Anderson v. Quality Furnace Co., 25224

• Decision Date: 06 October 1969
• Docket Number: No. 25224,25224
• Citation: 447 S.W.2d 828
• Parties: Arvin M. ANDERSON, Appellant, v. QUALITY FURNACE COMPANY and Newark Insurance Company, Respondents.
• Court: Missouri Court of Appeals

Page 828

447 S.W.2d 828

Arvin M. ANDERSON, Appellant, v. QUALITY FURNACE COMPANY and Newark Insurance Company, Respondents.

No. 25224.

Kansas City Court of Appeals, Missouri.

Oct. 6, 1969.

Motion for Rehearing and/or Transfer to Supreme Court Denied

Dec. 1, 1969.

Application to Transfer Denied Jan. 12, 1970.

Max W. Foust and Russell D. Jacobson of Morris, Foust, Moudy and Jacobson, Kansas City, and Charlotte P. Thayer, of Thayer, Gum & Ernst, Grandview, for appellant.

Harold J. Maddox, Kansas City, for respondents.

MAUGHMER, Commissioner.

This is an action for apportionment under Section 287.150(3), V.A.M.S. When an employee, holding an award of compensation for an injury, effects a recovery of damages therefor against a third-party tort-feasor, how shall the proceeds be divided between the employee and the employer? That is the sole question presented by this appeal.

The principals in this litigation are Arvin M. Anderson, employee, Quality Furnace Company, employer, and Newark Insurance Company, employer's insurer. We shall state the facts chronologically. On July 7, 1965, the employee was injured in an automobile accident which was sustained while in the course and scope of his employment. He duly filed a claim for workmen's compensation. On July 19, 1966, a suit against the third-party tort-feasor was compromised and settled for the sum of $5,000.00. At the time of the settlement there had been no final workmen's compensation award, but the employer had paid $285.00 in temporary total disability benefits; $7.50 to Memorial Hospital and $50.00 to a Dr. Robert Doring, or a total in compensation benefits paid of $342.50. On July 25, 1967, the referee entered an award of compensation in the total sum of $2,197.60. The entry of the compensation award predated distribution of the third-party recovery proceeds and we hold that the award may be considered in the apportionment of the third-party recovery. Newark Insurance Company, the employer's insurer, accepted $300.00 of the settlement in full and complete satisfaction of the employer's subrogation claim against the negligent third party. This release was not in discharge of the employer's claim against the employee for a share of the third-party recovery and the employee does not contend otherwise.

Counsel have apparently been quite concerned as to what amount of the attorney fee, if any, should be paid out of the employer's share of the recovery. However, this controversy will be resolved by our answer to the main question. Subsection 3 of Section 287.150 was enacted by the Sixty-eighth General Assembly and became effective 90 days after May 31, 1955. It reads as follows:

'3. Whenever recovery against the third person is effected by the employee or his dependents, the employer shall pay from his share of the recovery a proportionate share of the expenses of the recovery, including a reasonable attorney fee. After the expenses and attorneys fee has been paid the balance of the recovery shall be apportioned between the employer and the employee or his dependents in the same ratio that the amount due the employer bears to the total amount recovered, or the balance of the recovery may be divided between the employer and the employee or his dependents as they may agree. Any part of the recovery found to be due to the employer, the employee or his dependents shall be paid forthwith and any part of the recovery paid to the employee or his dependents under this section shall be treated by them as an advance payment by the employer on account of any future installments of compensation.' (Italics added.)

In McKenzie v. Missouri Stables, Inc., 225 Mo.App. 64, 34 S.W.2d 136, 139, decided in 1930, the court first noted that the procedure to be followed in the enforcement of third party liability in workmen's compensation matters has been a vexatious problem in every state which has adopted a workmen's compensation law, and then declared that whoever made the recovery (employer or employee) received the funds under an express trust, the employee to see that the employer's right of subrogation was protected, and the employer to see that the employee received his rightful portion. The doctrine that such proceeds are so held under an express trust has been noted in numerous opinions since. Sommers v. Hartford Accident & Indemnity Co., 277 S.W.2d 645 (Mo.App.) and Zasslow v. Service Blue Print Co., 288 S.W.2d 377 (Mo.App.).

Originally the third party statutory recovery provisions (Section 287.150(1)) provided specifically for subrogation, and then gave a formula for division when the recovery was made by the employer. This statute, after declaring that the employer shall be subrogated to the right of the employee or dependents to recover from third parties, and that the recovery shall not be limited to the amount of compensation payable, states that: first, expenses of recovery shall be deducted; second, the employer shall be reimbursed for any compensation payments made; and third, the balance shall be paid 'forthwith to the employee or to the dependents, and shall be treated as an advance payment by the employer, on account of any future installments of compensation.' In Zasslow v. Service Blue Print Co., supra, the court commented that under Section 287.150(1), supra, 'it was a matter of indifference whether the recovery was obtained against the third party by the employer or by the employee' as the division would be just the same. In Zasslow the recovery was by the employee who sought to have the division made under subparagraph three, but the court refused to apply the statute retroactively.

Originally the states passed only restricted workmen's compensation laws. The legislatures seemed fearful of possible double recovery, and had no desire to promote litigation. It is of course elementary that a claimant should not be allowed to keep the entire amoutn of both his compensation keep the entire amount of both his compensation recovery. At first it seemed that the proper disposition would be to give the employer so much of the negligence recovery as is necessary to reimburse him for his compensation outlay, and give the employee the excess. That would seem to be fair to everyone; the employer, who in a fault sense, is neutral, comes out even; the third person pays exactly the damages he would normally pay; and this appears to be equitable, since to reduce his burden by the workmen's compensation payments would result in a simple windful to him; and the employee gets fuller reimbursement for actual damages sustained than would be payable under the compensation system alone. However, in Larson's Workmen's Compensation Law, Vol. 2, page 209, we find this statement as to division of third-party recoveries:

'* * * Some of the leading compensation states are beginning to vary this slightly. In Massachusetts the employee gets only four-fifths of the excess, presumably on the theory that the subrogee will thereby have a greater incentive to sue or settle for more than the bare amount necessary to cover the compensation expenditure. In New York the employee gets the entire excess over the employer's compensation outlay if the employee himself is the plaintiff, but only two-thirds if the employer or insurer is the plaintiff. This gives the employee, who under the New York statute has the first opportunity to sue, a financial motivation for taking direct action against the tort-feasor; it also impels the subrogee, if the cause of action passes to him, to achieve as large a recovery as possible, and to refrain from the temptation of making an easy settlement for no more than the out-of-pocket compensation cost. * * *'

There are three provisions of subparagraph three which are difficult to construe. Number one, 'Whenever recovery against the third person is effected by the employee or his dependents, the employer sahll pay from his share of the recovery a proportionate share of the expenses of the recovery, including a reasonable attorney fee.' This provision poses the question, What is the employer's share of the recovery and what is his proportionate share of the expenses of recovery? Second, 'After the expenses and attorneys fee has been paid the balance of the recovery shall be apportioned between the employer and the employee or his dependents in the same ratio that the amount due the employer bears to the total amount recovered, * * *.' This provision raises the question as to what is the amount due the employer. Is it the amount he has paid on the compensation award or is it the amount of his liability under the award, that is, the total amount of it? Third, any part of the recovery paid to the employee or his dependents 'shall be treated by them as an advance payment by the employer on account of any future installments of compensation.' (Italics added.) Does the phrase 'future installments of compensation' mean (1) installments which accrue in the future, or (2) installments already due but which are unpaid, or (3) installments which have already accrued and have been paid? We think it must mean installments which accrue in the future, otherwise the payment would not be 'an advance payment' nor would it be 'on account of any future installments.'

On July 25, 1967, the referee, after a hearing, entered an award totaling $2,197.60 and directed a division of the $5,000.00 third-party recovery under the following formula: Amount of award, $2,197.60 ($342.50 paid on award); gross amount of recovery, $5,000.00; expenses of recovery, including attorney fee, $2,043.60 and net recovery of $2,956.40. It is here noted that in computing the total expenses...