Case Name: Fort Worth Lloyds v. Tom E. Haygood et al
Court: Supreme Court of Texas
Jurisdiction: Texas
Decision Date: 1952-01-23
Citations: 151 Tex. 149
Docket Number: No. A-3228
Parties: Fort Worth Lloyds v. Tom E. Haygood et al
Judges: 
Reporter: Texas Reports
Volume: 151
Pages: 149–167

Head Matter:
Fort Worth Lloyds v. Tom E. Haygood et al
No. A-3228.
Decided January 23, 1952.
Rehearing overruled April 2,1952.
(246 S. W. 2d Series, 865.)
Kemper, Wilson & Schmidt and Eugene Wilson, all of Houston, for petitioner.
The Court of Civil Appeals erred in holding that Fort Worth Lloyds, the insurance carrier, is legally bound to establish the negligence of the third party tort-feasor, the Sugar Company, as the basis for recoupment of workmen’s compensation benefits paid to the injured employee under the circumstances where the injured employee, as plaintiff, and the Sugar Company, as defendant, had agreed between themselves to dispose of his claim and cause of action without the consent of Fort Worth Lloyds, the intervenor. Traders & Gen. Ins. Co. v. West Texas Utilities Co., 140 Texas 57, 165 S. W. 2d 713.
H. Cecil Baker, of Richmond, George Roane, of Rosenberg, Helm & Jones and Albert P. Jones, all of Houston, for Tom E. Haygood; C. L. Dutton, of Richmond, Baker, Botts, Andrews & Parish, of Houston, and R. E. Keeton, of Dallas, for Imperial Sugar Company, respondents.
The Court of Civil Appeals correctly held that Haygood and the Imperial Sugar Company had the legal right to enter into the agreement, and did not thereby infringe any right of Fort Worth Lloyds. Independent Eastern Torpedo Co. v. Herrington, 128 Texas 17, 95 S.W. 2d 377.

Opinion:
Mr. Justice Griffin
delivered the opinion of the Court.
On June 21, 1949, respondent, Tom E. Haygood, an employee of S. P. Braud Conveyor Service, was injured while installing in the plant of the Imperial Sugar Company certain machinery which the Conveyor Service had contracted with the Sugar Company to install. Haygood was paid $7139 as compensation for his injuries by petitioner, Fort Worth Lloyds, the compensation carrier of Conveyor Service under the Workmen's Compensation statute. Thereafter, Haygood filed a suit against the Sugar Company, as a third party tort-feasor, and Fort Worth Lloyds intervened and sought recovery of the amount of compensation paid by it to Haygood, and for expenses and attorney's fees. Efforts were made by the Sugar Company to settle this suit with Haygood and Fort Worth Lloyds, but no agreement was reached. Sugar Company and Haygood contend that no settlement was reached because of the illegal and unjust demands made by Fort Worth Lloyds as to the amount of expenses and attorney's fees claimed. On date of trial, Sugar Company and Haygood announced in open court that they had entered into an agreement whereby Haygood, for a consideration of $12500 cash, plus an additional $100 to be paid to Haygood, in the event of an ultimate recovery of a judgment against Sugar Company in the then pending suit in excess of $12500, had assigned "all rights to levy execution, effect collection, or in any way secure or demand payment for my use and benefit upon or on account of any judgment which may be rendered in my favor against Imperial Sugar Company or any other party on account of said accident." The agreement further provided that it was executed without prejudice to, or effect upon, the subrogation rights of Fort Worth Lloyds in accordance with the Workmen's Compensation Act of the State of Texas, and stated that Haygood would cooperate fully with Fort Worth Lloyds in the prosecution of the pending suit. This agreement was not reduced to writing on that date, but was reduced to writing later and before trial was over. Fort Worth Lloyds took the responsibility of proceeding with the case, and put on proof of the agreement and assignment — which, we construe, to all intents and purposes as being a settlement and release of Sugar Company by Haygood, except for an additional $100 upon a certain contingency. The trial court, finding that plaintiff's attorneys refused to proceed with the trial, entered a judgment dismissing Haygood's suit against Sugar Company for want of prosecutiion, and providing that Fort Worth Lloyds, intervener, take nothing. Upon appeal this judgment was affirmed by the Court of Civil Appeals at Galveston, 238 SW 2d 835.
It is the contention of Fort Worth Lloyds that when it had proven the facts that Haygood and Sugar Company, with full knowledge of its subrogation rights, had settled Haygood's cause of action the Sugar Company for $12500, plus the $100 additional, it was entitled to a judgment against the settling parties for the amount of its compensation payments plus reasonable expenses and attorney's fees. It is the contention of the Sugar Company that Fort Worth Lloyds could not recover without first proving up Haygood's cause of action against the Sugar Company.
We think this case is controlled by previous decisions of this court, among which is Traders & General Ins. Co. v. West Texas Utilities Co., 140 Texas 57, 165 S.W. 2d 713. We cannot find any -real difference in the legal principles applied in that case and those controlling this case.
When the Workmen's Compensation statute was originally passed in this state in 1913, it contained no provision requiring an injured employee to make an election between suing for his compensation due him, and filing a common law suit against the third party tort-feasor; nor was there any provision subro gating the insurance carrier who had paid compensation to the employee to any rights of the injured employee. Fox v. Dallas Hotel Co., 111 Texas 461, 240 SW 517. However, the Compensation Act in 1917 was amended in its entirety and what is now Section 6a of Article 8307, Vernon's Tex. Ann. Civ. Stats., 1925, was inserted in the Act. That section reads as follows:
"Where the injury for which compensation is payable under this law was caused under circumstances creating a legal liability in some person other than the subscriber to pay damages in respect thereof, the employe may at his option proceed either at law against that person to recover damages or against the association for compensation under this law, but not against both, and if he elects to proceed at law against the person other than the subscriber, then he shall not be entitled to compensation under this law. If compensation be claimed under this law by the injured employe or his legal beneficiaries, then the association shall be subrogated to the rights of the injured employe in so far as may be necessary and may enforce in the name of the injured employe or of his legal beneficiaries or in its own name and for the joint use and benefit of said employe or beneficiaries and the association the liability of said other person, and in case the association recovers a sum greater than that paid or assumed by the association to the employe or his legal beneficiaries, together with a reasonable cost of enforcing such liability, which shall be determined by the court trying the case, then out of the sum so recovered the association shall reimburse itself and pay said cost and the excess so recovered shall be paid to the injured employe or his beneficiaries. The association shall not have the right to adjust or compromise such liability against such third person without notice to the injured employe or his beneficiaries and the approval of the board, upon a hearing thereof."
Under this it has been held that an injured employee has an option as to which of two persons he will sue, and that he cannot receive compensation if he first prosecutes his suit against the third party tort-feasor, but that after he has received compensation payment he may proceed against the third party tort-feasor, in the event the compensation carrier fails or refuses to so proceed. Texas Employers Ins. Ass'n. v. Brandon, 126 Texas 636, 89 SW 2d 982; Houston Gas & Fuel Co. v. Perry, 127 Texas 102, 91 SW 2d 1052.
The constitutionality of this Section 6a was attacked in Consolidated Underwriters v. Kirby Lumber Co., (Tex. Com. App., 1924) 267 SW 703. This court approved the holding of the Commission of Appeals on the question discussed. There it was said that under the 1913 Act the employee could recover against the compensation carrier and the third party tort-feasor, and the compensation carrier, although it had paid the full compensation, had no rights of subrogation. "This situation was in reason, imperfect; it served to bring to the employe more than his damages, which was, perhaps, not sound economy, and to make the insurance more burdensome to the insurer and hence more expensive to the employer and ultimately to the public than would have been the case had the amount recovered from the actual tort-feasor been applied first to the repayment of the amount of compensation, and then the balance to the employe, to make him whole."
"It was doubtless to remedy these defects and supply this juster and more politic substitute that the particular section (6a) of the amendment that is now under investigation was passed." Ibid, p. 706, 2nd col., emphasis added.
It has been held that there is but one cause of action against the third party tort-feasor. Texas Employers' Insurance Ass'n. v. Texas & P. Ry. Co. et al (Tex. Civ. App.), 129 SW 2d 746, writ dismissed, correct judgment, loc. cit., p. 750, (5) ; Hartford Accident & Indemnity Co. v. Weeks Drug Store, (Tex. Civ. App.), 161 SW 2d 153, 154 (1-3), error refused, want of merit. Also that no cause of action exists in favor of the injured employee, or his representatives, except as to the damages, if any, suffered in excess of the amount of compensation insurance collected by them. Mitchell v. Dillingham, (Tex. Civ. App.), 22 SW 2d 971, loc. cit., p. 972, writ dismissed, and authorities cited therein. Houston Gas & Fuel Co. v. Perry, supra.
Where suit has been first filed against the third party tortfeasor it has been held that no right of subrogation is given to to the compensation carrier, and therefore, the carrier is not liable to the injured employee, or his representatives, for any amount. Employers' Indemnity Corporation v. Felter et al, (Tex. Com. App.), 277 SW 376.
In Houston Gas & Fuel Co. v. Perry, supra, Mrs. Perry, and as next friend for her minor daughter, sued the Gas Company and Hartford Accident & Indemnity Company for damages on account of the death of her husband and the father of the minor. After allegations of negligence against the Gas Company, it was alleged that the Indemnity Company had heretofore paid compensation and expenses to plaintiffs, by virtue of being the compensation carrier for Hermann Hospitals Estate, the employer of the deceased D. N. Perry. Indemnity Company was duly served with process, but filed no pleading of any kind whatsoever. Plaintiffs obtained a jury verdict for an amount in excess of the expenses and compensation paid, and the trial court rendered judgment for plaintiffs and also for the Indemnity Company for the amount of expenses and compensation theretofore paid. Upon appeal this judgment was reformed by the Court of Civil Appeals as to an obvious error in calculation, but otherwise affirmed. This court reformed the judgment so as to deduct from plaintiffs' recovery the full amount of compensation and expenses paid by the compensation carrier, plus the amounts for which it was liable to pay in the future. This was in the face of the failure of the Indemnity Company to file any pleadings seeking any relief of any kind or character. The judgment of the lower courts for the Indemnity Company was set aside, and no recovery allowed to the Indemnity Company.
In Hanson v. Ponder, (Tex. Com. App.), 300 SW 35, Hanson, after collecting from his employer's (Summer Sollitt Company) compensation carrier (United States Fidelity & Guaranty Company), filed a suit for his injuries against Ponder as receiver of the San Antonio, Uvalde & Gulf Railway Company, as third party tort-feasor. In this suit United States Fidelity & Guaranty Company intervened and claimed its right to subrogation under Section 6a of Article 8307. Judgment was rendered against the United States Fidelity & Guaranty Company, and it did not appeal. A preemptory instruction against Hanson was given in the trial court, evidently upon the ground that by accepting compensation he had lost his right to sue the third party tortfeasor. This lower court judgment was affirmed by the Court of Civil Appeals. In reversing the judgment of both courts, and remanding the cause for a trial upon its merits, the court said: "In this situation, (upon a retrial upon the merits) if Hanson secures a verdict, the court, in rendering judgment, should deduct from the amount of damages found by the jury the amount of 'compensation paid' ". Loc. cit, 2nd col., p. 40 of 300 SW.
Galveston-Houston Electric Ry. Co. et al v. Reinle, et al, (Tex. Civ. App.) 264 SW 783, writ refused, was a case where the Reinles, after collecting compensation from the carrier of deceased W. S. Reinle's employer, filed a third party tort-feasor action against the Electric Ry. Co. and others. The compensation carrier refused to join in prosecuting the suit for damages as a co-plaintiff and as such co-plaintiff it was dismissed from the suit. Upon a favorable jury verdict the trial court rendered judgment for the Reinles, less the amount of compensation awarded the plaintiffs. This compensation award was deducted from plaintiff's recovery even though the compensation carrier refused to prosecute, and had been dismissed from the suit as a co-plaintiff. The Court of Civil Appeals reversed and remanded the judgment, holding that W. S. Reinle's parents were necessary parties to the suit otherwise it approved the disposition of the cause. Application for writ of error was refused by this court.
1 We believe the fundamental principle underlying the last three cases cited above is that where compensation has been paid to an injured employee, or his representatives, and they later file suit against the third party tort-feasor, the first money paid or recovered by the employee, or his representatives, belongs to the compensation carrier paying the compensation, and until it is paid in full, the employee, or his representatives, have no rights to any funds; nor have they any cause of action against the tort-feasor. This court has said in so many words in Traders & General Ins. Co. v. West Texas Utilities Co., 140 Texas 57, 165 SW 2d 713: 716:
" It is well settled that unless 'the association recovers a sum greater than that paid by the association to the employee together with a reasonable cost of enforcing such liability' the employee cannot recover, for there is nothing then remaining which is not absorbed by the recoupment by the association of the compensation paid the injured employee, and costs. Hanson v. Ponder, Tex. Com. App., 300 S. W. 35; Texas Employers Ins. Ass'n. v. Brandon, 126 Tex. 636, 89 S. W. 2d 982; Houston Gas & Fuel Co. v. Perry, 127 Tex. 102, 91 S. W. 2d 1052; Independent Eastern Torpedo Co. v. Herrington, 128 Tex. 17, 95 S. W. 2d 377; Mitchell v. Dillingham, Tex. Civ. App., 22 S. W. 2d 971, writ dismissed."

"The compromise settlement was made with full knowledge on on the part of the settlers of the association's subrogation rights. While the alleged cause of action against the company belonged to the injured employee he owned it burdened 'by the right of the association to recoup itself for compensation paid ' In dependent Eastern Torpedo Co. v. Herrington, supra (128 Tex. 17, 95 S. W. 2d 377, 379). It is pointed out in Fidelity Union Casualty Company et al. v. Texas Power & Light Company, Tex. Civ. App., 35 S. W. 2d 782, 783, writ refused, that such 'right of subrogation has existence only in the terms of this statute (sec 6a) and it can be enforced only as therein directed.' It is also stated in the opinion that 'the amount to be recovered' against the third person tort feasor is 'to be appropriated between the parties as directed by the statute,' that is, that the association first recou/p itself out of the amount recovered, and that the excess only be paid to the injured employee. The money paid over to the employee therefore belonged, under the law, to Traders & General and both the company and the employee were charged with knowledge of that fact and had actual knowledge that Traders & General was asserting its subrogation rights in the cause at the time the settlement was made. The right of the association to reimbursement out of the first money paid is statutory; and in event the employee is permitted, without the consent of the association, to settle his claim against the alleged third person tort feasor, thus eliminating his further interest in the suit, the provisision of the statute authorizing the insurance association to enforce for the joint use and benefit of said employee cmd the association the liability of such tort feasor, is thereby nullified. Such transaction between the employee and the association would contravene the legislative purpose, and is unlawful. The money belonging to Traders & General was wrongfully paid by the utilities company to the employee, who wrongfully received it, and both were thereby rendered liable to pay to Traders & General the amount of compensation theretofore paid by it to the employee, together with the costs of enforcement, including a reasonable attorney's fee therefor."
In the case at bar the settlement was made not only with full knowledge of the rights of Fort Worth Lloyds, but also of the Traders & General case and its rule of law. In its findings of fact the trial court states: "17. That on September 27, 1950, (a trial day) Plaintiff Tom E. Haygood, and Defendant, Imperial Sugar Company, had not reduced their agreement to writing because the Defendant's attorney had not determined how to cast the written agreement in order to remove it from the scope of conventional type 'compromise settlement agreement' and not in violation of the decision of the Supreme Court in the case styled 'Traders & General Ins. Co. v. West Texas Utilities Co.,' reported in 165 SW (2d) 713." Therefore, all parties entered into the settlement agreement with full knowledge of the law and the facts applicable thereto.
2 It is to be remembered that in an appropriate case on an injury being received by an employee covered by the Compensation Act, he is given the option of (1) proceeding against the third party tort-feasor free and untrammeled by any right of subrogation on the part of anyone and with full and free direction and control of his cause, or (2) he may receive compensation from his employer's compensation carrier. By choosing this second remedy, the employee, or his representatives, bring into play the law which subrogates the compensation carrier to the employee's rights against the third party tort-feasor. It is a choice which the employee must make, and no other person, except he can cause the subrogation to come into being, and affect his rights against the third party tort-feasor. He is under no compulsion as to which option he chooses, but he makes his choice voluntarily and freely and with full knowledge of the legal effect of his choice.
Having elected to recover compensation — which he may do merely by showing that he was accidentally injured in the course of his employment — and having no burden to show negligence or to be subject to any other of the common law defenses, there is nothing unjust in giving to the carrier who pays the compensation the right to recoupment under the statute. The first money paid rightfully should go to reimburse the carrier who has paid, or assumed to pay, this compensation to the employee. As to any excess above the amount necessary to make the carrier whole, the statute requires the same to be paid the injured employee, or his representatives, thus insuring for him the full and total amount of his damages suffered by the injury.
3 Fort Worth Lloyds is entitled to recover from the plaintiff Haygood and the Sugar Company, the amount of compensation paid Haygood "together with a reasonable cost of enforcing such liability, which shall be determined by the court trying the case", and the excess in the $12500 (which is greater than compensation paid), shall be paid to Haygood. The trial court found that the amount of compensation paid was $6800 and that the carrier had paid $339 for medical treatment, hospitalization, nursing and drugs, reasonably necessary for the alleviation of the said Tom E. Haygood's condition, or a total of $7139, but failed to find any amount for attorney's fees to be paid Fort Worth Lloyds. The carrier is entitled to recover a reasonable attorney's fee to be fixed by the trial court. Smith et al v. Henger, 148 Texas 456, 226 S.W. 2d 425, 434-435, (26), 20 A.L.R. 2d 853.
It is claimed by respondents, Haygood and Sugar Company, that this result will permit a carrier to take an unreasonable position with regard to compromises and settlements by injured employees, and sustain illegal and unlawful demands by a carrier before it will agree to a settlement. The statute is plain as to what the carrier can lawfully demand from the third party tort-feasor, and in the event the injured employee suffers any damage by virtue of unlawful demands made by a compensation carrier, we think the carrier would be liable to the employee, in a proper case, for such damage. G. A. Stowers Furniture Company v. American Indemnity Company (Tex. Com. App.), 15 S.W. 2d 544.
The judgments of both courts below are hereby reversed and this cause is remanded to the trial court with directions to enter judgment in favor of Fort Worth Lloyds against respondents Tom E. Haygood and Imperial Sugar Company for the sum of $7139, plus a reasonable attorney's fee to be determined by the trial court.
Opinion delivered January 23, 1952.