Gokalp v. PA MFRS. ASS'N INS. CO.

• Decision Date: 23 October 1998
• Citation: 553 Pa. 452,719 A.2d 1033
• Parties: Judith GOKALP, Appellee, v. PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY, Appellant.
• Court: Pennsylvania Supreme Court

553 Pa. 452

719 A.2d 1033

Judith GOKALP, Appellee, v. PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY, Appellant.

Supreme Court of Pennsylvania.

Argued February 4, 1998.

Decided October 23, 1998.

Mindy L. Feldstein; Anthony J. Bilotti, Broomall, for PA Manufact. Assoc. Ins. Co.

Jonathan F. Ball, Philadelphia, for Amicus-Kemper Ins. Co.

Richard A. Estacio, Harrisburg, for Amicus-Trial Lawyers.

Joseph J. Aversa, Philadelphia, for Judith Gokalp.

Richard D. Harburg, Philadelphia, for Amicus-State Workman's Ins. Fund.

Before FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE, NIGRO, NEWMAN and SAYLOR, JJ.

ORDER

PER CURIAM.

The court being evenly divided, the order of the Superior Court is AFFIRMED.

SAYLOR, J., did not participate in the decision of this matter.

NIGRO, J., files an opinion in support of affirmance joined by CASTILLE and NEWMAN, JJ.

CAPPY, J., files an opinion in support of reversal joined by FLAHERTY, C.J., and ZAPPALA, J.

OPINION IN SUPPORT OF AFFIRMANCE

NIGRO, Justice.

The issue before the Court is whether Appellant, a workers' compensation carrier, is entitled to subrogation from the proceeds of a third-party settlement received by Appellee. In this case, the settlement occurred after the Workers' Compensation Act was amended to allow subrogation. The car accident and related injury, however, occurred when employers had no subrogation right under 75 Pa.C.S. § 1720.

The Court considered a similar issue in Bell v. Koppers Co., Inc., 481 Pa. 454, 392 A.2d 1380 (1978), where employees sued manufacturers of coke ovens for injuries caused by exposure to the oven's harmful emissions. A manufacturer filed a complaint against the employer seeking contribution or indemnity. At the time the injuries were sustained, the law allowed a third party that was sued by an injured employee to obtain contribution or indemnity from the employer. However, before the employees filed suit, amendments to the Workmen's Compensation Act provided that employers are not liable to third parties for contribution or indemnity.

In deciding which rule of law applied in Bell, the Court stated that when substantive rights are involved, the applicable law must be that which is in effect at the time the cause of action arises. 481 Pa. at 458-59,392 A.2d at 1382. The Court found that the manufacturer's right to contribution or indemnity is a substantive right and that the statutory amendments obliterated the manufacturer's cause of action. Id. The Court further found the fact that suit was filed after the statute changed of no consequence since any liability on the employer's part for contribution or indemnity was based upon its negligent acts before the statute was amended. Id. Recognizing numerous other decisions that reached the same result, the Court held that the law in effect on the date of the employees' injuries controlled. Id. at 459, 392 A.2d at 1383.

The Commonwealth Court applied Bell in Byard F. Brogan, Inc. v. Workmen's Compensation Appeal Bd., 161 Pa. Commw. 453, 637 A.2d 689 (1994), a case involving the amendment currently at issue regarding subrogation. In Brogan, an employee was injured in a car accident, received compensation for total disability, and later settled claims against various insurers. The employee sought a ruling on whether his employer was entitled to subrogation. At the time of the accident and subsequent settlement, an employer had no right to subrogation under 75 Pa.C.S. § 1720. The employer, however, argued that it was entitled to subrogation since Section 1720 had since been repealed.

The Commonwealth Court held that the statutory amendment did not apply. 161 Pa. Commw. at 463, 637 A.2d at 694. The court explained that a provision dealing with the existence of an employer's right to subrogation is a question of substantive law. Id. It recognized that under this Court's decision in Bell, changes in the law that are substantive in nature do not apply where an injury occurred before the changes. Id. See also Getek v. Ohio Casualty Insurance Co., 868 F.Supp. 751 (E.D.Pa.1994)

(where injury and settlement occurred before statutory amendment allowing subrogation, carrier's claim to subrogation fails).

In addition, the Third Circuit Court of Appeals rejected an argument that the amended statute applied where a suit against a third party was pending when the statute changed. In Carrick v. Zurich-American Insurance Gp., 14 F.3d 907 (3rd Cir.1994), the spouse of an employee who was killed in a car accident filed a workers' compensation claim and an action against alleged tortfeasors. The spouse also sought a declaratory judgment on the workers' compensation carrier's right to subrogation from potential recoveries in the tort actions. The carrier argued that Section 1720 was repealed while the declaratory judgment action was pending and it has subrogation rights under the amended statute. The Third Circuit Court of Appeals, however, concluded that a statute that allocates the proceeds of a recovery in a tort action is substantive and in Pennsylvania, it will not be applied retroactively. 14 F.3d at 912. Thus, the carrier in Carrick had no subrogation right from any award or settlement received after the statutory amendment.

Similarly, in Valin v. Kemper Insurance Co., 938 F.Supp. 280 (E.D.Pa.1996), rev'd, 107 F.3d 864 (3rd Cir.1997), an employee was injured before the repeal of the no subrogation provision. The settlement of a third-party tort action occurred two years after the repeal. Since the settlement occurred after the effective date of the repeal, the district court allowed subrogation from the settlement for benefits paid by the employer after the effective date of the amended statute. Consistent with its decision in Carrick, the Third Circuit Court of Appeals reversed without a published opinion.¹

Finally, the Superior Court here relied upon its decision in Schroeder v. Schrader, 453 Pa.Super. 59, 682 A.2d 1305 (1996), where an employee was injured in a car accident and received workers' compensation. After the amendments to the Workers' Compensation Act took effect, the employee sued the driver of the other car. In the tort action, the trial court reduced the jury's award for the employee by amounts paid or payable by insurance and workers' compensation pursuant to 75 Pa.C.S. § 1722. The employee appealed the reduction of the award. She argued that although Section 1722 precludes recovery of benefits received, it was repealed before she filed suit.

The Superior Court recognized in Schroeder that before Act 44 repealed Section 1722, a claimant could not recover amounts paid or payable under workers' compensation and, balanced against that provision, a carrier had no right to subrogation under Section 1720. 453 Pa.Super. at 63-64, 682 A.2d at 1307. After the amendments, a claimant's recovery is not reduced by the amount of workers' compensation benefits received, and the carrier has a right to subrogation. Id. In deciding whether the amendment to Section 1722 applied, the Superior Court looked to the Commonwealth Court's decision in Brogan which, as discussed above, found that the amendment to Section 1720 cannot change rights as they existed on the date of the accident. Id. In light of Brogan, it found that applying the amendment to Section 1722 would allow claimants to receive a double recovery. Id. The court thus concluded that the statutory amendments did not apply and the parties' substantive obligations were fixed on the date of the collision. 453 Pa.Super. at 67, 682 A.2d at 1308-09.

Notwithstanding this line of authority, the Opinion in Support of Reversal relies solely upon Pennsylvania Manufacturers' Ass'n Insurance Co. v. Wolfe, 534 Pa. 68, 626 A.2d 522 (1993), a divided decision that does not involve a party's entitlement to subrogation or a question as to the application of an amended statute. Rather, the issue in Wolfe was who had priority to payment from a settlement fund — the carrier who provided benefits to the claimant or the attorney who helped create the fund. The Court stated that "this case does not involve a question of entitlement, but rather a question of priority." 534 Pa. at 72, 626 A.2d at 524. In discussing which interest has priority, the Court stated:

[I]f an employee enters into a contingent fee agreement and a structured settlement agreement is reached to pay the attorney who creates the fund a 40% fee, the employer's subrogation lien is subordinate to the contract claims of the attorney. The worker's compensation carrier is not entitled to any subrogation until the injured employee has the `right' to and receives such compensation.

In determining whether or not an injured employee is entitled, or has a "right," or does receive any payment from a third party, one must first deduct reasonable attorney's fees and expenses incurred in obtaining a recovery or in effecting a compromise settlement in the first place. . . .

534 Pa. at 74, 626 A.2d at 525. The Court then explained why attorneys have first priority. The Opinion in Support of Reversal relies solely upon this discussion in Wolfe on payment priority to resolve an employer's right to subrogation in light of statutory amendments. This reliance appears to confuse an employer's ability to exercise its subrogation rights when payment from a third party is received and an employer's entitlement to subrogation, which is dictated by statute.

In sum, consistent with the authority discussed above, Appellant has no right of subrogation because Appellee's cause of action arose before the repeal of Section 1720. Wolfe does not mandate a contrary result. Thus, we affirm the decision of the Superior Court.

OPINION IN SUPPORT OF REVERSAL

CAPPY, Justice.

This is an appeal by allowance from the order of the Superior Court which reversed the trial court's entry of summary judgment in favor of Pennsylvania Manufacturers' Association Insurance Company ("Appellant"). For the following...