American Home Assurance Co. v. Hagadorn

• Citation: 56 Cal.Rptr.2d 536,48 Cal.App.4th 1898
• Decision Date: 19 August 1996
• Docket Number: No. E014365,E014365
• Court: California Court of Appeals Court of Appeals
• Parties: , 61 Cal. Comp. Cases 948, 96 Cal. Daily Op. Serv. 6753, 96 Daily Journal D.A.R. 11,014 AMERICAN HOME ASSURANCE COMPANY, INC. et al., Plaintiffs and Appellants, v. James L. HAGADORN, Defendant and Respondent.

Page 536

56 Cal.Rptr.2d 536

48 Cal.App.4th 1898, 61 Cal. Comp. Cases 948,

96 Cal. Daily Op. Serv. 6753,

96 Daily Journal D.A.R. 11,014

AMERICAN HOME ASSURANCE COMPANY, INC. et al., Plaintiffs and Appellants, v. James L. HAGADORN, Defendant and Respondent.

No. E014365.

Court of Appeal, Fourth District, Division 2, California.

Aug. 19, 1996.

Review Denied Dec. 18, 1996.

Spray, Gould & Bowers, Keith E. Walden, Los Angeles, Emily S. Quinlan, Mission Viejo, and Mark H. Herskovitz, Los Angeles, for Plaintiffs and Appellants.

Corsino & Sutherland and Janice M. Corsino, Pasadena, for Defendant and Respondent.

OPINION

HOLLENHORST, Acting Presiding Justice.

FACTS

Defendant James L. Hagadorn was a construction worker who sustained a job injury on August 1, 1986. His employer, Bragg Crane Service, paid workers' compensation benefits through its insurers, American Home Assurance Co. and American International Adjustment Co. (collectively "American"). The workers' compensation benefits totaled approximately $155,000.

Defendant Hagadorn sued a third party, Herrera Construction Company, for negligently causing his accident. Herrera and its insurer, Ohio Casualty Group of Insurance Companies, were joined in that action. American filed a lien in the third-party action to attempt to recover the workers' compensation benefits it had paid.

A mandatory settlement conference was held in the third-party action on September 22, 1988. Attorneys for American appeared and unsuccessfully negotiated with Ohio Casualty Group for settlement of the lien claim. Attorneys for Mr. Hagadorn also appeared and negotiated with Ohio Casualty Group. A representative of Ohio Casualty Group, Mr. Terry, testified that he offered to settle Mr. Hagadorn's claim for $650,000, on the condition that Mr. Hagadorn dismiss his third-party action with prejudice before American, the lien claimant, filed a complaint in intervention. Mr. Terry's understanding was that such a settlement would defeat American's lien claim. American was obviously not told of this plan, although Mr. Terry testified that he discussed it with the settlement conference judge.

American's attorney, Mr. Samuelsen, testified that he attended the settlement conference. Mr. Hagadorn's attorney, Mr. Hodges, asked him not to file a complaint in intervention, and Mr. Samuelsen told him that a complaint in intervention would not be filed until Mr. Hodges told Mr. Samuelsen that Mr. Hodges was going to settle the case without regard to the lien claim. Trial was then set for October 24, 1988.

After the settlement conference, Mr. Samuelsen and Mr. Hodges had three telephone conversations about the case. Mr. Hodges never told Mr. Samuelsen that the case had been settled, but continued to request documents in preparation for trial. Nevertheless, Mr. Hodges filed a request for dismissal with prejudice on October 17, 1988. Ohio Casualty Group then issued Mr. Hagadorn and his attorneys a check dated October 25, 1988 for $650,512.

Since the action had been dismissed without a complaint for intervention on file, American's lien claim was defeated. Feeling betrayed, American then filed this action for imposition of a constructive trust on the settlement proceeds, for negligence per se, and for violation of statutory duty, i.e., failure to give American notice of the settlement in time to file its complaint in intervention. The case was tried on the issue of whether Mr. Hagadorn had a statutory duty to notify the lien claimant, American, under Labor Code sections 3859 and 3860. ¹ The trial court found no such duty and awarded judgment to defendants. American appeals.

DISCUSSION ²

The applicable general principles are well established: "Under the workers' compensation statutes, an employee who suffers an industrial injury may recover compensation benefits from his or her employer without regard to the negligence of either party. (§ 3600.) With certain specified exceptions, an injured employee's compensation claim against the employer constitutes an exclusive remedy. (§§ 3601, 3602.) Where the tort of a third party causes injury to an employee, however, section 3852 permits the employee to sue the tortfeasor for all damages proximately resulting from the injury even though he or she has received from an employer workers' compensation benefits covering some of the same injuries and resulting disability. [ p ] To prevent an employee from retaining both third party damages and workers' compensation benefits for the same injuries and disabilities, the Labor Code permits an employer to recover workers' compensation benefits it has become obligated to pay and/or has paid by (1) bringing an action directly against the tortfeasor (§ 3852), (2) joining as a party plaintiff or intervening in an action brought by the employee (§ 3853), or (3) allowing the employee to prosecute the action and then applying for a first lien against the resulting judgment or settlement. (§ 3856, subd. (b).)" (Abdala v. Aziz (1992) 3 Cal.App.4th 369, 374-375, 4 Cal.Rptr.2d 130, fns. omitted.)

American elected the third option and filed a lien claim in the third party action. As noted above, American relied on sections 3859 and 3860 in contending that the employee was required to give them timely notice of settlement.

Section 3860, subdivision (a) provides: "No release or settlement under this chapter, with or without suit, is valid or binding as to any party thereto without notice to both the employer and the employee, with opportunity to the employer to recover the amount of compensation he has paid or become obligated to pay and any special damages to which he may be entitled under Section 3852, and opportunity to the employee to recover all damages he has suffered and with provision for determination of expenses and attorney's fees as herein provided."

Section 3859, subdivision (a) provides: "No release or settlement of any claim under this chapter as to either the employee or the employer is valid without the written consent of both. Proof of service filed with the court is sufficient in any action or proceeding where such approval is required by law."

Defendants rely on Section 3859, subdivision (b): "Notwithstanding anything to the contrary contained in this chapter, an employee may settle and release any claim he may have against a third party without the consent of the employer. Such settlement or release shall be subject to the employer's right to proceed to recover compensation he has paid in accordance with Section 3852." Section 3852 provides for third-party actions and employer recovery in such actions of benefits paid.

Defendants introduced expert testimony on the intent of the 1971 amendments which adopted section 3859, subdivision (b). (Stats. 1971, ch. 485, § 1.) According to the expert, the 1971 amendments were intended to correct the situation in which an employer could dictate to the employee whether the employee could settle his third party suit or not. The amendments were intended to make it clear that an employee could settle his third- claim without securing the employer's consent. On the issue of notice, the expert testified: "The bottom line of having this particular bill go forward is to put everyone on the same playing field with certain terms and conditions that, when employed, basically move the cases not only to a fairer conclusion but a quicker conclusion with each side being able to protect themselves subject to relevant notice. [ p ] Notice became the crucial issue. And the form of the notice as set forth in the Glover decision and the O'Dell decision and various other decisions that follow basically interpret and basically allow a smooth transition between the employer's rights [and] the employee's rights...." Thus, as American concedes, defendant Hagadorn had the right to settle his third-party claim with the third party's insurance carrier. The issue is whether defendant Hagadorn had the right to settle his third-party claim without notifying the employer of the settlement.

A review of the cases decided after the 1971 amendment to sections 3859 and 3860 makes it clear that the notice referred to in section 3860, subdivision (a), must be given by the employee in order to give the employer the opportunity to recover the amount of compensation paid from the third party. Having failed to give such notice, the employee is liable for the amount of compensation paid in order to prevent double recovery.

As noted above and in our prior opinion (see fn. 2, supra) our Supreme Court considered this issue in Board of Administration v. Glover, supra, 34 Cal.3d 906, 196 Cal.Rptr. 330, 671 P.2d 834. In that case, a school district employee was injured by defendant Glover in an automobile accident. The Public Employees Retirement System (PERS) paid disability retirement benefits to the injured employee. Subsequently, the injured employee filed a third-party action against Mr. Glover and settled the action without notifying PERS of the settlement, and without obtaining its consent to the settlement. (Id., at pp. 909-910, 196 Cal.Rptr. 330, 671 P.2d 834.) PERS then sued defendant Glover to recoup its payments to the employee. Defendant Glover then cross-complained against the employee for indemnity. PERS argued on appeal that it could disregard the settlement because it was not notified of the settlement and did not consent to it. Our Supreme Court said: "We reject PERS' appeal, determining that the burden of a failure to comply with the notice and consent statutes must fall upon the employee and not upon the third party defendant, at least where, as here, such employee is the only party to the third party settlement who both knew of the existence of the employer's claim for reimbursement and had express and timely notice of an obligation to inform the employer of any such settlement. Having previously held that section 3852, pursuant to which PERS sued defendant, 'simply gave statutory...