Folstad v. Eder
| Decision Date | 05 April 1991 |
| Docket Number | No. C6-90-585,C6-90-585 |
| Parties | Donna Jean FOLSTAD, n/k/a Donna Jean Fairbanks, Respondent, v. Nancy Irene EDER, et al., Petitioners, Appellants. |
| Court | Minnesota Supreme Court |
Syllabus by the Court
Thomas A. Harder, Jardine, Logan & O'Brien, St. Paul, for appellants.
Douglas E. Schmidt, Sieben, Grose, Von Holtum, McCoy & Carey, Ltd., Minneapolis, for respondent.
Heard, considered, and decided by the court en banc.
If, prior to trial of the employee's tort action, the employer-insurer settles its subrogation claim with the defendant tortfeasor, does either the allocation formula of Minn.Stat. Sec. 176.061, subd. 6 (1990) or the collateral source deduction of Minn.Stat. Sec. 548.36 (1990) apply? The trial court thought the collateral source deduction applied and the court of appeals thought the allocation formula governed. We disagree with both and reverse.
Plaintiff-employee Donna Fairbanks sued defendant-appellants Nancy and Janos Eder for personal injuries sustained when plaintiff's car collided with defendants' car (driven by Nancy Eder and owned by Janos Eder) in September 1984. Plaintiff's complaint claimed damages for hospital and medical expenses and loss of income, as well as for general damages.
Plaintiff Fairbanks was in the scope and course of her employment with the Westminster Corporation at the time of the accident. Fairbanks' medical expenses of $7,717 were paid by her employer's workers' compensation insurer, Wausau Insurance Company. When plaintiff commenced suit against the defendants Eder, she notified Wausau that the carrier's subrogation claim was included in the lawsuit. Wausau acquiesced in the inclusion.
On May 8, 1989, the case was called for trial. In chambers, before trial started, counsel for defendants Eder advised the court and plaintiff's counsel that defendants had settled Wausau's subrogation claim directly with Wausau, and had taken an assignment of any claims which Wausau might have. Counsel said he was waiving Wausau's claims, and that after trial he would move for "a complete set-off" pursuant to the collateral source statute or, alternatively, for "reimbursement" under Minn.Stat. Sec. 176.061, subd. 6 of the Workers' Compensation Act. Subsequently defendants disclosed that they had paid Wausau $3,000 to settle the subrogation claim.
The jury awarded plaintiff damages to date of verdict of $9,657.14 for medical expenses, $10,000 for emotional distress, and $5,000 for pain and disability. The jury awarded no future damages and found defendant Nancy Eder 70 percent at fault and plaintiff Fairbanks 30 percent. 1
The trial court first reduced the aggregate verdict of $24,657.14 by 30 percent to $17,260 (to account for plaintiff's 30 percent fault). The trial court then applied the collateral source statute, Minn.Stat. Sec. 548.36, reducing plaintiff's recovery by a further $6,760 in medical expenses (70 percent of $9,657.14). This left plaintiff a net of $10,500, out of which she pays her attorney.
The court of appeals in an unpublished opinion reversed and remanded. The appeals panel held that the jury's award of $17,260 ($24,657.14 reduced for 30 percent fault) should have been distributed under section 176.061, subd. 6 of the Workers' Compensation Act. We granted defendant tortfeasors' petition for further review.
The problem in this case arises from the interplay of two statutes, the Workers' Compensation Allocation Statute, Minn.Stat. Sec. 176.061, subd. 6 (), and the Collateral Source Statute, Minn.Stat. Sec. 548.36. Both statutes govern slightly different aspects of a compensation carrier's subrogation rights in an employee's action against a third-party tortfeasor.
When an employee recovers on her tort claim in its entirety, the subdivision 6 formula provides for allocation roughly as follows: (a) first, payment of collection costs, probably about one-third; (b) one-third of the remainder free and clear to the employee; (c) payment of the compensation carrier's subrogation claim less a pro rata share of the attorney fees; and (d) any balance remaining to the employee, subject to a credit to the employer for benefits yet to be paid.
The collateral source statute on the other hand provides that if (1) plaintiff's award includes damages to compensate plaintiff for losses for which she has already been compensated by a collateral source (such as workers' compensation benefits); and if (2) plaintiff has not asserted the collateral source's subrogation rights in her action; then, to avoid a double recovery by plaintiff, the trial court deducts the amount of the collateral source from plaintiff's award. In this case, the trial court felt Wausau's subrogation claim had not been asserted and therefore deducted the medical expenses awarded by the jury from plaintiff's recovery. See footnote 5, infra.
In Keenan v. Hydra-Mac, Inc., 434 N.W.2d 463 (Minn.1989), after the jury's verdict but before post-trial motions were heard, the employer settled its workers' compensation subrogation claim with the defendant tortfeasor; and then, claiming its subrogation claim was no longer being "asserted," the employer sought to deduct the amount of compensation benefits paid to date of trial from plaintiff's award pursuant to the collateral source statute. We held the settlement of the subrogation claim, occurring after the tort trial had started, came too late for the employer-insurer to invoke the collateral source deduction. We left open, however, "whether a pretrial affirmative waiver of an employer's subrogation claim might cause the collateral source statute to apply." Id., 434 N.W.2d at 466 n. 4.
It is this issue, left open in Keenan, that is now before us.
Some background might first be helpful. An injured employee who has received workers' compensation benefits and who has a tort action against a third-party tortfeasor, has a number of options, including:
(3) The employee settles with the third party tortfeasor in a Naig settlement, i.e., she settles for all items of tort damage not covered by the Workers' Compensation Act, and this settlement recovery is not subject to the subdivision 6 formula. 2 The compensation carrier then pursues its subrogation claim alone against the third party tortfeasor.
(2) Settling the subrogation claim directly with the third party tortfeasor, leaving the employee free to pursue her remaining claim against the third party tortfeasor. See Johnson v. Farmers Union Cent. Exchange, 414 N.W.2d 425, 428 (Minn.App.1987) (). If this settlement occurs after trial of the employee's tort action has commenced, Keenan holds the subdivision 6 formula applies so as to require the compensation carrier to share in the costs of collection.
It should be kept in mind that the compensation carrier, by statute, has its own "separate additional cause of action" for medical expenses paid and for other compensation payable. Section 176.061, subd. 7 (1990). The compensation carrier can intervene in the employee's tort action or maintain a separate action for recovery of benefits either in the employer's name or in the name of the employee. Section 176.061, subd. 5. If fault on the part of the employer is not involved, the claim may be viewed as one for indemnity. Section 176.061, subd. 10. 3 In other words, the compensation carrier is pretty much free to dispose of its subrogation claim as it sees fit. If the compensation carrier permits its claim to be included in the employee's claim, however, the subdivision 6 formula contemplates that the compensation carrier will share in the costs of collection incurred by the employee. Part of the problem here is how are the collection costs to be borne when the employee and the compensation carrier go their separate ways prior to trial.
So much for background. The issue in this appeal is what happens if the compensation carrier selects its second option and settles with the third party tortfeasor prior to trial? Does the subdivision 6 formula still apply? We think not. Neither do we think there is any need to apply the collateral source deduction.
An employee is entitled under a Naig settlement to settle her claim for all damages not covered by workers' compensation free and clear of the subdivision 6 formula. Defendants argue the compensation carrier should likewise be able to settle its subrogation claim with the tortfeasor free and clear of the subdivision 6 formula. We believe there is merit to this argument.
By "free and clear of the subdivision 6 formula," we mean that the employee keeps intact her...
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