Opinion ID: 2615565
Heading Depth: 3
Heading Rank: 1

Heading: Is the Employer's Pro Rata Share of Attorney's Fees and Costs in a Third-Party Tort Case Based Solely on Compensation Benefits Paid, or on Total Benefits?

Text: Employees injured on the job are entitled to benefits from their employers under the Workers' Compensation Act. [7] These benefits are the exclusive remedy that employees have against their employers. [8] But employees may sue third parties who may be legally responsible for on-the-job injuries. [9] If damages are recovered by an employee in a third-party suit after compensation benefits have been paid by the employer, the employer is entitled to reimbursement from the recovery for the benefits paid, less the employer's prorated share of litigation costs and attorney's fees. In Cooper v. Argonaut , we interpreted AS 23.30.015(g) to require this result. [10] This subsection provides in part: If the employee or the employee's representative recovers damages from the third person, the employee or representative shall promptly pay to the employer the total amounts paid by the employer under (e)(1)(A)-(C) of this section insofar as the recovery is sufficient after deducting all litigation costs and expenses. Any excess recovery by the employee or representative shall be credited against any amount payable by the employer thereafter. We read the language after deducting all litigation costs and expenses to require a pro rata sharing of costs and expenses between employee and employer. [11] In Cooper the question was not presented as to whether the employer's prorated share of the recovery [12] against which its fees would be calculated should include future as well as past compensation payments. The accident in Cooper was fatal, so there were no future unpaid benefits. [13] But the reasons underlying the Cooper holding support the conclusion that the employer's prorated share includes all benefits, both past and future. The first reason given by the Cooper court was that prorating fees and expenses to the employer made subsection (g) of AS 23.30.015 harmonious with provisions of the Act which permit such a deduction by the employer when he brings suit. [14] Under subsection (e) of AS 23.30.015, an employer who recovers from a third party can deduct reasonable fees, the cost of benefits actually paid, and the present value of benefits to be furnished later before remitting any excess to the employee. [15] The reasonableness of the fee depends in part on the results obtained. [16] As past and future benefits are treated similarly under subsection (e)(1)(B) and (D), the results obtained guideline for subsection (e) fees must refer to total benefits rather than just to past compensation. Construing pro rata fees under subsection (g) to also refer to future benefits thus makes it harmonious with subsection (e). An additional reason relied on by the Cooper court was the prevention of unjust enrichment: If an employer or compensation carrier is not required to pay its pro rata share to recover this unanticipated return, the entire burden of the litigation would be borne by the employee. The carrier would take the benefit of both the employer's premium and the employee's litigation effort. [17] Unjust enrichment occurs whether the benefits have already been paid or would have been paid in the future. [18] The unjust enrichment rationale of Cooper therefore also applies to future benefits. Finally, among the other jurisdictions that prorate fees between employees and employers in third-party tort recoveries, the vast majority hold that the employer's pro rata share is calculated on the total benefits to the employer. [19] Most courts in these jurisdictions have concluded that since the employer's right of reimbursement extends to future liability, the employer's equitable share of the fees and costs involved in the employee's third-party recovery should likewise be calculated on the employer's total potential liability. [20] The employer argues that Alaska's statutory scheme, in contrast to the majority of jurisdictions, does not include the right to future reimbursement on the part of the employer. However, AS 23.30.015(g) includes future benefits in the employer's right to reimbursement in the form of a credit. It provides that the employee's recovery shall be credited against any amount payable by the employer thereafter. In other words, if the employee recovers an amount in excess of the compensation paid, the employee can keep it, subject to the employer's credit for future benefits that would otherwise be paid. It is as if the employer were to pay a doctor's bill and be instantaneously reimbursed for it. If the excess is not sufficient to cover future benefits, the employer will again be liable. The employer also argues that future benefits to the employer should be disregarded because they are too speculative to determine fairly. For example, if the actual costs of medical care do not reach the level predicted by the Board, the employer's share of the attorney's fees might be disproportionately large. But under AS 23.30.015(e)(1)(D) the Board has the authority to determine the present value of future benefits in the context of an employer's claim against a third party. If the Board's decision is supported by evidence that a reasonable person would accept, this court will not disturb it. [21] Moreover, the problem of computing future benefits is not conceptually different from computing future damages in tort cases. [22] That most jurisdictions require the determination of future benefits in cases like the present one indicates that the uncertainties inherent in the process are acceptable. [23] Thus, based on the rationale of Cooper, and because the law of most other states is in accord, we conclude that the employer's pro rata share of fees and costs should be based on both past and future benefits to the employer. In this case the employee seeks only an offset against the employer's reimbursement request. The offset remedy readily fits the language of AS 23.30.015(g) which speaks of deducting litigation costs before reimbursing the employer. Although the unjust enrichment rationale of Cooper might support an affirmative recovery from the employer, and some case law in other jurisdictions supports an affirmative recovery, [24] we need not decide in this case whether such an affirmative recovery is permissible since one is not requested.