Opinion ID: 6109919
Heading Depth: 1
Heading Rank: 1

Heading: 562I Subrogation and Reimbursement in the Act

Text: Texas enacted its first workers' compensation legislation in 1913. See Act of April 16, 1913, 33rd Leg., R.S., ch. 179, 1913 Tex. Gen. Laws 429 , amended by Act of Mar. 28, 1917, 35th Leg., R.S., ch. 103, 1917 Tex. Gen. Laws 269 . The Legislature amended the Act in 1917 to provide that an employee injured during the course of employment for an employer that provided workers' compensation insurance had an election if the injury was caused by a third party: the employee could elect to receive workers' compensation or pursue a third-party action against the alleged tortfeasor. See Fort Worth Lloyds v. Haygood , 151 Tex. 149 , 246 S.W.2d 865 , 867 (1952). If the employee elected to receive workers' compensation, then the carrier was subrogated to the rights of the injured employ[ee] in so far as may be necessary and may enforce in the name of the injured employ[ee] or of his legal beneficiaries or in its own name and for the joint use and benefit of said employ[ee] or beneficiaries and the [carrier] the liability of said other person. Id. (quoting Act of Mar. 28, 1917, 35th Leg., R.S., ch. 103, § 6a, 1917 Tex. Gen. Laws 269 , 285, repealed by Act of Dec. 11, 1989, 71st Leg., 2nd C.S., ch. 1, § 16.01(10), 1989 Tex. Gen. Laws 1 , 114). The Legislature periodically amended the Act. As relevant to this case, the amendments refined provisions regarding the carrier's being subrogated to the rights of an injured employee 4 against third parties liable for the injury and the rights of the injured employee regarding such third parties. See, e.g. , Act of Mar. 28, 1917, 35th Leg., R.S., ch. 103, § 6a, 1917 Tex. Gen. Laws 269 , 285 (repealed 1989). In 1993, the Legislature adopted the current Act. TEX. LAB. CODE tit. 5. Section 417.001 of the Act (1) expressly authorizes an injured employee to pursue both workers' compensation benefits and an action against third parties who caused the injury; (2) expressly provides a right of subrogation to the carrier and gives the carrier the right to enforce its subrogation right in the name of the employee; and (3) provides that if the carrier recovers an amount greater than its subrogation interest from a third party, then after the carrier reimburses itself and pays its costs from the amount recovered, it is to pay the remainder to the employee: (a) An employee or legal beneficiary may seek damages from a third party who is or becomes liable to pay damages for an injury or death that is compensable under this subtitle and may also pursue a claim for workers' compensation benefits under this subtitle. (b) 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 the amount of the insurance carrier's subrogation interest, 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 .... Id. § 417.001 (emphasis added). A separate section of the Act-section 417.002-addresses a carrier's right of reimbursement  in the event an injured employee asserts a claim against a third party because of the injury and makes a recovery. That section requires the employee to reimburse the carrier for benefits the carrier paid to or for the employee's benefit, but allows the employee to retain the balance subject to the carrier's right to offset any future benefits by the amount of the balance: (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. Id. § 417.002 (emphasis added). Manifestly, the Act distinguishes between the carrier's right of subrogation and its right of reimbursement-and those are two different rights. See Fortis Benefits , 234 S.W.3d at 645 . Section 417.001 expressly grants the carrier a statutory right of subrogation and expressly authorizes the carrier to bring suit directly against a third party to enforce the liability of the third party to the injured employee. TEX. LAB. CODE § 417.001. The statute authorizes the carrier to prosecute the subrogation claim in order to recover the benefits it has paid and to offset the benefits it might owe to the employee in the future by any excess recovered by, or on behalf of, the injured employee, regardless of whether the injured employee chooses to pursue a claim against the third party. See id. And if it does so, it is to reimburse itself and pay the costs from the amount recovered, then pay the remainder to the injured employee. Id. Costs include the carrier's attorney's fees. E.g. , Jones v. Liberty Mut. Ins. Co. , 745 S.W.2d 901 , 902 (Tex. 1988). Section 417.002, on the other hand, separately and expressly gives carriers only the right to receive reimbursement in the event the employee recovers from a third party. See TEX. LAB. CODE § 417.002. Section 417.002 does not empower the carrier to proceed, or even to make claims, against, third parties in order to enforce rights the carrier might have pursuant to the carrier's payments to and for the employee's benefit in the past or as to those which the Act would require it to pay in the future. Id. Nor does section 417.002 entitle the carrier to both reimbursement for payments it made to and for the employee's benefit and recovery of its costs-such as attorney's fees-out of the recovery from a third party. See id. Thus, if the carrier waives its right to subrogation under section 417.001, section 417.002 still specifically provides the carrier a separate right to reimbursement. But, under such circumstances, section 417.002 effectively relegates the carrier to paying benefits and then waiting on the employee to prosecute a third-party action. If the employee chooses not to do so, or if the employee does not succeed in recovering on a third-party action, then the carrier has no pathway for recovering from a third party for the benefits it paid, or will pay, to the employee. Under section 417.002, it is only if the employee recovers from a liable third party that the carrier has the right to be reimbursed, and even then, the statute does not give the carrier the right to  recover its costs in addition to reimbursement for the amounts paid. In sum, where the carrier has subrogation rights under section 417.001, it is entitled to directly bring and directly participate in suits against third parties. Under that section, the subrogated carrier is in charge of its own destiny as to prosecuting a third-party claim to recoup payments it has made to the injured employee, obtaining credit for those it is obligated to make in the future, and recovering its costs, including attorney's fees, in addition to reimbursement. When the carrier has only reimbursement rights pursuant to section 417.002, it is neither in charge of its own destiny vis-a-vis prosecuting a third-party claim nor statutorily entitled to recover its costs in addition to the amount it paid, or will pay, to the employee from the amount received from the third party. So when does the statutory language matter? That is, in which situations does a carrier not have subrogation rights but has only reimbursement rights? As explained below, under the clear, plain language of sections 417.001 and 417.002, this is one such situation.