Opinion ID: 2131797
Heading Depth: 1
Heading Rank: 4

Heading: the apportionment of the burden of the expenses of recovery

Text: There remains the third issue: how should the burden of the expenses of recovery, including attorneys' fees, be apportioned between the employee and the insurer? Subsection (6) directs that the expenses of recovery shall be apportioned between the parties as their interests appear at the time of the recovery. [A]s their interests appear at the time of recovery reasonably must be construed to mean, as to the insurer's interest, both the reimbursement to which the insurer is entitled for compensation theretofore made to the employee, and the ascertainable excused liability for future compensation benefits. In many cases, including the case before us, where there is total and permanent disability or dismemberment, the incapacity of the employee is deemed to continue for a specific period of time, as explained below, and the insurer's future liability is apparent at the time of recovery. It has been argued that the apportionment of expenses in this case must be made with reference only to the amount which the insurer is to be repaid from the recovery for compensation benefits already paid or payable to the employee at the time of recovery. But this violates the clear language of the statute. Under this approach, if an insurer was to receive $5,000 of a $100,000 recovery to cover the cost of worker's compensation benefits already paid to the employee, the insurer's share of the expenses would be 5%. No reference would be made to the insurer's interest in its reduced liability for payment of compensation benefits which would have been required in the future but for the employee's recovery, which under the statute is treated as an advance payment of those benefits. This approach would be grossly unfair and mistaken. As noted above, in many cases, including the case before us, it is clearly apparent at the time of recovery that the interests of the parties are not represented by the amount of compensation which the insurer has paid to that point, and by the amount which is actually received by the employee at the time of recovery. Suppose, for example, that at the time of recovery in the third-party action, a negligible amount of worker's compensation payments had been made to the employee, but the worker's compensation proceedings had resolved, as it had in this case, that there was total and permanent disability within the meaning of the Worker's Disability Compensation Act. Under MCLA 418.351; MSA 17.237(351), [1] a finding of total incapacity entitles the employee to a conclusive presumption that the total incapacity and the insurer's liability will continue for a period of 800 weeks. Only after this 800-week period is the question of the continuance of the total disability open once again. If we were to read subsection (6) to mean that apportionment is to be made without regard to future compensation benefits payable to the employee, the insurer in this example, where little worker's compensation had been paid, would be burdened with a very small proportion of the expenses of recovery because at the time of the recovery it would have such an insignificant interest in the recovery. This result is patently absurd and grossly unfair. At the time of recovery, it clearly appears that the insurer is going to be excused liability for payment of compensation for a period of 800 weeks or until its excused liability is equal to the entire recovery of the employee. [2] This most certainly constitutes a very substantial, in fact potentially total, interest in the recovery, and yet if the insurer's share of the expenses is based on the small amount of compensation paid, it would not bear a fair part of the expenses of recovery. Similar situations might arise under MCLA 418.361; MSA 17.237(361) and MCLA 418.321; MSA 17.237(321), where it is provided that conclusive presumptions of continuing disability for varying periods of time are in effect upon a finding of a particular type of injury. For example, where there is the loss of a leg, the disability is deemed to continue for a period of 215 weeks. Apportionment of expenses on the basis of only what the insurer has actually paid at time of recovery is also mistaken in a case such as that before us from a practical, policy standpoint in that it lends to certain other absurd results. If the interest of the insurer, and therefore its share of the expenses, is calculated on the basis of the amount of benefits the insurer had paid the employee at the time of recovery, delay becomes the ally of the employee. The longer the period of time which passes before the time of recovery, the more benefits the insurer will have actually paid at the time of recovery, and therefore the greater the share of the expenses it will have to carry. It is very difficult to believe that the Legislature intended to create a situation where an aggrieved party would be rewarded for delaying a suit until long after the cause of the grievance, and for prolonging the course of the litigation. Moreover, employees in virtually identical situations would have substantially different recoveries because one employee brought his suit in a court where docket congestion was particularly a problem, causing an unintentional delay in the time of recovery which will in turn increase the share of the expenses the insurer will be liable for. For all these reasons, we reject the method of apportionment of expenses which does not take into account the interest of the insurer at the time of recovery in its reduced liability for future compensation benefits. For clarity's sake, a sample calculation of a proper apportionment of the burden of expenses follows. Assume that the employee and the insurer successfully bring a third-party action resulting in a $200,000 recovery. Insurer, at the time of recovery, has paid to the employee $20,000 in benefits, and due to a conclusive presumption of continuing disability, appears at the time of recovery to be ultimately liable for another $20,000. The expenses of recovery total $50,000. First, deduct the expenses of recovery from the total recovery. Total Recovery $200,000 Less Expenses - 50,000 _______________ ________ Balance $150,000 Second, calculate the interest of the parties at the time of recovery, independent of expenses. Interest of the insurer: Reimbursement for benefits paid $ 20,000 Excused future payment of benefits = 20,000 _________ = $ 40,000 Percentage interest at the time of recovery = 20% of $200,000 Interest of the employee: = $160,000 Percentage interest at the time of recovery = 80% of $200,000 Third, calculate the apportionment of expenses. Insurer's share of expenses: 20% of $50,000 = $ 10,000 Employee's share of expense: 80% of $50,000 = $ 40,000 Fourth, calculation of the method of payment for insurer. Amount of benefits already paid $ 20,000 = ________ = 50% Total liability of insurer $ 40,000 The insurer may pay 50% of its share of the expenses now, and the other 50% on a weekly basis as it actually receives the benefit of the portion of the employee's recovery which serves to excuse future benefit payments. In our example, the weekly payment would come to 25% (expenses divided by the total recovery) of the benefits which the insurer would have had to pay. Under this formula, the insurer would pay $5,000 of the expenses at the time of recovery, and pay the other $5,000 to the employee on a weekly basis to compensate him for carrying at the time of recovery the expenses of a portion of the recovery which ultimately goes to the benefit of the insurer, not the employee. [3] In sum, the trial court in the instant case was correct in concluding that the interest of the insurer at the time of recovery must include its credit for advance payments as well as the amount of compensation already paid to the employee. The trial court was incorrect, as was concluded by the Court of Appeals, in its failure to take into account the right of the insurer's attorney for compensation for services provided. We affirm the Court of Appeals insofar as it remands this matter to the trial court for a hearing on the value of the service of the insurer's attorney. Upon this determination, the recovery should be divided in a manner consistent with this opinion. The Court of Appeals and the trial court are reversed in part and affirmed in part as hereinabove indicated. No costs, neither party prevailing in full.