In a recent and very significant case, the Arizona Court of Appeals has established the right of an injured worker who sues negligent third parties for causing his injury and whose recovery is reduced by his employer’s comparative fault, to a trial to determine his overall damages and the percentage of his employer’s fault to reduce the workers’ compensation carrier’s lien. The case is Twin City Fire Insurance Company v. Leija, (Ct. App. Div. One, 8/31/17).
The Arizona Workers’ Compensation law, which provides the exclusive remedy for an injured worker against his or her own employer or co-employee, has long allowed the worker to sue negligent third-parties for his/her injuries. The statute also grants the employer’s workers’ compensation carrier a lien to the full extent of compensation and medical benefits paid and a credit against future benefits, medical or indemnity, to the extent that the third-party recovery exceeds the amount paid. (See A.R.S. §12-1023(A) and (D)).
For many years, a claimant in a third-party case could not force the workers’ compensation carrier to compromise its lien to settle a disputed liability case against a third-party. Nor could a claimant maintain a bad faith case against a workers’ compensation carrier for refusing to compromise its lien. (See Boy v. Fremont (1987)). Many a third-party claim had to be abandoned or not pursued because of this rigid interpretation of the lien statute.
Several Liability and Equitable Adjustment
When Arizona followed joint and several liability in negligence cases and plaintiffs could collect their full damages from any negligent party, this strict interpretation of carriers’ lien rights did not work an injustice to the injured worker. But when joint and several liability gave way to the adoption of comparative negligence in the early nineties, that strict interpretation began to cause serious problems in third-party cases and manifestly unfair results to injured workers.
In Aitken v. Industrial Commission (1995), the Arizona Supreme Court began to recognize the need for an “equitable adjustment” to the workers’ compensation carriers’ lien rights in cases where the assessment of comparative fault to the injured workers’ employer reduced the overall recovery.
Without offering explicit guidance in how to implement an “equitable adjustment” the Aitken Court generally stated that the future credit should apply only to the extent that compensation benefits paid to exceed the negligent employers’ proportionate share of the total damages awarded by a jury in the trial of the third-party action.
Grijalva v. State
Two subsequent Supreme Court cases, however, failed to add clarification to the Aitken rule in the context of sham “summary trials” between the injured workers and third-party defendants to arbitrarily set the negligent employer’s percentage of fault in proceedings to which neither the employers nor their carriers were invited to participate.
In the first, Grijalva v. State Compensation Fund (1996), the superior court found the employer 100 percent at fault and its carrier not entitled to any lien in a case where several third-party defendants paid substantial sums to settle! The Supreme Court rejected that judgment as an “artful contrivance” to circumvent the carriers’ lien rights.
Stout V. State
In the second case, Stout v. State Compensation Fund (2002), the injured worker and third-party defendant entered a side agreement not disclosed to the workers’ compensation carrier and a brief sham hearing before the superior court to set the employer’s fault and reduce its carrier’s lien rights significantly. That was also rejected by the Supreme Court because the claimant did not give “candid and timely notice” to the workers’ compensation carrier of their side agreement and summary trial. Because the summary trial was not a “true contest” to set the employer’s fault, the Supreme Court found the workers’ compensation carrier entitled to its full lien.
In Twin City Fire Insurance Co. v. Leija, the Supreme Court commented favorably on Leija’s bona fides in not trying to reduce the workers’ compensation carrier’s lien based on a sham proceeding contrived to increase the employer’s fault without giving it due process, a chance to prove that the claimant’s damages and the employer’s fault were limited.
For the first time since Aitken, the Supreme Court found the injured worker entitled to “equitable apportionment” of the workers’ compensation carrier’s lien where the parties had settled without ever going to trial and did not conspire to artificially set the employer’s fault. For these reasons, the injured worker was entitled to a trial in superior court, with the employer and its workers’ compensation carrier entitled to participate fully and present evidence on their own behalf, to set the percentage of employer fault and to reduce its carrier’s lien accordingly.
Although in the same opinion, the Supreme Court refused to overrule Boy v. Fremont and impose a duty on workers’ compensation carriers to reduce their liens, the opinion has gone a very long way toward achieving fairness for claimants in these third-party situations and is very welcome in the workers’ compensation and personal injury communities
For more information on Workers’ Compensation or Social Security Disability, please contact
Snow, Carpio & Weekley toll-free at 855-325-4781 or visit our website at www.workinjuryaz.com. We serve the entire State of Arizona and have offices located in Phoenix, Tucson, Yuma, and Lake Havasu City.