Aetna Cas. & Sur. Co. v. Gilreath

• Decision Date: 14 December 1981
• Citation: 625 S.W.2d 269
• Parties: AETNA CASUALTY & SURETY COMPANY, Appellant, v. Sidney W. GILREATH, Appellee.
• Court: Tennessee Supreme Court

Page 269

625 S.W.2d 269

AETNA CASUALTY & SURETY COMPANY, Appellant, v. Sidney W. GILREATH, Appellee.

Supreme Court of Tennessee, at Knoxville.

Dec. 14, 1981.

Dalton L. Townsend, Hodges, Doughty & Carson, Knoxville, for appellant.

John W. Nolan, III, Hildebrand, Nolan, Lane, Underhill, Mondelli, Flynn, Porter, Duer & Brown, Nashville, W. P. O'Neil, O'Neil, Parker & Williamson, Knoxville, for appellee.

OPINION

FONES, Justice.

The issues in this case involve the alleged liability of a lawyer to a workers' compensation insurance carrier for disbursing the proceeds of an out-of-court settlement of a pending third-party action without satisfying the carrier's statutory lien declared upon such proceeds by T.C.A. § 50-914.

Plaintiff Aetna Casualty and Surety Company paid workers' compensation benefits totalling $30,875.35, as the insuror of Harrison Incorporated, to Don Ledbetter, its employee, who thereafter pursued a third-party action against three alleged tort-feasors. His attorney was defendant Sidney W. Gilreath. Settlements of the third-party action were made out of court, a voluntary dismissal without prejudice entered in that action and the settlement proceeds disbursed without satisfying Aetna's statutory subrogation lien. Aetna brought this action to recover the benefits paid Ledbetter, less an attorney's fee.

The trial judge submitted eleven interrogatories to the jury and, in summary, they found as follows: that there was no contract between plaintiff and defendant obligating defendant to represent plaintiff's subrogation interest; that defendant negligently breached a duty owed plaintiff under T.C.A. § 50-914, which breach was the proximate cause of plaintiff's loss; that plaintiff was guilty of remote contributory negligence; and finally, fixed plaintiff's damages at $10,000. The trial judge entered judgment for plaintiff in that sum and denied the motions of plaintiff and defendant for judgments notwithstanding the verdict.

The Court of Appeals reversed and dismissed. They found material evidence to support the jury's verdict that no contract relationship existed between plaintiff and defendant, foreclosing that issue. The intermediate court examined T.C.A. § 50-914 and concluded that the statute, "does not in specific words place any duty on the attorney" and expressly declined to find any implied duty.

I.

Don Ledbetter suffered electrical burns on December 28, 1972, while working for Harrison, Incorporated, resulting in the loss of both hands and parts of both arms below the shoulder. Harrison, Incorporated was performing a contract with South Central Bell to lay underground conduits and build underground manholes. Ledbetter was guiding the crane cable into a ditch when the boom of the Bucyrus-Erie Crane came within sufficient proximity to overhead electric wires of the Blount Electric System to arc and send electric current through the cable. On November 7, 1973, a worker's compensation settlement was approved by the Law and Equity Court of Blount County, whereby Aetna paid Ledbetter benefits for the loss of both arms below the shoulder and other statutory benefits totalling $30,875.35.

In December, 1973, defendant Gilreath's law firm filed suit on behalf of Ledbetter against Blount Electric System, Bucyrus-Erie Company and South Central Bell Telephone Company. Thereafter, the Maryville law firm of Meares and Dungan advised defendant that they represented Aetna's subrogation interest in any recovery by Ledbetter. Subsequently, Harrison, Incorporated was brought into the Ledbetter suit as a third-party defendant by each of the three defendants.

Aetna insured Harrison, Incorporated for liability as well as workers' compensation and referred the defense of the third-party actions against Harrison to Meares and Dungan. Aetna's interest in Ledbetter's recovery arising out of his workers' compensation coverage and payment was obviously in conflict with its interest in defending Harrison, Incorporated as an alleged tort-feasor and Meares and Dungan could not represent those conflicting interests. According to Meares, in response to that situation, and with the express permission of Aetna he orally contracted with defendant to represent Aetna's subrogation interest in Ledbetter's claim.

Defendant acknowledged a conversation on that subject with Meares, but denied that any contractual agreement was consummated and as indicated, that issue has been resolved by the jury verdict that is supported by material evidence and is no longer viable.

On October 28, 1975, Blount Electric System paid $60,000 to Ledbetter and defendant Gilreath for an instrument of release or a covenant not to sue, that expressly preserved the right to pursue Ledbetter's claim against Bucyrus-Erie and South Central Bell. The instrument did not attempt to exclude the subrogation rights of Aetna in Ledbetter's claim.

Ledbetter's suit was set for trial in the Law and Equity Court of Blount County on December 2, 1975. Prior to December 1, 1975, South Central Bell had agreed to pay Ledbetter $17,500 and Bucyrus-Erie had agreed to pay $2,500 in settlement of Ledbetter's suit against them, each settlement to exclude Aetna's subrogation rights.

A hearing was held in the chambers of the judge of the Law and Equity Court of Blount County on December 1, 1975, implicitly at the insistence of the law firm of Hodges, Doughty, and Carson who had been employed by Aetna a short time prior to that date as a result of learning of the Blount Electric settlement and disbursement of the proceeds. A representative of that law firm advised the trial judge that he had just been employed and would file an intervening petition on the following day seeking to enforce Aetna's statutory lien. During the course of the hearing the following facts were revealed to the trial judge: that the settlement with Blount Electric of $60,000 had been consummated and the proceeds disbursed without any payment to Aetna; that settlements had been negotiated with South Central Bell and Bucyrus-Erie, but implicitly had not been paid or disbursed; that defendant Gilreath did not intend to recognize Aetna's statutory lien, insisting that the latter two settlements had, "left the compensation carrier out."

In this setting, defendant on behalf of Ledbetter announced that plaintiff was taking a voluntary non-suit. Aetna's lawyer asked the trial judge to then and there declare a lien on the settlement proceeds. Defendant took the position that plaintiff had filed nothing at that time and had no right to make any kind of motion.

The December 1, 1975, hearing concluded with the following ruling by the trial judge:

"THE COURT: All right, it appears to the Court that the plaintiff's attorney was well aware of the workmen's compensation subrogation claim by virtue of the fact that he previously represented to the Court that he represented it up until just prior to the last hearing had by the Court in this matter, at which time he felt he had a conflict of interest, and the Court was advised that additional counsel would be appointed to represent the compensation carrier. New counsel representing the workmen's compensation carrier has appeared this morning. The plaintiff has settled his claim against all the defendants. The case against the defendant South Central Bell was settled today. The claim against Blount Electric System was settled prior to plaintiff's attorney advising the Court that he no longer represented the workmen's compensation carrier, or the carrier's interest.

This was settled for $60,000. The case against Bucyrus-Erie was settled for $2,500 on November 28, 1975. The case against South Central Bell was settled for $17,500 on December 1. A motion has been made asking the Court to impress a statutory lien in the amount of the recovery and settlement under the provisions of § 50-914, which provide for subrogation lien on any recovery made against a third party less reasonable attorney fees and expenses. The lien therefore does not need to be impressed simply by virtue of the fact that it is granted by statute. It seems that the Court is being asked to enforce a lien by oral motion with regard to sums paid, and to be paid by virtue of settlement agreements. This Court will enforce the statutory lien upon proper application if it is apparent that the plaintiff and his attorney do not intend to honor the statutory lien provided for in § 50-914."

Thereafter the following events transpired in the Law and Equity Court of Blount County in the Ledbetter suit:

(1) The trial judge signed an order on either December 2, or December 7, 1975, reciting that upon motion of the plaintiff, it was ordered that the case was dismissed without prejudice. That order was entered on the minutes on December 11, 1975.

(2) On December 2, 1975, Aetna filed an intervening petition asserting its statutory lien in the sum of $30,875.35 asking the Court to decree that any judgment or order of dismissal provide for a lien in its favor.

(3) On December 12, 1975, the trial judge signed an order that was entered on the minutes on the same date declaring Aetna's lien and directing plaintiff Ledbetter and defendant South Central Bell and Bucyrus-Erie to honor Aetna's lien and awarding Gilreath a $10,000 fee. The order concluded as follows: "Conditioned upon compliance with the foregoing order, orders of dismissal may be entered in this cause."

II.

The theory of third party actions and employers subrogation in compensation law has been succinctly stated by Professor Larson as follows:

§ 71.10 Reaching the ultimate wrongdoer

"The concept underlying third party actions is the moral idea that the ultimate loss from wrongdoing should fall upon the wrongdoer....

(I)n compensation law, social policy has dispensed with fault concepts to the extent necessary to ensure an automatic recovery by the injured workman but the disregard of fault goes no further than to accomplish that object, and, with...