Subrogation

Subrogation

MONTANA SUPREME COURT DECISIONS

Oberson v. Federated Mut. Ins. Co., 2005 MT 329, 330 Mont. 1, 126 P.3d 459 Montana’s firm public policy disallows subrogation prior to full recovery by damaged parties. This is embodied in Article II, Section 16 of Montana’s Constitution, and has been applied repeatedly by the Montana Supreme Court.

State Fund v. McMillan, 2001 MT 168 Affirming WCC, Supreme Court holds that State Fund's subrogation interest in claimant's third party recovery is not determined by the net judgement in the third party action, which represented a reduction from gross damages due to claimant's comparative negligence. Based upon the equitable limitation on legal subrogation articulated by the Supreme Court, known as the "made whole doctrine," the insurer's subrogation interest is determined by claimant's entire loss, which is measured in this case by the amount of gross damages calculated by the federal judge hearing his case. Under Zacher v. American Ins. Co., 243 Mont. 226, 231, 794 P.2d 335, 338 (1990): "In determining whether a claimant has been made whole, the amounts received and to be received under the workers' compensation claim shall be added to the amounts otherwise received or to be received from third party claims, and also added to the costs of recovery, including attorneys fees; and when that total equals claimant's entire loss, then the insurer shall be entitled to subrogation from all amounts received by the claimant in excess of his entire loss . . . ."

Royal Ins. Co. v. Roadarmel, 2000 MT 259 Under three year statute of limitations (§ 72-34-511(1)(a), MCA) applicable to claim against claimant's attorney for payment of insurer's statutory lien under section 39-71-414, MCA (1985) allegedly held in "constructive trust" by attorney, the statutory period for commencing action against attorney had expired before action was commenced. Thus, WCC erred in not dismissing claim.

Royal Ins. Co. v. Roadarmel, 2000 MT 259 An insurer's "first lien" under section 39-71-414(1), MCA (1985) is a liability created by statute governed by the two-year statute of limitations of section 27-2-211(1)(c), MCA. Given the "tight liability scheme" established by section 39-71-414, MCA, no valid contract arose between the insured and claimant regarding subrogation rights. Thus, the WCC erred in applying the longer statute of limitations applicable to contract claims.

Thayer v. UEF, 1999 MT 304 Section 39-71-511, MCA (1991), which authorizes the Uninsured Employers' Fund to discharge benefits payable to claimants of uninsured employers by the amount of third-party recovery, does not violate the "full redress" provision of Article II, Section 16 of the Montana Constitution. Where the UEF is not an insurer and was statutorily created to provide a substitute source of benefits to the employee of an uninsured and impecunious employer, limiting the UEF's obligation to the extent of the uninsured employer's ability to compensate the claimant does not diminish the right to full legal redress against the uninsured employer

Thayer v. UEF, 1999 MT 304 The WCC properly concluded section 39-71-511, MCA (1991) authorized the Uninsured Employers' Fund to discharge $74,301 of future benefits still payable to widow who recovered $100,000 from employer in tort suit related to worker's death. The rule emerging from Ness v. Anaconda Minerals Company, 279 Mont. 472 (1996), Zacher v. American Insurance Company, 243 Mont. 226 (1990) and Skauge v. Montana States Telephone and Telegraph Company, 172 Mont. 521 (1977) that an insurer could not claim a subrogation interest in third-party recovery until claimant had been made whole is not applicable to the UEF's setoff under section 39-71-511, MCA. The UEF is not an insurer which has received premiums to assume certain risks, but merely stands in the shoes of the uninsured employer affording a claimant or beneficiary some relief when recovery is not had against the employer.

Ness v. Anaconda Minerals Co., 279 Mont. 472, 929 P.2d 205 (1996) Although Brander v. Traveler’s Ins. Co., 179 Mont. 208, 587 P.2d 933 (1978) held that a claimant who settles a third party claim for less than policy limits would be deemed to have been made whole for purposes of determining whether the insurer has any right to subrogation under section 39-71-414, MCA, subsequent decisions overruled Brander and similar cases. The proper inquiry looks to whether in fact the settlement made claimant whole. Where even the insurer’s expert admitted claimant was not in fact made whole by the settlement, the insurer does not have a subrogation interest in claimant’s settlement.

WORKERS' COMPENSATION COURT DECISIONS

Washington v. State Fund [2/12/99] 1999 MTWCC 17 While section 39-71-2909, MCA (1997) gives the WCC authority to review and change benefits previously awarded by the WCC, the WCC does not have jurisdiction to set aside a subrogation order entered by the Division of Workers' Compensation in 1977, although section 39-71-204, MCA (1997) gives the Department of Labor and Industry continuing jurisdiction to do so.

O'Brien v. State Fund [6/16/98] 1998 MTWCC 52 While it may have been reasonable for the insurer to assert an equitable subrogation interest in a medical malpractice recovery under the circumstances alleged by the insurer, the insurer asserted that interest without consideration of whether claimant had been made whole for his entire loss, a position without basis under statutes and Supreme Court precedent. Sanctions ordered pursuant to section 39-71-2914, MCA (1991), but ordered against State Fund, not in-house counsel representing the insurer. Sanctions consist of reasonable attorneys fees and costs, along with a penalty consisting of ten percent per annum interest on the amount of the medical malpractice recovery State Fund argued it would take in settlement of its subrogation claim.

Hand v. UEF [9/18/00] 2000 MTWCC 59 Under section 39-71-511, MCA, as applied to OD claims through section 39-72-305(2), MCA, the UEF is entitled to discharge or reduce OD claims on the basis of civil recovery for the same alleged condition or harm. Here, the WCC was unable to determine the propriety of setoff because the parties' factual stipulation did not state whether claimant's settlement compensated him for the same harm or condition for which he now seeks OD benefits.

State Fund v. McMillan [6/29/00] 2000 MTWCC 42 Where the Supreme Court in Ness v. Anaconda Mineral's Co., 279 Mont. 472, 478, 929 P.2d 205, 210 (1996) and Zacher v. American Insurance Co., 243 Mont. 226, 694 P.2d 335, 338 (1990) has made clear that an insurer has no subrogation rights until a claimant has been made whole for his entire loss, the insurer's subrogation rights under section 39-71-414(1), MCA (1985) begin after claimant has been made whole for his gross damages or loss, not after he recovers the amount of net judgment he received following trial against the third-party after taking his own contributory negligence into account. Note: WCC affirmed by Montana Supreme Court in State Fund v. McMillan, 2001 MT 168.

State Fund v. McMillan [10/25/99] 1999 MTWCC 64 Section 39-71-414, MCA (1985) creates a statutory lien against monies received by claimant. The two-year statute of limitations specified by section 27-2-211(1), MCA, applies. Under section 39-71-414, MCA, the two-year statute starts running from the "claim, judgment, or recovery" of a claimant, which means that actual receipt of monies due under a judgment (i.e., "recovery") triggers a renewal of the statutory lien and commencement of a two-year limitations period. Where the action is timely under the appropriate limitations period, the claimant must show "extraordinary circumstances" to invoke the doctrine of laches. Note: The WCC issued an order granting summary judgment to claimant on a separate issue, reported at 2000 MTWCC 42. As of 6/13/01, that order was on appeal to the Montana Supreme Court. See also, Royal Insurance Company v. Roadarmel, 2000 MT 259, in which the Supreme Court concluded that an insurer's "first lien" under section 39-71-414(1), MCA (1985), against any proceeds in a third-party action constitutes a "liability created by statute" governed by the two-year limitation period of section 27-2-211(1)(c), MCA.

Walker (Deceased), James H. Walker v. Credit General Ins. Co. [8/24/99] 1999 MTWCC 53 Under 39-71-414, MCA, an agreement to settle a subrogation interest does not become a compromise settlement unless approved by the Department of Labor.

Gerald Thayer (Deceased), Phyllis Thayer v. Uninsured Employers' Fund [10/28/98] 1998 MTWCC 77. Under section 39-71-511, MCA, the Uninsured Employers' Fund is entitled to discharge the remaining $74,301.22 of future benefits payable to decedent's widow based upon her recovery of $100,000 from the uninsured employer in a tort lawsuit. The statutory authorization that the UEF may discharge benefits payable to claimants of uninsured employers by the amount of third-party recovery does not violate the "full redress" provision of Article II, Section 16 of the Montana Constitution. See also Montana Supreme Court decision affirming WCC, Thayer v. Uninsured Employer's Fund, 1999 MT 304.

McLaughlin v. ANR [6/4/97] 1997 MTWCC 36 45-year old truck driver suffered crush injury to hand and wrist while unloading at federal facility. He recovered $60,000 in settlement of lawsuit against federal government. WCC rejected insurer's claim for subrogation where claimant was not made whole by his third-party recovery. He settled in order to end that litigation, but proved his losses far exceeded $60,000.

Glacier Park Inc./National Union Fire Ins. v. Bruce Parker [3/15/96] 1996 MTWCC 25 Insurer seeks subrogation based on claimant's third-party settlement of $425,000. His workers' compensation settlement was $417,000, present value, making his total recovery $842,000. Where the insurer stipulated claimant's economic losses were 1.5 million, and he had another 1.5 million in non-economic losses, claimant has not been made whole and the insurer is not entitled to subrogation. WCC refused to adopt rule that amount of settlement of third-party claim, as a matter of law, defined amount necessary to make claimant whole.

Ness v. Anaconda Minerals Co. [12/29/95] 1995 MTWCC 115 Under current decisions of the Montana Supreme Court, see Zacher v. American Insurance Co., 243 Mont. 226, 794 P.2d 335 (1990) and Francetich v. State Compensation Insurance Fund, 225 Mont. 215, 827 P.2d 1279 (1992), an insurer has no subrogation interest in proceeds from a third party action until a claimant has in fact been made whole. The insurer’s was erroneous in contending that the settlement amount, as a matter of law, established the amount that made claimant whole. [Note: this decision was affirmed by the Montana Supreme Court in Ness v. Anaconda Minerals Co., 279 Mont. 472, 929 P.2d 205 (1996) (Ness II).]