settlement" which includes all damages except those recoverable under workers' compensation. See Naig, supra. The employer may make a "Reverse-Naig settlement" which includes only those damages recoverable under workers' compensation. See Folstad, supra. The proceeds from a Naig or Reverse-Naig settlelment belong exclusively to the settling party and are not subject to the distribution formula in Minnesota Statutes section 176.061, subdivision 6. Naig at 894; Folstad at 611, 612. Questions invariably arise following such partial settlements as to what damages remain for trial and how the action will be tried. These questions are discussed below.
Another settlement option involves a purchase by the employee of the employer's claim and assignment of that claim to the employee. See Buck v. Schneider, 413 N.W.2d 569 (Minn. App. 1987); Katzner v. Kelleher Construction, 535 N.W.2d 825, 829 (Minn. App. 1995). Typically this is part of a full and final settlement of the workers' compensation claim and may include an agreement by the employee to release that part of the civil damage claim against third parties representing the employer's percentage of fault and indemnification of the employer by the employee for any Lambertson contribution claims.
The last option involves what has come to be known as the "waive and walk." Since the Lambertson contribution claim, in effect, serves to simply offset the employer's subrogation claim (Horton by Horton v. Orbeth, Inc. 342 N.W.2d 112, 115 (Minn. 1984)), the employer may choose to simply waive recovery of its claim and "walk away" from the action. This option was recently codified into statute by the Minnesota Legislature. Minnesota Statutes section 176.061, subdivision 11 (2000) provides:
The employer may avoid contribution exposure by affirmatively waiving, before selection of the jury, the right to recover workers' compensation benefits paid or payable, thus removing compensation benefits from the damages payable by any third party.The removal of the subrogation claim for compensation damages logically removes any contribution exposure, because in Lambertson, the sole reason for allowing the contribution claim was to address the inequity in some cases of an employer with high comparative fault recovering on its subrogation claim. Lambertson v. Cincinnati Corp., 257 N.W.2d 679, 684 (Minn. 1977). If recovery of those damages is waived, then there is no longer any inequity or need for the contribution claim, since there can be no contribution claim for damages not recoverable under workers' compensation (i.e. Naig damages). Kempa v. E. W. Coons Co., 370 N.W.2d 414 (Minn. 1985).
Damages "Recoverable" and "Not Recoverable" Under Workers' Compensation
There is, at best, an imperfect fit between the categories of damages recoverable in a civil tort action and the categories of workers' compensation benefits recoverable under the Minnesota Workers' Compensation Act. While the Minnesota Supreme Court has been examining similarities and differences on a case by case basis, the recent amendments to the statute have accelerated this process.
Damages in the form of past and future medical expenses, past and future wage loss and loss of future earning capacity are deemed to be "recoverable" under workers' compensation and therefore part of the employer's claim. In Kaiser v. NSP, 353 N.W.2d 899, 903 (Minn. 1984), the Minnesota Supreme Court had suggested that future earning capacity might not be compensation-related, but it later set the record straight in Tyroll v. Private Label Chemicals, Inc., 505 N.W.2d 54, 59 (Minn. 1993) by drawing a proverbial "bright line," placing future earning capacity in the category of damages recoverable under workers' compensation. Id. at 59-60, n.5. A Reverse-Naig settlement would remove these from the action. See Tyroll at 61; Folstad at 613. Similarly, a "waive and walk" either removes these damages from the action or the trial court deducts the waived amounts from any jury award. See Minn. Stat. § 176.061, subd. 11 (2000).
Damages in the form of pain, suffering, disfigurement, general disability, embarrassment, mental anguish and loss of services or consortium are deemed "not recoverable" under workers compensation and therefore are part of the employee's claim. While the Minnesota Supreme Court suggested in Naig that pain and suffering might be compensation-related, as part of the "bright line" it drew, the Tyroll court indicated that pain and suffering is in the "not recoverable" [under workers' compensation] category. See Naig at 895; Tyroll at 59. These claims belong to the employee and the employer cannot subrogate to recover these damages. Thus, a Naig settlement would remove these damages from the action. Tyroll at 61.
Until recently it remained unclear how certain other categories of workers' compensation benefits, such as permanent partial disability and retraining or rehabilitation expenses, which had no counterpart or equivalent under civil law, should be treated. Employers argued that retraining and rehabilitation expenses appeared closely tied to future earning capacity and would appropriately be included in the claims of the employer. See Tyroll at 61, n.8. Injured plaintiffs argued that permanent partial disability fell into the category of "general disability" that is part of the employee's claim subject to settlement under a Naig release. But of course, by definition, a Naig settlement cannot include damages recoverable under workers' compensation and permanent partial disability is clearly recoverable under workers' compensation. Minn. Stat. § 176.021, subd. 3 and § 176.101, subd. 3b. The 2000 Legislature attempted to make it clear that all benefits paid in workers' compensation are recoverable by the employer "regardless of whether such compensation is recoverable by the employee or the employee's dependents at common law or by statute." Minn. Stat. § 176.061, subds. 3, 5(a), 7 and 10 (2000). See Zurich American Ins. Co. v. Bjelland, ____ N.W.2d ____ (Minn. 2006).
Trial Following Partial Settlement
Trial of the remaining damage claims after a partial settlement can be problematic. Ideally, the trial before a jury should be as much like an ordinary personal injury action as possible. Folstad at 613, n.4. The key is to fashion a special verdict that allows for the clear separation of the damages recoverable by the employer and employee.
- After a Naig settlement
Does Ettinger hold that the employer must actually prove the employee's claim? At least by implication in subsequent cases, it appears the Ettinger court did not intend that the proof should go that far. For instance, Folstad talks in terms of a Reverse-Naig settlement removing "recoverable" damages from the action. If that is true, then a Naig settlement must remove the employee's "not recoverable" damages from the action. The question then becomes why would the parties remaining after a Naig settlement have to prove up damages that have been removed from the action and to which they have no right or interest? The proof should be limited to those categories of damages remaining in the action, namely past and future medical expense, past and future wage loss, loss of earning capacity and the like. See Tyroll at 60. There would be no need to prove the employee's pain and suffering damages, for example. In practice, the witnesses testify the same way they would have had there been no settlement, but settled damages simply do not appear on the verdict form and the jury does not address them. The jury need not be told of the employee's settlement nor should any evidence be presented to the jury concerning amounts paid in settlement.
Normally at the trial, the employer will call the employee to testify concerning his/her injuries and the effects of the injuries on employment. The employer will also call the employee's physicians, qualified rehabilitation consultants and job search/vocational experts to testify concerning the effects of the employee's injuries on employability and efforts to return the employee to the work force. An economist might be called to value future losses projected by the vocational/rehabilitation witnesses and to reduce these future losses to present value. Each provider of services will also testify to the reasonable and necessary charges for services provided to the employee which, of course, were paid for by the employer.
The verdict reached in a trial following a Naig settlement must be reduced by the employee's percentage of causal negligence (Haase v. Haase, 369 N.W.2d 311 (Minn. App. 1985)) and also by the percentage of causal negligence attributable to the employer, if any. Kempa v. E.W. Coons Co., 370 N.W.2d 414, 419 (Minn. 1985); Tyroll at 61. It is still unclear, however, whether this negligence offset is to be made before or after the individual damage award categories are compared with what the employer has paid. Minnesota Statutes section 604.01 appears to require the comparative fault reduction be made first before offsets or comparisons. In motor vehicle-related cases, however, the offsets are made before the comparative fault reduction. See Minn. Stat. § 65B.51, subd. 1. The order may make a difference in some cases. If the employee's negligence is greater than the third-party's, there is no recovery. Minn. Stat. § 604.01; see Tyroll at 61. Although the fault of the employer, if any, must be deducted from the award, only the employee's fault is compared with the fault of the third party. The employee's fault and employer's fault are not "aggregated" for comparison purposes. See Cambern v. Sioux Tools, Inc., 323 N.W.2d 795 (Minn. 1982).
If the jury awards more in a given damage category than the employer paid, the employer makes a full recovery of the amounts paid and the excess is ignored. If the jury awards less than what has been paid, the employer recovers the lesser amount awarded by the jury. See Tyroll at 61; Ettinger at 34 (concurring opinion). Because the employee cannot share in the recovery made by the employer in a trial following a Naig settlement, Minnesota Statutes section 176.061's distribution formula does not apply and the entire recovery belongs to the employer. See Naig at 894; Tyroll at 60; Folstad at 612. Nor can the third party look to the employer for reimbursement of the amounts it paid to the employee as part of the Naig settlement. Kempa v. E.W. Coons Co., 370 N.W.2d 414 (Minn. 1985).
- After a Reverse-Naig settlement or "waive/walk"
Since a Reverse-Naig settlement or waive and walk necessarily disposes of any Lambertson contribution claim, the verdict is reduced by the employee's percentage of negligence only and the third party pays the entire balance remaining. If the employee's negligence is greater than the third party, there is no recovery. Minn. Stat. § 604.01; Tyroll at 61.
Lambertson Considerations
Perhaps, what has made this area of the law most perplexing is the allowance of a contribution claim by the third party tortfeasor against the employer. Prior to the Minnesota Supreme Court's 1977 decision in Lambertson, there was no right to contribution or indemnity from the employer. See Lambertson at 687. This was due to the fact that the employer and third party had no common liability to the employee. Id. While the liability of the third party is based upon common law tort concepts, the employer is not liable to the employee in tort because of the exclusive remedy provisions in the Workers' Compensation Act. See Minn. Stat. § 176.031; Lambertson at 687, 688. Common liability historically has been required for contribution claims, although the courts consider this an "outworn technical concept." Lambertson at 685-686; Hendrickson at 846. Similarly, there can be no indemnity either unless the claim can be fit within one of the accepted categories in which indemnity is allowed under common law. Hendrickson at 848; Lambertson at 687, 688.
The primary problem with creating a category of allowable claims against the employer is that it thwarts the central concept behind workers' compensation, namely that the employer guarantees compensation to the employee based upon a fixed-schedule regardless of fault in exchange for the statutory guarantee that this constitutes the exclusive liability of the employer. Lambertson at 684. In Lambertson, the Minnesota Supreme Court found the equitable need to balance these interests against the reality that if contribution or indemnity were not allowed, a third-party stranger to the workers' compensation system would be made to bear the entire burden of a common law judgment in a case in which the greater fault rested with the employer. The inequity was further aggravated by the fact that the employer enjoyed the right to recover directly or indirectly all amounts the employer paid in compensation, even though the employer may have been the party most at fault in causing the injury to the employee. Thus, it appeared that the burden of the workers' compensation system was being shifted from the employer to a third-party stranger to the system. Id. While recognizing that the best solution would be a legislative one, the Lambertson court fashioned its own approach to balancing these interests and inequities an approach that remained untouched by the Legislature for 23 years until finally codified in 2000. See Minn. Stat. § 176.061, subd. 11 (2000).
Under Lambertson, the third-party tortfeasor is allowed contribution from the employer in an amount proportional to the employer's percentage of causal negligence, but not to exceed the net recovery by the employer of workers' compensation paid to the employee under the statutory formula. In this way, limited contribution is allowed while the employer's interest in not paying more than its workers' compensation liability is preserved. Lambertson at 689.
Not long after Lambertson, the Minnesota Supreme Court took the opportunity to describe how damages would be paid in cases involving Lambertson contribution claims. In Johnson v. Raske Building Systems, Inc., 276 N.W.2d 79, 80 (Minn. 1979), the employee was killed in a work- related accident on a construction project for which Raske was the general contractor. The employee's dependents collected $41,000.00 in workers' compensation benefits from the employer. The trustee commenced a wrongful death action against Raske who, in turn, brought the newly recognized Lambertson contribution claim against the employer. The employer then "cross-claimed" to recover the compensation benefits paid and payable. The jury found total damages of $105,000.00 and apportioned negligence 5% to the employee, 55% to Raske and 40% to the employer. Johnson at 80.
The trial court ignored the statutory formula and applied what amounted to pure comparative negligence principles, entering judgment in favor of the trustee against Raske for $58,750.00 (95% of $105,000.00, less the workers' compensation paid of $41,000.00); in favor of Raske against the employer for the $41,000.00 in workers' compensation paid; and in favor of the employer against Raske on the "cross-claim" for $23,739 ($41,000.00 reduced by the percentage that the employer's negligence represented to the entire negligence of the employer and general contractor (40/95 = 42.1%)). Johnson at 80-81. On appeal, the Minnesota Supreme Court noted that under the trial court's apportionment the third-party would have paid 78.5% of the damages and the employer 16.5% despite the jury finding the third-party 55% negligent and the employer 40% negligent. The trial court's apportionment was a great deal for the subrogation interest!
Naturally, the supreme court reversed, holding that the correct procedure was for the third-party tortfeasor (Raske) to pay the entire verdict (less the employee's percentage of negligence) to the trustee ($99,750.00). The employer should then contribute to the third-party tortfeasor an amount proportionate to its percentage of negligence, but not to exceed the amount of workers' compensation benefits payable to the employee's dependents ($41,000.00). Note the contribution now is limited by statute to the "net formula share recovered" by the employer/insurer in the action. The trustee should then reimburse the employer pursuant to the statutory formula described in Minnesota Statutes section 176.061, subdivision 6(c). Johnson at 81. In a footnote, the court illustrated how the distribution of the employee's and employer's interests are calculated under the statutory formula. Johnson at 81, n.5. Ultimately, under the court's apportionment, the contribution by the employer offset and was a wash against the subrogation claim and no money had to actually change hands. While Johnson prescribed how the various claims are paid following a jury verdict, the calculation continues to confuse the lower courts and parties that have had to deal with these cases. See e.g. Albert v. Paper Calmenson & Co., 515 N.W.2d 59 (Minn. App. 1994), aff'd as modified, 524 N.W.2d 460, 461 (Minn. 1994).
Raske made reference to the 1976 amendment to Minnesota Statutes section 176.061, subdivision 6(c) requiring the employer to pay a proportionate share of costs of collection out of the subrogation recovery. From 1976 until 2000, the result of this amendment was that the employer was never made whole on its subrogation, at least if the employee remained in the action. Kordosky v. Conway Fire & Safety, Inc., 304 N.W.2d 616 (Minn. 1981). Yet the employer remained exposed for contribution for the entire amount of the workers' compensation paid and payable. The employer's contribution obligation still includes the present value of future workers' compensation benefits, See Minn. Stat. § 76.061, subd. 6(d) and Wilkin v. International Harvestor Co., 363 N.W.2d 763 (Minn. 1985), as well as the recovery of past paid benefits under section 176.061, subdivision 6(c). Cronan v. Wegdahl Co-op Elevator Assn., 278 N.W.2d 102 (Minn. 1979) (reimbursement to the employer for future compensation benefits due is in the form of a future credit which may or may not exist depending on whether any amount of the settlement or verdict is left after costs of collection and the workers' compensation paid to date is reimbursed to the employer under the formula). Even where the employer is less negligent than the employee, the employer may still have a contribution obligation to the third party. Hudson v. Snyder Body, Inc., 326 N.W.2d 149 (Minn. 1982).
Although the recovery in each case will vary depending on the amounts involved, the 2000 amendments restored the "wash" or "dollar for dollar" offset of the at-fault employer's contribution liability against the subrogation recovery. Under the amended third-party statute, the subrogation recovery by the employer under the distribution formula now determines the employer's maximum contribution obligation to the third party, because contribution is limited to the employer's net recovery under the formula. See Minn. Stat. § 176.061, subd. 11 (2000). The employer is no longer exposed for contribution in excess of that recovered under the formula in subrogation, which was often the case after Cronan and Kordosky.
The 2000 amendments helped alleviate, but did not necessarily eliminate, the employer's excess exposure, in cases involving catastrophic injury to their employees. Albert v. Paper Calmenson & Co., 515 N.W.2d 59 (Minn. App. 1994), aff'd after calculation of allocation corrected, 524 N.W.2d 460, 461 (Minn. 1994) illustrates the potential "new money exposure" of the employer in practice before the 2000 amendments. The contribution exposure of the employer, while capped at the amount of workers' compensation paid and payable, in catastrophic injury cases often exceeds the "coverage B" liability insurance limits available to the employer (typically $100,000.00 ), although some employers wisely purchase excess or umbrella coverage.
While Lambertson intended the contribution claim to merely offset the employer's subrogation claim, usually the subrogation recovery inures to the workers' compensation insurer rather than the employer. This could leave the insurer reimbursed but the employer exposed beyond its "coverage B" limits. Some commentators have suggested the policy limit wouldn't be enforceable or shouldn't be enforced in these situations or that the subrogation recovery might simply be raised as the limit is exceeded to assure the balance contemplated in Lambertson is maintained. See Fluegel & Kosieradzki, Claims Handling After Lambertson (MILE 1995) at 32. Of course, this re-writes the contract between the employer and insurer and is not a tenable solution.
The amended statute, in capping contribution at the net amount recovered by the employer under the statutory formula, has restored the offset envisioned in Lambertson, but still could leave underinsured employers holding the contribution bag after the workers' compensation insurer takes its full subrogation recovery and pays its "coverage B" limits. The 2000 amendments did not provide the complete fix for this problem.
Future Challenges
One of the problems with the third-party liability statute (Minn. Stat. § 176.061) is its naivetè and lack of a practical appreciation for how third-party liability cases actually are handled by the parties involved. The statute envisions the employee pursuing the third-party action with the employer's interest merely along for the ride. The statute also seems to assume settlement will always be global, involving all interests in a nice tidy package. Apportionment is then simply a matter of mathematically calculating the employee's and employer's share by applying the statutory formula. Unfortunately, it just doesn't work that way in the "real world." Increasingly, employers are asserting subrogation claims against third parties, either with or without the employee, and separately settling their interests. The statute still makes no provision for these situations except to allow waiver of the employer's interests.
One open question yet to be answered is how the cost of collection is to be handled when the employer brings an action against a third party to collect all damages (including the employee's Naig damages). Alternatively, suppose the employee is separately represented but the employer's attorney does all (or a majority of) the work. Why should the employer be contributing to the employee's costs of collection (which could be zero) under the statutory formula when the employer has already paid its counsel to do all the work? Shouldn't the employee contribute to the employer's costs of collection under these circumstances? Suppose the parties are separately represented and the attorneys each contribute to the successful outcome, more or less. How should the formula be applied in this situation? The court in Hodder v. Goodyear Tire & Rubber Co., 426 N.W.2d 826 (Minn. 1988), suggests the statutory cost sharing formula might not apply, particularly if the parties have agreed on a sharing of the workload or costs. An approach similar to that used for health carrier subrogation might be followed, in which case cost sharing would apply only when the subrogation interest is not represented separately by counsel. See, e.g. Minn. Stat. § 62A.095. When separately represented, each party would bear its own costs of collection. Although this likely requires a legislative response, the Legislature did not address the problem in the 2000 amendments.
A second question concerns whether any contractual liability assumed by the employer would be subject to the Lambertson liability cap. A good argument can be made on both sides of the issue. On the one hand, contribution is not the same as indemnity and where the employer has voluntarily undertaken to assume liability beyond that required by law, there should be no cap as to those damages flowing from the indemnity obligation as compared with the contribution obligation. On the flip side, the employer might challenge the enforceability of a contract that appears to violate the exclusivity provisions of the Workers' Compensation Act. Complicating matters is the reality that contribution typically is paid under the employer's workers' compensation policy (so called "coverage B" or "2") while contractual indemnity is paid in other ways, such as a contractual indemnity rider to the employer's comprehensive general liability policy or a separate policy obtained for the purpose of providing the indemnity required in a contract. See Holmes v. Watson-Forsberg Company, 488 N.W.2d 473 (Minn. 1992). This would seem to suggest that contractual indemnity should be treated differently than common law indemnity or Lambertson contribution.
Conclusion
The interplay between the workers' compensation system and tort liability system continues to challenge us. The recent amendments to Minnesota Statutes section 176.061 have helped to answer some difficult questions. Yet, many issues remain to be resolved. Hopefully this article has helped to better define the path through this legal minefield.
Footnotes:
1 Although we will refer to the employer in this article for convenience, it is often the workers' compensation insurer who pays the benefits on the employer's behalf under a policy of insurance issued to the employer. The insurer usually is the real party in interest with respect to the subrogation claim, but the obvious exception is the employer's claim for increased premiums. In some cases, the WCRA may prosecute its member insurer's subrogation rights. See Minn. Stat. § 79.36(f) and (g). Increasingly, employers are self-insured and may have a separate company administering claims on the employer's behalf. Generally, the courts treat the interests of the employer and workers' compensation manager as one in the same in these cases. See Folstad v. Eder, 467 N.W.2d 608, 611, n.3 (Minn. 1991); Wirth v. M.A. Mortenson/Shal Assoc., 520 N.W.2d 173, 176 (Minn. App. 1994) (citing Wandersee v. Brellenthin Chevrolet Co., 258 Minn. 19, 24, 102 N.W.2d 514, 517 (1960)).BACK
Michael D. Barrett has been practicing liability insurance defense since 1987. His areas of experience include workers' compensation subrogation, personal injury defense and coverage-related issues such as no-fault automobile insurance. Mike received his B.S., cum laude, from theUniversity of Minnesota, where he was a member of the Gamma Sigma Delta Honor Society. He attained his J.D., cum laude, from William Mitchell College of Law. He was admitted to the Minnesota bar and the U.S. District Court for the District of Minnesota in 1987. Mike has served as a speaker at many client seminars. He is a qualified mediator and is listed on the Alternative Dispute Resolution Rule 14 Neutral Roster. He is a member of the Hennepin County Bar Association, the Minnesota State Bar Association and the Minnesota Defense Lawyers Association.
Mike has been married since 1982 and lives in Orono with his wife Dana and their children, Lauren and Matthew. Mike is active in a number of civic organizations such as the Casco Point Association, in which he previously served as its president. In the past he has served as special deputy of the Hennepin County Sheriff's Water Patrol. In his spare time, Mike enjoys woodworking.
direct dial number: (952) 525-6920
e-mail: mdb@cousineaulaw.com