Court Opinion

ID: 9582958
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:33:13.279126+00
Date Added: 2024-06-11T13:38:47.431703
License: Public Domain

Justice ERICKSON
dissenting.
I respectfully dissent. The majority reverses the court of appeals for affirming the Administrative Law Judge and the Industrial Claims Appeals Office decision to terminate future workers’ compensation benefits to Richard K. Eekhardt. The reversal is on the grounds that the court of appeals held that the Workers’ Compensation Act (Act) “does not require an employer and/or its insurance carrier to act reasonably in withholding consent to a compromise or settlement of a suit by an in*867jured employee against the alleged third-party tortfeasor.” Maj. op. at 857.
The court of appeals stated,
Colorado ... has no statutory provision which imposes on the insurer the obligation to be reasonable when considering whether to grant its approval to the settlement of a third-party action. See Kirkkam v. Hickerson Bros. Truck Co., 29 Colo.App. 303, 485 P.2d 513 (1971). And, only the General Assembly can change the provisions of the Workers’ Compensation Act_
... Here, the settlement proceeds were insufficient to discharge the insurer because both the gross and net amount of such proceeds were less than the amount of its subrogation interest.
Eckhardt v. Village Inn, No. 90CA0060, slip op. at 2 (Colo.App. Oct. 11, 1990). The majority creates the rule of reasonable refusal in workers’ compensation law and imposes a duty on a workers’ compensation insurance carrier to intervene to protect subrogation rights afforded by section 8-52-108, 3B C.R.S. (1986). The imposition by the majority of a requirement on the insurance carrier to intervene in the third-party action when the settlement offer is not approved as being inimical to the carrier is not supported by any case law or authority that has come to my attention. The majority remands for a hearing that is to be conducted pursuant to the standards established by the majority. Maj. op. at 862. None of the standards limiting the rule of forfeiture recognized in In re Death of Peterkin, 729 P.2d 977 (Colo.1986), was known prior to the announcement of this opinion. The facts set out by the Administrative Law Judge supporting forfeiture of further workers’ compensation benefits are the identical undisputed facts that resulted in an affirmance by the Industrial Claims Appeals Office and the Colorado Court of Appeals.
The Colorado Workers’ Compensation Act provides an employee with compensation for injuries suffered while working for his employer within the course and scope of his employment. See generally, §§ 8-40-101 to 8-54-127, 3B C.R.S. (1986) (current version at §§ 8-40-101 to 8-47-209, 3B C.R.S. (1991 Supp.)). The employer contracts for insurance to secure payment of workers’ compensation to an employee who has been injured and qualifies for workers’ compensation. § 8-44-102, 3B C.R.S. (1986). Here, both the employer and the insurance carrier admitted liability and workers’ compensation and benefits were paid that were in excess of $12,252.18 at the time the payments were terminated.
When an employee is injured by the negligence or wrongful conduct of a third party, he may elect to proceed solely against the third party or he may accept workers’ compensation under the Act with payment operating as an assignment of his cause of action against the third party and with statutory subrogation rights granted to the compensation carrier. § 8-52-108(1), 3B C.R.S. (1986).
When an employee institutes a civil action against the third party and the case is settled for an amount that is less than that paid by the compensation carrier, the employee forfeits future workers’ compensation if the insurance carrier has not given its written approval to the settlement. § 8-52-108(2), 3B C.R.S. (1986); In re Death of Peterkin, 729 P.2d 977 (Colo. 1986); 2A Arthur Larson, Larson’s Workmen’s Compensation Law § 74.17 at 14-372 to -373 (1982).
Here, the petitioner, Richard H. Eck-hardt, sought to recover damages for injuries he incurred in a motor vehicle collision while he was working within the course and scope of his employment for the respondent, Village Inn. Village Inn was insured by Great American Insurance Company (Great American). Eckhardt filed a civil action in the United States District Court for the Western District of Missouri, alleging that his injuries were caused by third parties in a motor vehicle collision in Missouri. Prior to trial, with the advice of his lawyer, he settled the case for $12,500 without obtaining the approval of Great American.
Prior to the settlement in the federal court, Eckhardt had been paid $11,622.18 by Great American. Eckhardt’s counsel *868offered to settle Great American’s assigned and subrogated interest for $2,000 or twenty-five percent of the $12,500 settlement. Great American agreed to accept $7,000 in settlement of its $11,622.18 subrogation interest, provided that Eckhardt waived all claims to future compensation from the carrier. Eckhardt refused and the settlement was made without the carrier’s approval or consent. A check was issued by the third-party tortfeasors that was payable to Eckhardt, his lawyers, and Great American. Great American refused to endorse the check unless it was paid for its $11,622.18 subrogation right. The federal district judge, pursuant to Missouri law, ordered that the payment be made into the registry of the court. The settlement proceeds were then divided by the federal judge in the following manner:
Eckhardt $ 450.17
Eckhardt’s attorneys fees and expenses 6,089.63
Great American’s subrogation interest 5,960.20
Based upon Eckhardt’s settlement with the third-party tortfeasor, and without the approval of Great American, for an amount less than the workers’ compensation lien, Great American petitioned to suspend Eckhardt’s workers’ compensation benefits. See § 8-52-108(1), 3B C.R.S. (1986) (recodified at § 8-41-203(1), 3B C.R.S. (1991 Supp.)).1 The statutory sections in issue are intended to protect the insurance carrier who has advanced funds to pay for injuries incurred by an employee entitled to compensation under the Act as a result of the negligence or wrongful act of third parties. Continental Casualty Co. v. Gate City Steel, 650 P.2d 1336 (Colo.App. 1982); see also Riss & Co., Inc. v. Anderson, 108 Colo. 78, 114 P.2d 278 (1941). It is axiomatic that, “An injured employee who recovers damages from a third-party tortfeasor must reimburse his employer’s [workers’] compensation carrier for benefits paid to him, but any damages recovered in excess of the compensation paid by the carrier belong to the employee.” State Compensation Ins. Fund v. Commercial Union Ins. Co., 631 P.2d 1168,1169 (Colo.App.1981) (citing Kirkham v. Hickerson Bros. Truck Co., 29 Colo.App. 303, 485 P.2d 513 (1971)).
In In re Death of Peterkin, 729 P.2d 977, 981 (Colo.1986), we held that under section *8698-52-108(2),2 a claimant forfeited his right to receive future compensation benefits by settling a third-party claim for an amount less than the insurance carrier’s subrogat-ed interest without the approval of the carrier. The termination of benefits by the Administrative Law Judge, who was affirmed by the Industrial Claims Appeals Office and the court of appeals, was supported by Peterkin and should be affirmed by this court. The majority has constructed a new rule which provides that an injured employee who claims that a compensation carrier unreasonably withheld consent to a third-party must show:
First, the employee gave adequate notice of the suit and its changing fortunes, and notice of the proposed settlement to the carrier. Second, the proposed settlement was reasonable under all the circumstances. Third, the employee or carrier unreasonably failed to intervene in the underlying suit. If notice of the suit or the proposed settlement was inadequate, or if the settlement was unreasonable, or if the carrier timely intervened in the suit [but intervention was unavailing], then the petition to suspend benefits should be granted under the rule of forfeiture.
Maj. op. at 862-863.
First, notice to the compensation carrier of the employee’s civil action against a third party is essential if the carrier is to intervene and evaluate the employee’s claim. Second, the reasonableness of the settlement is directed not only at the amount offered to settle the third-party claim, but also the amount proposed to settle the carrier’s assigned and subrogat-ed rights. As to the third requirement— intervention by the employer or the carrier in the employee’s third-party action — I take exception. The determination of the reasonableness of the settlement and the carrier’s unreasonable failure to intervene are additional factual issues that must be resolved in every case that is now subject to the rule of reasonable refusal. Nothing in the Colorado statutes requires that a carrier intervene to protect its subrogation right. Economic considerations may dictate that a carrier consider the possibility of recovering payments made to the employee on the merits of a third-party claim. However, a carrier should not be penalized for failure to intervene by the forfeiture of assigned or subrogated rights when the third-party claim is of doubtful merit when considered on the basis of either liability or damages. The majority’s equation for balancing the rights of the employee and the insurance carrier usurps the function of the General Assembly and constitutes pure judicial legislation.
When enacting a statute, the General Assembly is presumed to have intended a just and reasonable result. § 2-4-201(l)(b), IB C.R.S. (1980); People v. Johnson, 797 P.2d 1296 (Colo.1990). We recognized that principle when we stated that in order to avoid harsh forfeitures of future workers’ compensation benefits “protections may be required where the insurer unreasonably refuses to consent to the employee’s settlement.” Peterkin, 729 P.2d at 981 n. 2. We recently noted:
The duty of the insurer to act in good faith when dealing with its insured is characterized in many jurisdictions as a duty implied by law as a covenant of the insurance contract. In Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 575, 108 Cal.Rptr. 480, 486, 510 P.2d 1032, 1038 (1973), the California Supreme Court stated,
in every insurance contract there is an implied covenant of good faith and fair dealing. The duty to so act is [immanent] in the contract whether the compa*870ny is attending to the claims of third persons against the insured or the claims of the insured itself. Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.
Scott Wetzel Services, Inc. v. Johnson, 821 P.2d 804 (Colo.1991) (quoting Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo.1984)). Nothing in the record before us supports Eckhardt’s claim that Great American acted unreasonably or in bad faith in refusing to consent to the settlement.
I also do not agree with the majority’s application or expansion of the Peterkin bad faith or unreasonableness exception. The party claiming application of the bad faith exception should have the burden to show that the carrier’s conduct in withholding consent or approval was unreasonable. See Wetzel, 821 P.2d at 810 (“in order to establish breach of the insurance carrier’s duty of good faith to one asserting a claim for workers’ compensation, the claimant must show that the insurer’s conduct was unreasonable and that the insurer knew it was unreasonable or acted in reckless disregard of whether it was unreasonable” (emphasis added)) (citing Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1276 (Colo.1985)).
In County Workers Compensation Pool v. Davis, 817 P.2d 521, 526 n. 5 (Colo.1991), we held that an “insurer has the right to intervene and participate in the employee’s tort action against a third party or may elect to file a separate claim against the tortfeasor.” Depending on the expense involved in intervening and the amount of the subrogation interest at stake in a particular case, a carrier could reasonably decide that it is not in its best interests either to intervene or to consent to a proposed settlement.
Great American’s subrogation rights are specifically defined by statute. § 8-52-108, 3B C.R.S. (1986). The General Assembly, in granting a subrogation right to a compensation carrier, such as Great American, did not impose the procedures and requirements set out in the majority opinion. Great American paid Eckhardt $11,-622.18 as compensation for his injuries under the Act and obtained subrogation rights that cannot be eliminated by judicial fiat. The Act does not force a compensation carrier to accept less than its subrogation interest.
The fact that the proceeds of the settlement were divided by the federal district judge in Missouri does not establish that the carrier’s refusal to settle was in bad faith or unreasonable. Arkansas, Nebraska, and New York, by statute, allow an employee to seek court approval of a settlement when the carrier refuses to consent. See 2A Arthur Larson, Larson’s Workmen’s Compensation Law § 74.17(d) (1991 Supp.). The Colorado statutes require approval by the employer or compensation carrier and do not permit a court’s division of the proceeds to serve as an approval. Court approval, when permitted by statute, in some instances might be viewed as establishing that the carrier’s refusal to consent was unreasonable or in bad faith. Id. The division here, however, did not constitute court approval of the settlement. The settlement had already been entered into and the court merely ordered the distribution of the proceeds.
In my opinion, neither Great American’s failure to approve the settlement or to intervene in Eckhardt’s action against the third party, nor the federal court’s division of the settlement proceeds establishes that Great American acted in bad faith. I would affirm the judgment of the court of appeals.
VOLLACK, J., joins in this dissent.

. Section 8-52-108(1), 3B C.R.S. (1986), provides:
If any employee entitled to compensation under articles 40 to 54 of this title is injured or killed by the negligence or wrong of another not in the same employ, such injured employee or, in case of death, his dependents, before filing any claim under this article, shall elect in writing whether to take compensation under said articles or to pursue his remedy against the other person. Such election shall be evidenced in such manner as the director may by rule or regulation prescribe. If such injured employee or, in case of death, his dependents elect to take compensation under said articles, the payment of compensation shall operate as and be an assignment of the cause of action against such other person to the division of the state compensation insurance fund, medical disaster insurance fund, major medical insurance fund, or subsequent injury fund, if compensation is payable from said funds, and otherwise to the person, association, corporation, or insurance carrier liable for the payment of such compensation. Said insurance carrier shall not be entitled to recover any sum in excess of the amount of compensation for which said carrier is liable under said articles to the injured employee, but to that extent said carrier shall be subro-gated to the rights of the injured employee against said third party causing the injury. If the injured employee elects to proceed against such other person, the state compensation insurance fund, medical disaster insurance fund, major medical insurance fund, subsequent injury fund, person, association, corporation, or insurance carrier, as the case may be, shall contribute only the deficiency, if any, between the amount of the recovery against such other person actually collected and the compensation provided by said articles in such case. The right of subrogation provided by this section shall apply to and include all compensation and all medical, hospital, dental, funeral, and other benefits and expenses to which the employee or his dependents are entitled under the provisions of said articles, including articles 65 and 66 of this title, or for which his employer or insurance carrier is liable or has assumed liability. Nothing in this section shall be construed as limiting in any way the right of the injured employee to elect to take compensation under articles 40 to 54 of this title and also proceed against the third party causing the injury to recover any damages in excess of the subrogation rights described in this section.

. Section 8-52-108(2) 3B C.R.S. (1986), provides:
(2) Such a cause of action assigned to the division of the state compensation insurance fund may be prosecuted or compromised by it. A compromise of any such cause of action by the employee or his dependents at an amount less than the compensation provided for by articles 40 to 54 of this title shall be made only with the written approval of the manager of the state compensation insurance fund, if the deficiency of compensation would be payable from the state compensation insurance fund, and otherwise with the written approval of the person, association, corporation, or insurance carrier liable to pay the same.