Opinion ID: 1735189
Heading Depth: 1
Heading Rank: 1

Heading: Points II. and III.

Text: Appellant argues that our holding in St. Paul Fire & Marine Ins. Co. v. Wood, 242 Ark. 879, 416 S.W.2d 322, does not control here because the workmen's compensation carrier intervened in that action and was present during all negotiations, while no offer was ever made to appellant by the carrier in this case. Our decision in the cited case did not wholly turn upon this consideration. The question there was stated in the first paragraph of the opinion, thus: This appeal calls for construction of § 40 of the Workmen's Compensation Act (Ark.Stat.Ann. § 81-1340 [Repl.1960]) to determine whether an employee can settle his common law cause of action in negligence against a tortfeasor free of any claims of his employer's Workmen's Compensation carrier, where the settlement documents specifically preserve all rights of the carrier. The workmen's compensation carrier's position, on appeal, was thus stated: For reversal, St. Paul relies on one pointi. e., the court should have denied the action of plaintiff for a declaratory judgment and granted St. Paul's statutory lien against the settlement proceeds. Our holding was based largely upon our determination that the word recovery, in the sense that it and the verb form recovered are used in Ark.Stat.Ann. § 81-1340 (a) and (b), relates to restoration or vindication of a right existing in a person by the formal judgment or decree of a competent court, at his instance and suit, unless specifically qualified by accompanying words. We pointed out the distinction made between a recovery under § 81-1340 (a) and (b) and a settlement under § 81-1340(c) in Winfrey & Carlile v. Nickles, Admr., 223 Ark. 894, 270 S.W.2d 923. We also said that a compromise settlement that extinguished the rights of the compensation carrier was tantamount to a recovery, under § 81-1340(a) and (b), citing Maxcy v. John F. Beasley Construction Co., 228 Ark. 253, 306 S.W.2d 849. Ultimately, in affirming the trial court we said that the compensation carrier in Wood had no lien upon the proceeds of the settlement negotiated, that the workmen's compensation carrier had all the right of subrogation against the third party that was given it by law and all that it would have had if Wood had taken no action whatsoever. We noted that nothing in Ark.Stat.Ann. § 81-1340 prevented Wood from taking a nonsuit. We also pointed out that to interpret § 81-1340 as the carrier argued would require us to hold that the statute gives the employer or his compensation carrier a first lien upon receipts of any monies received from the third party by suit or otherwise, but that the statute does not so read. The attorneys representing all the parties who participated in the settlement of the McCluskey suit in Federal court clearly thought that the decision in Wood gave the tortfeasor and the injured employee complete freedom to make any settlement of the case they agreed upon without consulting the employer or workmen's compensation carrier, so long as recognition was given to the right of the employer or carrier who was paying, or had paid, benefits to the employee to pursue its own statutory cause of action against the third-party tortfeasor. It is also apparent that the Workmen's Compensation Commission so construed that decision. Even though the circuit judge expressed his personal disagreement with the majority position in Wood , he felt that it was controlling in this case and required an affirmance of the Commission's holding. The United States District Court for the Eastern District of Arkansas has interpreted our holding in Wood to mean that § 81-1340(a) and (b) do not apply where the tort claim is settled without litigation or prior to judgment. Boehler v. Insurance Company of North America, D.C., 290 F.Supp. 867 (1968). There are members of this court who participated in that decision, both on the majority and minority sides, who also construe the Wood opinion to permit such a settlement between the employee on the one hand, and the employer and carrier on the other. We may be sure that many, many such settlements have been made in complete reliance upon this construction of Wood during the four years intervening between the Wood decision and the circuit court's affirmance in this case. We cannot say that there was error in the application of Wood made by the attorneys for McCluskey, Weiman and Reynolds and its liability insurance carrier, and by the Workmen's Compensation Commission and the circuit judge. In reaching this conclusion, however, we point out that appellant does not argue that the requirements of Ark.Stat.Ann. § 81-1340(c) have any application here or that they dictate a different result. We find no reference to this subsection in the referee's opinion, the full Commission opinion, in the circuit judge's opinion, or in appellant's brief. Appellant does argue, however, that our holding in Wood should be overruled or modified for the reason that it is manifestly unfair to a workmen's compensation carrier, because it has a poor chance to recover when a suit is conducted in its name. Our decision in that case involved the construction of a statute which has not been amended in either of two regular sessions of the General Assembly intervening between that decision and this. We have no inclination to overrule it, and have no hesitation in holding that the parties in the suit against the third-party tortfeasors were justified in relying upon their construction of that decision. In urging modification, appellant suggests that we hold that third-party tortfeasors should not be allowed to settle with an employee, unless and until the same percentage offer is made to the workmen's compensation carrier. Appellant agrees that the principles of St. Paul v. Wood were properly applied in that case because the carrier there was demanding substantially more than the injured employee was willing to accept. Still, says appellant, the employee should not be able to settle and leave the compensation carrier out in the cold. We are unwilling to accept the premise that an insurance carrier cannot recover in a proper case, even if we should eventually hold, as we have not, that such a carrier must prosecute in its own name its subrogation claim for benefits paid and those ultimately to be paid because of our real party in interest statute [Ark.Stat.Ann. § 27-801 (Repl. 1962)]. Although we do not feel that our holding in Wood should be modified as appellant suggests, we are impressed with appellant's argument about the fundamental unfairness inherent in permitting an injured employee to make such a settlement as was made here, under the circumstances which existed. In Wood , the carrier had intervened, but the tortfeasor and the compensation carrier were unable to agree upon a settlement of the subrogation rights. While we there emphasized the difference between a recovery under § 81-1340 (a) or (b) and a compromise settlement under § 81-1340(c), we did point out that (c) was controlling where there is any type of termination of an action against a third-party tortfeasor prior to the rendition of a judgment against the third-party. We also noted that the trial court had, in the very proceeding we were reviewing, approved the settlement between Wood and the third-party tortfeasor. We did say in Wood that § 81-1340 does not so read as to require a holding that the statute gives the employer or compensation carrier a first lien upon receipts of any monies received from the third party by suit or otherwise. We also said in Winfrey & Carlile v. Nickles that subsection (c) does not apply to a contested suit between the employee and the compensation carrier. We have held that, where a settlement was made by an injured employee with a third-party tortfeasor before the filing of a workmen's compensation claim, § 81-1340(c) was not applicable to the third-party tortfeasor. Hartford Insurance Group v. Carter, 251 Ark. (December 20, 1971), 473 S.W.2d 918. The application of those cases should be confined to the particular situations there involved. Fundamental fairness, justice and reason dictate that subsection (c) should apply to any settlement. We have already said in Carter , decided well after the circuit court acted in the case now before us, that St. Paul Fire & Marine Ins. Co. v. Wood involved a compromise having court approval pursuant to subsection (c). We also said that the purpose of this subsection was to permit the adjustment of such controversies between the employee and employer as existed in Wood and to require that settlements as between them have the approval of either the court or the Workmen's Compensation Commission. Since the statutory purpose of § 81-1340 is to protect the rights of both the compensation carrier and the employee, we shall hereafter interpret Wood to require that as between the employer (or carrier) and employee, the proceeds of any compromise settlement of a tort claim be subject to the lien of the employer or the compensation carrier unless the settlement has been approved by a court having jurisdiction or by the Workmen's Compensation Commission, after the compensation carrier has been afforded adequate opportunity to be heard.