Opinion ID: 853236
Heading Depth: 1
Heading Rank: 4

Heading: Amount of Setoff for Worker's Compensation Benefits

Text: Beam contends that the trial court erred in subtracting the full amount of worker's compensation from the jury award, which was based on a 55% allocation of fault to the tortfeasor. He bases this contention on two separate statutes. He first contends that the lien reduction statute, Indiana Code section 34-51-2-19, is relevant and has the effect of reducing the jury verdict of $701,371 by $218,433.43 (55% of the worker's compensation payment) rather than $397,151.70 (the full amount of those benefits). Section 34-51-2-19 provides: If a subrogation claim or other lien or claim that arose out of the payment of medical expenses or other benefits exists in respect to a claim for personal injuries or death and the claimant's recovery is diminished: (1) by comparative fault; or (2) by reason of the uncollectibility of the full value of the claim for personal injuries or death resulting from limited liability insurance or from any other cause; the lien or claim shall be diminished in the same proportion as the claimant's recovery is diminished. The party holding the lien or claim shall bear pro rata share of the claimant's attorney's fees and litigation expenses. Ind.Code § 34-51-2-19 (1998). Although Beam concedes that there is no lien involved in this case, he argues that the lien statute needs to be considered in determining the appropriate reduction in coverage. Specifically, Beam points out that if he had received the full amount of the jury's award from Ms. Vongsomchith or her insurer, he would have been required to reimburse Fairmont and Wausau a portion of the payments they made as worker's compensation benefits. In that case, the worker's compensation payors would not be entitled to a dollar for dollar reimbursement of their payments because the lien reduction statute would have reduced any lien by both Beam's 45% share of the comparative fault, and also by their pro rata share of Beam's attorney's fees and expenses in collecting the award. To reach that result, Beam argues, his net award of $701,371 should be reduced by only $218,433.43 (55% of the $397,151.70 paid as worker's compensation benefits). The Court of Appeals held that the lien reduction statute does not apply to this case. We agree. A lien is a claim which one person holds on another's property as a security for an indebtedness or charge. Hubble v. Berry, 180 Ind. 513, 519, 103 N.E. 328, 330 (1913). Subrogation applies whenever a party, not acting as a volunteer, pays the debt of another that, in good conscience, should have been paid by the one primarily liable. Erie Ins. Co. v. George, 681 N.E.2d 183, 186 (Ind.1997). By its terms, the lien reduction statute applies only to those situations where an insurer has already paid monies to an injured party and is subsequently attempting to recover the amount paid. Sell v. United Farm Bureau Family Life Ins. Co., 647 N.E.2d 1129, 1133 (Ind.Ct. App.1995), trans. denied. Here, there is no claim by an insurer against an insured. Rather, this claim is a claim being made by the insured, Beam, against the insurer, Wausau. Similarly, there is no third party attempting to recover monies previously paid to Beam prior to the judgment and there is no worker's compensation lien in favor of Fairmont. Indeed, the trial court noted in its findings of fact and conclusions of law, Fairmont is not a party to this cause of action and has failed to appear or otherwise file any documentation with the court concerning any liens against the judgment on behalf of Fairmont. The trial court also noted that counsel for Fairmont was provided notice of a hearing to be held on the credit issue, and counsel failed to appear. Beam's second contention is one that Beam asserts the Court of Appeals never addressed. He argues that offsetting the net damage award by the gross amount of worker's compensation payments is against public policy and improperly reduces Wausau's coverage below the liability limits required by Indiana's UM/UIM statute. Beam relies on Leist v. Auto Owners Ins. Co., 160 Ind.App. 322, 329, 311 N.E.2d 828, 833 (Ind.Ct.App.1974) which held an automobile insurance policy requiring uninsured motorist coverage to be reduced by worker's compensation payments was in derogation of the uninsured motorist statute and was therefore void as against public policy. Beam acknowledges that Hardiman v. Governmental Interinsurance Exch., 588 N.E.2d 1331, 1335 (Ind. Ct.App.1992), trans. denied, held that a setoff provision for worker's compensation benefits was not void as against public policy, but notes that the Hardiman court stated that the prohibition against reducing the statutory minimum remains. Indiana's statutory requirement provides in pertinent part, The ... underinsured motorist coverages must be provided by insurers ... in limits equal to the limits of liability specified in the bodily injury liability provisions of an insured's policy, unless such coverages have been rejected in writing by the insured. Ind.Code § 27-7-5-2 (1993). [6] Beam argues that if Wausau is permitted to reduce its UIM coverage by offsetting the net damage award by gross worker's compensation payments, the effect is to reduce coverage below the liability limits of $1,000,000, which is impermissible. First, although Beam asserts Wausau's policy provided for liability limits of $1,000,000, the record does not include Wausau's bodily injury liability limit. Assuming Wausau's bodily injury liability is $1,000,000, as Beam asserts, Beam's contention is not raised by the facts of this case. Beam states, Wausau's policy here has liability limits of $1,000,000. If Wausau is permitted to reduce its UIM coverage by offsetting the net damage award by gross worker's compensation payments, the effect is to reduce coverage below the liability limits, and this is impermissible. It appears Beam is arguing that the reduction for worker's compensation diminishes Wausau's liability limit so that Wausau would never technically be liable for the full policy limit of $1,000,000, in violation of section 27-7-5-2. Insurance companies are permitted to offset coverage by monies the insured receives for worker's compensation. Hardiman, 588 N.E.2d at 1335. However, as explained below, this allows credit only for the amounts that duplicate the coverage of the policy. Thus, if the limits were impaired by this reduction below $602,848.30 ($1,000,000 minus the $397,151.70 worker's compensation benefits), Beam might have a point. Beam's total damages were $701,371, which is $298,629 below the $1,000,000 policy limit. Even if the worker's compensation Beam received was prorated before the offset or not subtracted from the award at all, his injuries would never exceed the $1,000,000 policy limit, and Wausau would not be required to pay the full $1,000,000 limit. In sum, the statute requires Wausau to provide a limit at least equal to the limits of liability specified in the bodily injury liability provisions, but does not require Wausau to pay this amount in full when permissible setoffs exist. Although neither the lien reduction statute nor Leist is directly applicable, we think the policy itself leads to the same result Beam seeks. The relevant exclusion calls for a reduction of the amount paid for all sums paid or payable under any worker's compensation, disability benefits or similar law. Read literally and in isolation, this provision would reduce the damages by the amount of any worker's compensation benefit paid to any claimant at any time for any claim. That is of course preposterous and would render coverage wholly illusory. The provision can only mean that damages are reduced by the amount of any worker's compensation benefit for the same element of damage that the policy insures. Here, because of the comparative fault finding, only 55% of the worker's compensation benefits was for damages that were awarded by the jury. As a result, the amount subtracted for worker's compensation benefits should be 55% of the worker's compensation medical benefits (55% of $310,206.56 is $170,613.60) plus 55% of the worker's compensation disability benefits (55% of $86,945.15 is $47,819.83). The total damages then become: $701,371.00 Awarded by the jury 20,000.00 [7] Vongsomchith's liability policy 80,000.00 Beam's underinsured policy 170,613.60 Worker's compensation medical - 47,819.83 Worker's compensation disability ___________ 382,937.57 Net amount owed under UIM coverage This result is consistent with the principle that worker's compensation provides benefits without regard to fault and avoids reduction of those benefits based on the jury's assessment of Beam's share of the fault.