Twin City Fire Ins. Co. v. Leija

• Decision Date: 02 August 2018
• Docket Number: No. CV-17-0280-PR,CV-17-0280-PR
• Citation: 422 P.3d 1033
• Parties: TWIN CITY FIRE INSURANCE COMPANY, Plaintiff/Counter–Defendant/Appellee, v. Graciela LEIJA, Defendant/Counter–Claimant/Appellant.
• Court: Arizona Supreme Court

422 P.3d 1033

TWIN CITY FIRE INSURANCE COMPANY, Plaintiff/Counter–Defendant/Appellee,

v.Graciela LEIJA, Defendant/Counter–Claimant/Appellant.

No. CV-17-0280-PR

Supreme Court of Arizona.

Filed August 2, 2018

Donald L. Myles, Jr., Jefferson T. Collins, Lori L. Voepel (argued), Jones, Skelton & Hochuli, P.L.C., Phoenix, Attorneys for Twin City Fire Insurance Company

Joel B. Robbins (argued), Anne E. Findling, Robbins & Curtin, PLLC, Phoenix; and David L. Abney, Ahwatukee Legal Office, P.C., Phoenix, Attorneys for Graciela Leija

Mark A. Kendall (argued), CopperPoint Mutual Insurance Company, Phoenix, Attorneys for Amicus Curiae CopperPoint Mutual Insurance Company

Nathan B. Webb, Miller, Pitt, Feldman & McAnally, P.C., Tucson, Attorneys for Amici Curiae Mark Ballinger and Patricia Ballinger

Taylor C. Young, Mandel Young PLC, Phoenix, Attorneys for Amicus Curiae American Insurance Association

David W. Lippman, Lippman Recupero, Tucson, Attorneys for Amicus Curiae National Association of Subrogation Professionals

JUSTICE PELANDER authored the opinion of the Court, in which CHIEF JUSTICE BALES, VICE CHIEF JUSTICE BRUTINEL, and JUSTICES TIMMER, GOULD, and LOPEZ joined. JUSTICE BOLICK concurred in the result.

JUSTICE PELANDER, opinion of the Court:

¶ 1 Under the Arizona Workers’ Compensation Act (the "Act"), an insurance carrier obtains a lien on a claimant’s (or a claimant’s dependents’) recovery from third persons who negligently injured or killed the claimant to the extent of workers’ compensation benefits paid (less reasonable and necessary expenses incurred in securing the recovery). A.R.S. § 23-1023(D). In Aitken v. Industrial Commission , this Court held that the insurance carrier may assert the lien "only to the extent that the compensation benefits paid exceed the [non-party] employer’s proportionate share of the total damages fixed by verdict in the [third-party] action." 183 Ariz. 387, 392, 904 P.2d 456, 461 (1995). We today hold that a claimant who settles all of his or her third-party claims is not entitled to a post-settlement trial to determine the percentage of employer fault solely to reduce or extinguish the insurance carrier’s lien.

I.

¶ 2 Victor Leija died while working as a window washer when he fell from a building after a scaffold collapsed. Victor’s widow and children (collectively, "Leijas") claimed workers’ compensation benefits through Victor’s employer’s workers’ compensation carrier, Twin City Fire Insurance Company ("Twin City"). Twin City accepted the claim and pays monthly benefits of $1857 to the Leijas. Eventually, the payments will total approximately $575,000.

¶ 3 Exercising their right under the Act to bring a tort claim against any third person who negligently caused Victor’s death, see § 23-1023(A), the Leijas filed a negligence action against the City of Glendale, which owned the building from which Victor fell, the building’s property manager and maintenance company, and the companies that furnished and fabricated the scaffold.

¶ 4 During settlement negotiations between the Leijas and the third-party defendants, Twin City asserted its right under § 23-1023(D) to fully enforce a lien against all settlement proceeds for the amount of workers’ compensation benefits it had paid and would pay in the future. Nevertheless, Twin City offered to reduce its lien by five percent if the Leijas settled all their third-party claims. The Leijas rejected the offer, arguing that Twin City was required to reduce its lien by more than five percent due to the alleged comparative fault of Victor’s employer in causing the accident. Although Twin City did not object to any settlement, it never wavered from its position that it was not required to reduce its lien. The Leijas ultimately settled with all the third-party defendants for $1.6 million.

¶ 5 After that settlement, Twin City filed this action against the Leijas to enforce its lien. Consistent with its pre-settlement position, Twin City sought to fully enforce its lien under § 23-1023(D) against all the settlement proceeds to the extent of past and future workers’ compensation benefits. The Leijas counterclaimed, arguing, as relevant here, that Twin City breached its duty of good faith and fair dealing by refusing to reduce its lien to account for Victor’s employer’s alleged comparative fault. Alternatively, the Leijas requested that the superior court set a trial to establish the employer’s proportionate fault and the resulting amount of Twin City’s lien.

¶ 6 On the parties’ cross-motions for summary judgment, the superior court ruled in Twin City’s favor, reasoning that "a separate action after compromise of the third-party claim is not the appropriate vehicle to allocate fault" to a non-party employer. The court further reasoned that, contrary to the Leijas’ assertions, a workers’ compensation insurance carrier does not owe a duty of good faith and fair dealing to reduce its lien against a claimant’s settlement proceeds to account for a non-party employer’s alleged comparative fault.

¶ 7 The court of appeals reversed, holding that "when a worker settles a claim against a third party for less than the limits of the third party’s insurance, the worker may obtain a judicial determination of whether the carrier’s lien should be reduced to account for the employer’s comparative fault." Twin City Fire Ins. Co. v. Leija , 243 Ariz. 175, 177 ¶ 1, 403 P.3d 587, 589 (App. 2017). The court reasoned that "the fact that the Leijas settled their [third-party] claims rather than try them to a verdict does not preclude equitable apportionment under Aitken ." Id. at 181 ¶ 20, 403 P.3d at 593. The court observed that "the settlement with [the City of] Glendale did not touch multiple layers of coverage and the record contains significant evidence of employer fault." Id. ¶ 21. Therefore, the court stated, Twin City’s lien should be equitably apportioned because "estimations of [Victor’s] employer’s comparative fault undoubtedly affected the amount the Leijas were able to recover in settlement." Id. ¶ 19. The court of appeals remanded the case to the superior court to set "a trial to equitably apportion Twin City’s lien" and directed that court to "address the specifics of such a proceeding," including "whether damages and the employer’s comparative fault should be determined by the court or by a jury." Id. ¶ 23.

¶ 8 Finally, because the court of appeals "ruled that the Leijas have a right to a trial by which Twin City’s lien may be apportioned," it found "no need" to reconsider the principle that a workers’ compensation carrier does not breach its duty of good faith and fair dealing when, "absent a fair adjudication of damages and employer comparative fault," it refuses to compromise or reduce its lien under § 23-1023(D). Id. at 182 ¶ 28, 403 P.3d at 594.

¶ 9 We granted review because this case presents recurring issues of statewide importance. We have jurisdiction under article 6, section 5(3) of the Arizona Constitution and A.R.S. § 12-120.24.

II.

¶ 10 We review legal questions, including statutory issues, de novo. In re Marriage of Friedman & Roels , 244 Ariz. 111, 114 ¶ 11, 418 P.3d 884, 887 (2018).

¶ 11 The Arizona Constitution requires the legislature to "enact a workmen’s compensation law" that generally permits a worker to collect compensation when he or she is injured in the course of employment. Ariz. Const. art. 18, § 8. The legislature implemented this constitutional mandate shortly after statehood. Grammatico v. Indus. Comm’n , 211 Ariz. 67, 70 ¶ 13, 117 P.3d 786, 789 (2005). The Act, now codified in A.R.S. §§ 23-901 to -1091, generally provides that every employee is "entitled to receive and shall be paid ... compensation" for the loss sustained due to the employee’s injury when the employee’s accidental injury or death occurred in the course of the employee’s employment. § 23-1021.

¶ 12 An employer who complies with the Act is generally immune from tort liability for an employee’s accidental injury or death that occurred in the course of the employee’s employment. § 23-906(A); see also § 23-1022(A) (stating that an employee’s "right to recover compensation" under the Act is generally "the exclusive remedy against the employer or any co-employee acting in the scope of his employment"); § 23-1024(A) (stating that "[a]n employee ... who accepts compensation waives the right to exercise any option to institute proceedings in court against his employer or any co-employee acting within the scope of his employment").

¶ 13 Although an employer is generally immune from tort liability when an employee accepts compensation under the Act, the employee may bring a tort claim against a third person when the employee was "injured or killed ... by the negligence or wrong" of the third person. § 23-1023(A). When an employee brings such a third-party claim, the Act vests the employer’s insurance carrier with a lien on any recovery (less reasonable and necessary expenses) that the employee collects from the third-party to the extent of the compensation benefits paid by the insurance carrier. § 23-1023(D) ; see also Dietz v. Gen. Elec. Co. , 169 Ariz. 505, 511, 821 P.2d 166, 172 (1991) (noting that "the lien provisions in favor of immune employers have been part of the workers’ compensation system since 1925"). This case concerns the application of this lien on an employee/claimant’s settlement proceeds recovered from third-party defendants.

¶ 14 After the legislature abolished joint and several liability by amending the Uniform Contribution Among Tortfeasors Act in 1987, we ruled in Dietz that a third-party defendant may name a plaintiff/employee’s employer as a non-party at fault under A.R.S. § 12-2506. 169 Ariz. at 510–11, 821 P.2d at 171–172 ; see also § 12-2506(B) (stating that "[i]n assessing percentages of fault the trier of fact shall consider the fault of all persons who contributed to the alleged injury ... regardless of whether the person was, or could have been, named as a...