Graham v. Workers' Comp. Appeals Bd.

Decision Date12 May 1989
Docket NumberNo. E006225,E006225
Citation258 Cal.Rptr. 376,210 Cal.App.3d 499
CourtCalifornia Court of Appeals Court of Appeals
PartiesJohn B. GRAHAM, Petitioner, v. WORKERS' COMPENSATION APPEALS BOARD, and Orange County Transit District, Respondents.
OPINION

DABNEY, Associate Justice.

In his petition for writ of review, John B. Graham contends that respondent Workers' Compensation Appeals Board (Board) exceeded its power when it granted the petition of respondent Orange County Transit District (Transit District) for credit against Graham's workers' compensation award for a settlement Graham received in a malpractice action. This case presents an issue of first impression as to how the credit provisions of Labor Code sections 3858 and 3861 should be construed in light of the subsequent enactment of Civil Code section 3333.1 as part of the Medical Injury Compensation Reform Act of 1975 (MICRA). Specifically, we are asked to determine whether Civil Code section 3333.1 overrides the employer's right to credit when an employee settles, rather than tries, his medical malpractice action, and the settlement excludes workers' compensation benefits.

FACTUAL AND PROCEDURAL BACKGROUND

On April 1983, Graham, a bus driver employed by the Transit District, was injured in a bus accident in the course of his employment. The Transit District was self-insured for Workers' Compensation. In July 1983, Graham filed an application with the Board for the adjudication of his claim for medical treatment and permanent disability benefits.

Graham also filed a civil action against Dr. Peter Macs (later amended to the Estate of Macs) seeking damages for medical malpractice in Dr. Macs' treatment of Graham for the injuries he sustained in the bus accident. The medical malpractice action was settled by payment to Graham of $150,000 less attorney's fees and costs. The trial judge found that the settlement was entered in good faith and was limited to damages for pain and suffering. Graham dismissed his cause of action against Dr. Macs for special damages.

The Transit District then petitioned for credit, in the amount of the settlement, against the Transit District's liability for future workers' compensation payments to Graham. The Transit District alleged that Graham's injuries were proximately caused, in part, by Dr. Macs' negligence. In opposition to the petition for credit, Graham's counsel submitted a declaration which stated that he indicated to the court at the settlement conference that Graham's medical expenses and disability would not be considered in the settlement because the defense would introduce evidence that workers' compensation benefits would pay those damages. 1 The Workers' Compensation Judge allowed the requested credit.

Graham filed a petition for reconsideration with the Board on the ground that the malpractice settlement was not subject to credit. The Workers' Compensation Judge issued a report and recommendation in which he stated that his original decision was in error and that he should have denied the credit. The Board granted reconsideration. In its order, the Board stated that Civil Code section 3333.1 does not preclude the Transit District from asserting a credit against Graham's settlement. However, the Board ruled that because the malpractice did not cause the injury, but only enhanced or exacerbated it, the employer's credit should be limited to the workers' compensation benefits attributable to the exacerbation. Therefore, the Board remanded the cause for the Workers' Compensation Judge to determine the extent of the Transit District's credit rights.

DISCUSSION
Appellate Jurisdiction

The Board stated in its order on Graham's petition for reconsideration that Civil Code section 3333.1 does not preclude the Transit District from asserting a credit against the settlement Graham obtained in his malpractice action. The Board's determination of this threshold issue is an appealable order, even though the case is not final. (Lab.Code, § 5950; Safeway Stores, Inc. v. Workers' Comp. Appeals Bd. (1980) 104 Cal.App.3d 528, 531, 163 Cal.Rptr. 750.)

Statutory Overview

Workers' Compensation Subrogation Statutes. Labor Code sections 3850 through 3864 contain a comprehensive subrogation scheme which includes both credit provisions 2 and reimbursement provisions 3. The reimbursement provisions provide several methods for the employer (or its workers' compensation carrier) to recover from a third party tortfeasor workers' compensation benefits which the employer has already paid to the injured employee. (Witt v. Jackson (1961) 57 Cal.2d 57, 69, 17 Cal.Rptr. 369, 366 P.2d 641, modified on other grounds by Rodgers v. Workers' Compensation Appeals Bd. (1984) 36 Cal.3d 330, 340, 204 Cal.Rptr. 403, 682 P.2d 1068 and Associated Construction, etc., Co. v. Workers' Comp. Appeals Bd. (1978) 22 Cal.3d 829, 150 Cal.Rptr. 888, 587 P.2d 684.) The credit provisions allow the employer to discontinue workers' compensation benefit payments until the amount of the benefits exceeds the amount of the employee's net recovery from the third party, to the extent the employer became liable for additional workers' compensation payments as a result of the malpractice. (Hodge v. Workers' Comp. Appeals Bd. (1981) 123 Cal.App.3d 501, 509, 513-515, 176 Cal.Rptr. 675.)

The subrogation provisions prevent a double recovery to an employee who makes both a workers' compensation claim and a claim against a third party tortfeasor and provide for reimbursement to the employer for workers' compensation benefits paid to the employee. (Van Nuis v. Los Angeles Soap Co. (1973) 36 Cal.App.3d 222, 229, 111 Cal.Rptr. 398.)

Abrogation of Collateral Source Rule and Employer's Subrogation in MICRA. Under the traditional collateral source rule, a jury may not consider the plaintiff's entitlement to benefits such as medical insurance or disability payments when the jury calculates the plaintiff's damages in a tort action. However, as part of MICRA, the Legislature enacted Civil Code section 3333.1 which abrogated the collateral source rule in medical malpractice actions. 4

The California Supreme Court has explained: "Under [Civil Code] section 3333.1, subdivision (a), a medical malpractice defendant is permitted to introduce evidence of such collateral source benefits received by or payable to the plaintiff; ... Although section 3333.1, subdivision (a) ... does not specify how the jury should use such evidence, the Legislature apparently assumed that in most cases the jury would set plaintiff's damages at a lower level because of its awareness of plaintiff's 'net' collateral source benefits.

[p] In addition, section 3333.1, subdivision (b) provides that whenever such collateral source evidence is introduced, the source of those benefits is precluded from obtaining subrogation either from the plaintiff or from the medical malpractice defendant." (Fein v. Permanente Medical Group (1985) 38 Cal.3d 137, 164-165, 211 Cal.Rptr. 368, 695 P.2d 665.)

Application of Civil Code section 3333.1 to an Employer's Claim for Credit. The Transit District contends that it was entitled to credit against the settlement under Labor Code sections 3858 and 3861. Civil Code section 3333.1, subdivision (b) states: "No source of collateral benefits ... shall recover any amount against the plaintiff...." The Transit District argues that the words of the statute indicate only that a source of collateral benefits may not obtain reimbursement from a plaintiff, but does not restrict an employer's right to obtain credit for future benefits.

The resolution of this issue is a matter of first impression in the credit context. However, we find significant guidance in resolving this issue in cases in which California courts have resolved the analogous statutory conflict in the reimbursement context.

In Miller v. Sciaroni (1985) 172 Cal.App.3d 306, 311, 218 Cal.Rptr. 219 the trial court sustained a demurrer to the employer's complaint in intervention in which the employer sought to assert a claim for reimbursement under Labor Code section 3852 for workers' compensation benefits paid to the employee. The court of appeal affirmed. It explained, "The purpose underlying subdivision (a) is to preclude the double recovery permitted to plaintiffs by the operation of the collateral source rule, under the assumption that the trier of fact will reduce the damage award by amounts already reimbursed. [Citations.] Such a reduction in fact occurred in the instant case. Presumably the awards reduced under the operation of subdivision (a) would in turn have a favorable impact on medical malpractice insurance rates for health care providers. [Citations.]

"Under subdivision (b) of section 3333.1, the collateral source is barred from subrogating plaintiff's claim against defendant. However, Labor Code section 3852, ... permits employers to subrogate plaintiff's claims against the tortfeasor as to benefits conferred, less any amount attributable to the employer's negligence.... By necessary implication this conflict in statutes must be resolved in favor of section 3333.1 as the most recently enacted statute. (Fuentes v. Workers' Comp. Appeals Bd. (1976) 16 Cal.3d 1, 7 [128 Cal.Rptr. 673, 547 P.2d 449].) Furthermore, 'the legislative history of section 3333.1, subdivision (b) indicates quite clearly that this provision was intended to prevail over other statutory subrogation provisions, such as Labor Code section 3852. An earlier draft of subdivision (b) would have preserved a collateral source's subrogation rights when such rights were ...

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