Source: https://ataslaw.com/loss-of-consortium-allocation-attacked-by-a-workers-compensation-insurance-co/
Timestamp: 2019-04-25 06:48:23+00:00

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Can an allocation for loss of consortium be attacked by a Maryland Workers Compensation Insurance company if it materially prejudices their ability to recover their lien or increase their holiday?
Issue- Whether Insurer suffered material prejudice as the result of the division of the proceeds from the third party settlement i.e., because the reasonable dollar value of the third-party claim was significantly greater than the amount of the actual unauthorized settlement because of the way the settlement was apportioned ie; more specifically the total settlement in the amount of $507,500.00 which was apportioned as follows: $355,000.00 payable to Plaintiff; $145,000.00 on behalf of plaintiff wife only for the loss of consortium claim. During the pendency of the third party lawsuit, a voluntary mediation occurred in order to attempt to resolve the third party case. At that mediation all parties were present including Plaintiff and his wife. Each party was represented by counsel at the mediation, including Insurance Company even though they were not parties to the suit. Counsel for the workers Compensation Insurance Company, whose appearance was not in the third party case and whose clients were not parties in the case, was invited by Plaintiff attorney for the purpose of possibly entering into a global settlement that would resolve all matters including the workers compensation case which was not part of the third party lawsuit. Eventually Insurance Counsel was advised that policy limits would likely be offered. The mediator advised Insurance Counsel that a settlement had been reached with the third party in the amount of $500,000.00. The mediator asked attorney for Insurance Company if the workers compensation carrier would be willing to waive some or all of it’s lien and to leave the case open. Cousel informed all parties he had no authority to negotiate the lien and the carrier would not negotiate the lien without a full and final settlement. The parties told Insurance Counsel who was representing, Insurance Company that he could leave since it became obvious the parties were not going to be able to work out a worker’s compensation settlement. An hour later, after attorney left the mediation, a final settlement was entered into between Plaintiff’s , and Defendants for the policy limits to be paid by Erie Insurance Exchange the insurer for the Defendant, in the amount of $500,000. Workers Compensation Insurance attorney was not advised by the mediator or any of the other parties that there were further discussions taking place with respect to the apportionment of the third party proceeds. He was assured that the lien of the Employer and Insurer would be honored. In the hour after counsel was asked to leave the mediation, as part of the settlement it was agreed without the consent of Workers Compensation Insurance attorney that the total settlement in the amount of $500,000.00 was to be apportioned as follows: $355,000.00 payable to Plaintiff from Erie Insurance Exchange; $145,000.00 from Erie Insurance Exchange on behalf of Wife only for the loss of consortium claim despite the fact the loss of consortium claim was a joint claim between husband and wife. The Workers Compensation Insurance attorney never was consulted regarding and never agreed to this apportionment. Settlement checks and releases were tendered by the third party insurance company made payable to wife & her Attorneys in the amount of $145,000.00, unto Plaintiff and his attorneys, in the amount of $355,000.00 The names of Employer and Insurer never appeared on any of the settlement checks or releases and neither Employer and Insurer nor any of their representatives endorsed the checks, signed the releases, or authorized anyone to do so.
Argument #1 Employer and Insurer have a right to argue they have been materially prejudiced by the allocation of the personal injury settlement to the loss of consortium claim.
Under the Annotated Code Of Maryland Section Md. Labor And Employment Code Ann. § 9-902 the workers’ compensation insurance company, Workers Compensation Insurance Company has a lien against any third party recovery made by Plaintiff in order to recover any benefits paid to Plaintiff under the workers compensation act. Workers Compensation Insurance Company lien interests were required under section Md. Labor And Employment Code Ann. § 9-902 to be protected by the Plaintiff and his attorney . In fact under the statute his attorney has a duty to protect Workers Compensation Insurance Company for purposes of recovery of the lien as well as to represent the Plaintiff for his individual third party claim and finally the Plaintiff and his wife jointly for their loss of consortium claim. Under the case law, due to the potential conflict, the Workers Compensation Insurance Company also may employ its own counsel to monitor the third party lawsuit.
When proceeds from a third party settlement and their apportionment are not agreed upon between employee and insurance carrier or no judicial determination as to the apportionment is made either by a verdict or by the Workers Compensation Commission after a hearing, then a dispute arises between employee and insurance carrier as to the appropriate amount be allocated to the loss of consortium claim for which the insurers lien attaches. Maryland Workers Compensation treatise by Clifford Sobin Section 20.6 entitled INJURY CAUSED BY NEGLIGENCE AND INTENTIONAL ACTS pages 677-678. There are circumstances where the employee has prejudiced the right of the workers compensation insurance company from either receiving full repayment of their lien or from maximizing the amount of the holiday. While it may seem that the worker’s compensation insurance company and the employer and insurer would have identical interests in successfully pursuing a third party claim, those interests quickly diverge once a settlement is in hand. Because the worker’s compensation insurance company receives a holiday from paying benefits, for every dollar the claimant nets from a third party settlement, there are conflicting interests. Obviously, there is a huge incentive for John and Linda Criswell to apportion a substantial portion of any settlement to a loss of consortium claim in order to avoid the lien and payment holiday. Alternatively, there is a corresponding desire on behalf of the Plaintiff Old Republic General Insurance Company to have no money attributed to loss of consortium in order to recover the lien and maximize the payment holiday. A division of the proceeds of a third party settlement by an agreement only between the third party tort feasor and the plaintiff in a third party lawsuit without the consent of the workers compensation insurer should not be binding on the workers compensation insurer. The third party tortfeasor has no reason to care about the apportionment of the proceeds. To bind the workers compensation insurer to the division of the proceeds of a third party settlement by an agreement only between the third party tort feasor and the plaintiff in a third party lawsuit without the consent of the workers compensation insurer would defeat the purpose of the legislature in providing a lien in the first place. Maryland Workers Compensation treatise by Clifford Sobin Section 20.6 entitled INJURY CAUSED BY NEGLIGENCE AND INTENTIONAL ACTS pages 677-678.
When an employee settles a third party claim after the worker’s compensation claim is filed but the settlement is without the consent of the Workers Compensation insurer the employee may be risking nonpayment of some or all future worker’s compensation benefits. The Court of Special Appeals held in Ankney v Franch, 103 Md. App. 83, 652 A.2nd 1138 (1995), judgment reversed on other grounds, 341 Md. 350, 678. 2.nd 951 (1966) that an unauthorized settlement doesn’t terminate the employees right to pursue workers’ compensation however in Ankney the Court stated that if an employer/self-insured can establish that the reasonable dollar value of the third party claim is greater than the amount of the settlement then . . . in a case in which material prejudice is shown, an employer is also entitled to a credit for the amount of the prejudice. The employee’s claim may not be abated on account of the prejudice unless the amount of the unauthorized settlement against the third party, plus the amount of any prejudice shown is equal to or greater than the compensation awarded. Ankney v Franch, 103 Md. App. 83, 652 A.2nd 1138 (1995) Also see treatise MARYLAND WORKERS’ COMPENSATION § 20:7by Clifford Sobin page 686.
The controversy at this time arises out of, not the amount of the third party settlement, but the apportionment of the settlement money offered in the third party case.
The Plaintiff contend that the apportionment of $355,000.00 payable to Plaintiff; $145,000.00 on behalf of wife only for the loss of consortium claim was fair and appropriate.
The Workers Compensation Insurance Company contends that all of the $507,500.00 should have been payable to Plaintiff individually except $25,000.00 should have been apportioned to wife only for the loss of consortium claim. The Workers Compensation Insurance Company contends that the $500,000.00 settlement was inadequate compared to the real value of the claim of Plaintiff alone. In addition the value apportioned for the loss of consortium claim of wife was grossly excessive. Finally if the case was settled based upon a compromise due to liability or proof problems or the lack of enough insurance, the apportionment of the settlement funds should be based upon a formula that also weighs the value of the claim of Plaintiff individually against the value of the loss of consortium claim. The Employer and Insurer argue that while at the time of the settlement discussions the worker’s compensation lien was only $261, 463.43 the Plaintiff had not yet applied for a permanent disability award as provided by the Maryland Workers Compensation Statute. The Plaintiff contends that Plaintiff will seek a permanent disability award of serious disability which could potentially be worth an additional $211,788.00 in benefits. In addition under the Maryland Worker’s Compensation Statute Plaintiff is entitled to causally related medical expenses for the rest of his life. Therefore the Defendant workers compensation insurance carrier total exposure including past, present and future could well exceed the $500,000.00 amount that the third party case was settled for. Workers Compensation Insurance Company assert that since the worker’s compensation case over the period of Plaintiff lifetime could potentially have a cost well in excess of the settlement of $500,000.00 in the third party claim, then almost all of the settlement money except the sum of $25,000.00 should have been allocated to Plaintiff for his personal injury claim alone. Any allocation for loss of consortium to wife over $25,000.00 was inappropriate and has prejudiced the insurer and employer and therefore they are entitled to a credit for the amount of the prejudice.
Defense Counsel in his brief asserts the apportionment of the proceeds is clearly appropriate. His support for this argument is two fold. First he champions the opinion of the mediator Judge Platt who gives the opinion that it was more than appropriate for 30% of the settlement be allocated for the loss of consortium. However, Judge Platt gives no basis for said opinion other than his vast years of experience. His affidavit makes no mention of what documents or evidence he either read or heard. Secondly, he champions his own efforts to bring the case toward settlement despite all of the problems with the case, including low impact, preexisting conditions, and low policy limits etc. Defense Counsel fails to take into consideration while these factors obviously affect the whole value of the case, these problems have to also be taken into consideration when apportioning the settlement received among the parties as was suggested in the Paul Bekman affidavit.
Defense Counsel retained attorney Paul Bekman, a pre-eminent attorney who has represented plaintiffs for more than 42 years, who receive serious personal injuries or die in personal injury claims and or work related injuries to evaluate the value of the underlying tort claims of both Plaintiff individually as well as well as the joint claim of Plaintiff and his wife loss of consortium claim. In arriving at his opinions he was asked to consider the effects on his evaluation, such factors as medical expenses past and future, lost wages in the past as well as loss of earning capacity in the future, pain and suffering, loss of consortium, property damage, liability disputes, jurisdiction of the tort case, insurance coverage, collectability of defendants in excess of insurance coverage, and any other relevant facts he deemed appropriate. Based upon that review he submitted Bekman affidavit which is attached to this motion and incorporated hereto. In the most relevant parts of the affidavit he concludes that the allocation of the settlement was unreasonable, not supported by the facts, or by the law. He concludes that Plaintiff’s individual personal injury claim was valued at $2,000,000.00, the same number requested in the ad damnum clause in the third party complaint. Finally, he concludes based upon this settlement of $500,000.00, the loss of consortium claim should be valued at $25,000.00.
At this stage, it does not matter whether Judge Platt is correct or Mr. Bekman is correct. On the employer and insurer have raised the issue and presented credible evidence to support their contention, then the only issues becomes, does Maryland law allow you to assert this claim in a loss of consortium case and what forum is this dispute resolved. Since the employer and insurer have now asserted that the allocation for the loss of consortium claim has resulted in a material prejudice to the employer and insurer, the next question is whether Maryland case law allows you to assert this defense in a loss of consortium question.
The facts of our case are different than the facts in Brocker Manufacturing and Supply Company v. Mashburn 17 Md App 327, 301A2d 501 (1973). While the Brocker case said there was no legal theory justifying a fishing expedition under the facts of the Brocker case, it also suggested a theory that may be available under other factual scenarios.The following language in Brocker Manufacturing is key, “Although the Workmen’s Compensation Act provides a right of subrogation to an employer and insurer, § 58, Cogley v. Schnaper and Koren Construction Co., 14 Md. App. 322, 286 A.2d 819 (1972), there must be some act performed or committed by, for, or against the subrogee that gives rise to the right to subrogate.” In our case, there are acts performed by wife and Plaintiff by and through their attorney against the subrogee employer that create the right to the subrogee Workers Compensation Insurance Company to contest the allocation. Plaintiff and wife who were both represented by the same attorney, agreed to over value the loss of consortium claim and undervalue the personal injury claim of Plaintiff as a percentage of the entire settlement in order to minimize the insurance company holiday from paying future benefits for Plaintiff’s workers compensation claim. In our case the employer and insurer are not attacking the adequacy of the settlement as a whole. The attack is based upon the argument that because of the improper weight given to the loss of consortium claim, the portion of the settlement apportioned to Plaintiffis inadequate. The apportionment was solely within the control of Plaintiff and his counsel. Since Plaintiff and his wife are married and living together, they have no other reason to care, how the benefits are apportioned except to maximize their ultimate recovery in both the third party case as well as the workers compensation case. By colluding with the third party insurance company to value the loss of consortium claim at a value out of proportion to the total third party claim, the intent is obviously to defeat the legislative intent by providing for a double recovery and defeating the lien and the holiday. Any allocation for loss of consortium to wife and or Plaintiff was inappropriate and has prejudiced the insurer and therefore they are entitled to a credit for the amount of the prejudice. The third party counsel does not have any incentive to act as a check and balance on the allocation because once the parties agree to a number the allocation is irrelevant to him since all defense counsel cares about is getting a signed release for the benefit of the third party tortfeasor. If in fact the attorney for the third party tortfeasor objected to the allocation, the case may not have settled which would not have been in his client’s best interests. Whether all of the money or none of the money or any amount in between is allocated to the loss of consortium, matters not to the third party defendant since once he gets the signed release by both Plaintiff and wife, and pays the money he has no further legal obligation. Plaintiff’s who are still married and still live together have only one united interest which is to maximize the amount of money they receive from a combination of the third party case as well as the husband’s workers compensation case. Mr. Bekman’s affidavit as our expert clearly outlines the real value of the loss of consortium case in relation to the husband’s personal injury claim when put in context with the amount of money available in the third party case. Assuming Mr. Bekman is correct that the wife’s consortium claim under these circumstances was $25,000.00, than the only explanation for the $145,000.00 allocation was to avoid the workers compensation holiday. This assertion is re-enforced by the way the settlement was apportioned and the checks were requested to be issued. Based upon all of the above, the Brocker Manufacturing case requirement that there must be some act performed or committed by, for, or against the subrogee that gives rise to the right to subrogate has been met.
Unlike the situation in the Brocker Manufacturing case, the apportionment of the settlement proceeds between the injuries to Plaintiff individually and wife for loss of consortium agreed to by all parties in the third party case except the workers compensation insurance company as part of a mediation that led to a voluntary settlement, rather than a jury verdict should not be binding in the workers compensation case. “An award based upon a jury verdict provides no basis for an employer/insurer to challenge the amount provided for loss of consortium. Alternatively if the matter is settled without a verdict, the employer/insurer has a right to challenge the amount designated for loss of consortium if the employer/insurer has not approved this settlement.” Maryland Workers Compensation treatise by Clifford Sobin Section 20.6 entitled INJURY CAUSED BY NEGLIGENCE AND INTENTIONAL Acts pages 677-678. Mr. Sobin recognizes that there is an incentive for the claimant to apportion as much as possible to the loss of consortium claim in order to minimize the amount he needs to repay the insurance company for its lien as well as to avoid the future benefits holiday. However doing so avoids the legislature’s intention to reimburse the insurer under Labor and Employment article section9-902. The purpose of that statute is to reimburse the insurer and to avoid a double recovery by the claimant. “When sections 9-902 and 9-903 of the Labor and Employment Article of the Maryland Code are read together, the legislative intent is clear. The employer and insurer are reimbursed fully for the benefits and medical services provided and the third-party claimant may keep the balance. The reimbursement requirement precludes `double dipping’ by the claimant and preserves his right to reopen his case after the third-party recovery is depleted.” [Alterations added.][Emphasis added.]” Podgurski v One Beacon Insurance Co 374 Md 133, 821 A. 2d 400 (2003)Brethren Mutual Insurance Co. V. Kenneth Suchoza. 212 Md. App. 43 66 A.3d 1073, Ankney v. Franch 103 Md App 83 (1995) (2013) In Chesapeake Haven Land Corporation v. Litzenberg 141 Md App 411, 785A2d 859(2001), the court of appeals stated, “In our view, the legislative intent in the adoption of LE §§ 9-901 through 903 is best expressed by Professor Larsen in Vol. 2, sec. 71.20, Worker’s Compensation Commission, stating: It is equally elementary that the claimant should not be allowed to keep the entire amount both of his [workers compensation]award and his common law damage recovery. The obvious disposition of the matter is to give the employer so much of the negligence recovery as necessary to reimburse him for his compensation outlay, and give the employee the excess. This is fair to everyone concerned: the employer, who, in a fault sense, is neutral, comes out even….When sections 9-902 and 9-903 of Md.Code LE Art. are read together, the legislative intent is clear. The employer and insurer are reimbursed fully for the benefits and medical services provided and the third-party claimant may keep the balance. The reimbursement requirement precludes “double dipping” by the claimant and preserves his right to reopen his case after the third-party recovery is depleted. In Aetna Casualty & Surety Co v. Gilreath 625 SW2nd 269(1981) the Supreme Court of Tennessee also quotes Professor Larsen, “The theory of third party actions and employers subrogation in compensation law has been succinctly stated by Professor Larson as follows:§ 71.10 Reaching the ultimate wrongdoer “The concept underlying third party actions is the moral idea that the ultimate loss from wrongdoing should fall upon the wrongdoer… .[I]n compensation law, social policy has dispensed with fault concepts to the extent necessary to ensure an automatic recovery by the injured workman but the disregard of fault goes no further than to accomplish that object, and, with payment of the workman assured, the quest of the law for the actual wrongdoer may proceed in the usual way. So, it is elementary that if a stranger’s negligence was the cause of injury to claimant in the course of employment, the stranger should not be in any degree absolved of his normal obligation to pay damages for such an injury.§ 71.20 Avoiding double recovery. It is equally elementary that the claimant should not be allowed to keep the entire amount both of his compensation award and of his common-law damage recovery. The obvious disposition of the matter is to give the employer so much of the negligence recovery as is necessary to reimburse him for his compensation outlay, and to give the employee the excess. This is fair to everyone concerned: the employer, who, in a fault sense, is neutral, comes out even; the third person pays exactly the damages he would normally pay, which is correct, since to reduce his burden because of the relation between the employer and the employee would be a windfall to him which he has done nothing to deserve; and the employee gets a fuller reimbursement for actual damages sustained than is possible under the compensation system alone.” Larson’s Workmen’s Compensation Law, §§ 71.10-71.20 (1976). In our case, the Creswell’s by their inappropriate apportionment for the loss of consortium claim are double dipping. Based upon the reasoning above, Mr. Creswell by colluding with the third party insurance company as well as his wife Mary Creswell to value the loss of consortium claim at a value out of proportion to the total third party claim, intended to defeat the legislative intent to reimburse the insurer and to avoid a double recovery by the claimant by providing for a double recovery under the guise of a loss of consortium claim and defeat insurers lien or mitigate insurer’s payment holiday.
Counsel for the Plaintiff’s cite Chesapeake Haven Land Corporation v. Litzenberg 141 Md App 411, 785A2d 859(2001) as support for their position that employer and insurer have no right to argue prejudice due to the allocation made for the loss of consortium. In the Chesapeake Haven case the allocation was made by a jury after a trial. Maryland requires juries to allocate their verdicts before they arrive at one number. In that case the insurer asserted that their lien applied to the award made for future economic loss award for damages to his self-employment business, unrelated to his Chesapeake Haven employment, and not compensated for by any past or future workers’ compensation award. The Court of Special Appeals rejected that argument because after a fully contested trial, with no possibility for collusion, the jury determined the value of the economic loss for his second job and the court was not going to question the province of the jury. If the parties in Chesapeake Haven had settled the case without a trial under circumstances similar to this case, the Employer and Insurer believe the decision of the Court of Special Appeals may have been different. Although the Chesapeake Haven case cited favorably the findings in the Brocker case including the rejection of insurers attempt to claim a subrogation interest in the loss of consortium claim it also repeated the other language quoted above in Brocker, “Although the Workmen’s Compensation Act provides a right of subrogation to an employer and insurer § 58, Cogley v. Schnaper and Koren Construction Co., 14 Md.App. 322, 286 A.2d 819 (1972), there must be some act performed or committed by, for, or against the subrogee that gives rise to the right to subrogate.” As previously discussed above we have some act committed by both John and Linda Criswell against Hewlett Packard Company and Insurer, Old Republic General Insurance Company , that gives rise to the right of Hewlett Packard Company and Insurer, Old Republic General Insurance Company to claim a subrogation right against the loss of consortium claim.
ISSUE #2 If material prejudice is alleged, what forum is used to resolve the amount of the material prejudice and the effect on the holiday?
6. the third-party defendant’s ability (usually insurance coverage) to pay the full value of the employee’s claim.
The Diamond case reasoning suggests factors the court in our case might look at ( most likely when there are no experts) when deciding whether the apportionment in our case of the loss of consortium claim was prejudicial to the workers compensation insurance carrier. In addition to a comparison of the ad damnum clauses in the complaint, the court can look at the value placed by the third party adjustor on the loss of consortium, and the value placed by third party counsel for the defendant on the loss of consortium claim , the pretrial settlement statements filed by the parties, demand letters filed by plaintiffs’ counsel, answers to interrogatories outlining plaintiffs damages, amount of time spent at settlement conference outlining the facts of the loss of consortium vs. the injuries to the husband and the depositions given as part of the third party case of husband and wife as to testimony they gave on the damages issue.

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