NO. 07-00-508-CV

IN THE COURT OF APPEALS

FOR THE SEVENTH DISTRICT OF TEXAS

AT AMARILLO

PANEL C

OCTOBER 9, 2001

______________________________

TEXAS WORKERS’ COMPENSATION 

INSURANCE FUND,

Appellant

v.

SUSANNAH KNIGHT, 

HOUSTON R. EWING, AND SUSANA MALDONADO, 

Appellees

_________________________________

FROM THE 47TH DISTRICT COURT OF POTTER COUNTY;

NO. 87,104-A; HON. DAVID L. GLEASON, PRESIDING

_______________________________

Before QUINN, REAVIS, and JOHNSON, JJ.

The Texas Workers’ Compensation Insurance Fund, (the Fund) appeals an order

denying its subrogation rights concerning funds paid into the court registry by Safeguard

Insurance Company (Safeguard). Through its sole issue, the Fund contends that the trial

court erred in denying its "claims for subrogation interest against the [uninsured motorist]

proceeds based on its previous payment of compensation to and medical benefits on
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behalf of [Susannah] Knight, [Susana] Maldonado, and [Houston R.] Ewing." We agree

and reverse the apportionment order executed by the trial court.

Background

In March of 1999, Houston Ewing (Ewing) was driving a vehicle owned by his

employer, Sterling Cleaning Services, while in the course of his employment. Passengers

in the vehicle included Susannah Knight (Knight) and Susana Maldonado (Maldonado).

The Sterling vehicle was involved in an accident with another vehicle driven by Geraldo

Sandoval (Sandoval). It was later determined that Sandoval was intoxicated at the time of

the accident and that he had no liability insurance. Sterling had purchased

uninsured/underinsured motorist insurance from Safeguard. 

Suit was filed by Knight against, initially, the Royal Insurance Company. However,

it was later determined that the proper party was Safeguard and the pleadings were

amended to reflect same. The Fund intervened in the lawsuit along with Mid-Century

Insurance Company of Texas, Knight’s uninsured/underinsured motorist carrier. The

Fund relied on a provision in the Texas Labor Code which provides for workers’

compensation carriers subrogation rights when an insured recovers from a third party.

Safeguard, because it was unable to determine who was entitled to the proceeds, paid

$480,952.10 into the registry of the court. During the pendency of the suit, Knight,

Maldonado and Ewing received benefits from the Fund in excess of $123,000. An

apportionment hearing was held wherein the Fund requested that it be reimbursed the

amount that had been expended in benefits paid to and on behalf of Knight, Maldonado
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and Ewing. The trial court rendered a judgment effectively denying the Fund’s subrogation

claim. 
1The statute in question is §417.001 of the Texas Labor Code. It reads:

If a benefit is claimed by an injured employee or a legal beneficiary of the employee, the

insurance carrier is subrogated to the rights of the injured employee and may enforce the

liability of the third party in the name of the injured employee or the legal beneficiary. If the

recovery is for an amount greater than that paid or assumed by the insurance carrier to the

employee or the legal beneficiary, the insurance carrier shall:

1) reimburse itself and pay the costs from the amount recovered; and

2) pay the remainder of the amount recovered to the injured employee or the legal

beneficiary. 

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Analysis

The Fund argues that the trial court erred in denying it its statutory subrogation

rights.1

 That is, the Fund allegedly was entitled to an amount of the Safeguard funds equal

to the compensation benefits paid Maldonado, Ewing, and Knight. We agree.

In Employer’s Casualty Company v. Dyess, 957 S.W.2d 884 (Tex. App. – Amarillo

1997, pet. denied), we were asked to “address the subrogation rights of a workers’

compensation carrier as they might apply to the employer’s uninsured motorist coverage.”

Upon addressing that question, we held that the worker’s compensation carrier had a

statutory right of subrogation against the proceeds payable via the uninsured motorist

policy. Id. at 889-900. That holding has since been adopted by our brethren in Texas

Worker’s Comp. Ins. Fac. v. Aetna Cas. & Surety Co., 994 S.W.2d 923 (Tex. App–Houston

[1st Dist.] 1999, no pet.). Thus, our own precedent entitled the Fund to recovery. By not

according it same, the trial court erred. 

Nevertheless, Knight argues that we should “re-examine” our decision in Dyess. 

This is so because we supposedly failed to abide by Members Mutual Insurance Company
5

v. Hermann Hospital, 665 S.W.2d 325 (Tex. 1984). Hermann Hospital is quite inapposite,

however. This is so for the simple reason that the statute applicable in Hermann expressly

prohibited the hospital from claiming a lien on proceeds from any insurance policy issued

in favor of the injured party, including an uninsured motorist policy. Id. at 326-27. No such

statutory prohibition limits the subrogation rights of the Fund viz-a-viz the uninsured policy

at bar. 

So too does Knight contend that despite any statutory right of subrogation the Fund

may have, the trial court, through its equitable powers, was authorized to apportion the

proceeds as it saw fit. We again disagree for several reasons. First, the cases relied

upon by Knight, i.e., Ortiz v. Great Southern Fire & Casualty Insurance Co., 597 S.W.2d

342 (Tex. 1980), Oss v. United Service Auto Assn., 807 F.2d 457 (5th Cir. 1987), and

Esparza v. Scott & White Health Plan, 909 S.W.2d 548 (Tex. App. – Austin 1995), involved

subrogation rights arising under equity or contract, not statute. Second, the statute

applicable at bar clearly states that the carrier “shall[] reimburse itself and pay the costs

from the amount recovered . . . and [] pay the remainder . . . to the injured employee. . . .”

 TEX. LABOR CODE ANN. §417.001(b)(1) & (2) (emphasis added). In short, and as noted in

Texas Workers’ Compensation Ins. Fund v. Travis, 912 S.W.2d 895 (Tex. App. – Fort

Worth 1995, no writ), “a workers’ compensation carrier is entitled to recover one hundred

percent of compensation paid to an insured employee as a result of the employee’s

recovery . . . .” Id. at 897. Furthermore, the “workers’ compensation claimant has no right

to any funds . . . until the workers’ compensation carrier receives its payment in full.” Id.
6

at 897-98. Given these circumstances, the trial court could not invoke its equitable powers

and, thereby, deny the Fund subrogation.

Lastly, Knight argues that the trial court did not err because once Knight recovered

from a third party, the Fund would “suspend payment of any additional benefits until what

monies she receives has been exhausted in the payment of future expenses.” Again, we

disagree.

Section 417.002 of the Labor Code provides: 

(a) The net amount recovered by a claimant in a third-party

action shall be used to reimburse the insurance carrier for

benefits, including medical benefits, that have been paid for

the compensable injury.

(b) Any amount recovered that exceeds the amount of the

reimbursement required under Subsection (a) shall be treated

as an advance against future benefits, including medical

benefits, that the claimant is entitled to receive under this

subtitle.

(c) If the advance under Subsection (b) is adequate to cover

all future benefits, the insurance carrier is not required to

resume the payment of benefits. If the advance is insufficient,

the insurance carrier shall resume the payment of benefits

when the advance is exhausted.

TEX. LAB. CODE ANN. §417.002(a)-(c) (Vernon Supp. 2001). From this, we see that the

Legislature intended that the compensation carrier was to be reimbursed first. Then, its

duty to pay would go into stasis until the excess or remainder of the proceeds from the

uninsured motorist policy was consumed by the compensation claimant. At that point, the

carrier’s obligation to pay would resume. In short, the compensation claimant is not
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entitled to all the proceeds simply because he or she may incur expenses exceeding the

limits of the uninsured motorists policy. 

 Accordingly, the trial court’s apportionment order is reversed, and the cause is

remanded for further proceedings.

Brian Quinn

 Justice

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