Hughes v. Argonaut Ins. Co.
| Decision Date | 16 April 2001 |
| Docket Number | No. A090292.,A090292. |
| Citation | 88 Cal.App.4th 517,105 Cal.Rptr.2d 877 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Michelle HUGHES, Plaintiff and Appellant, v. ARGONAUT INSURANCE COMPANY, Defendant and Respondent. |
Crosby, Heafey, Roach & May, Joseph P. Mascovich, Kenneth M. Seeger, Oakland, Adam R. Salvas, for National Association of Independent Insurers as amicus curiae on behalf of respondent.
The doctrine of workers' compensation exclusivity is a frequent subject of judicial tweaking. Like the law of search and seizure, the variety of fact patterns seems neverending, and each variation presents yet another opportunity for judicial review. This time we examine whether a claimant may sue her employer's insurance carrier in superior court for what amounts to the insurer's purported mishandling of its lien on the claimant's settlement with a third party tortfeasor. We conclude she may not and accordingly affirm the judgment of dismissal.
As this appeal comes to us from a judgment of dismissal following the sustaining of a demurrer without leave to amend, we accept the material allegations of the complaint as true. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967, 9 Cal. Rptr.2d 92, 831 P.2d 317.) The third amended complaint of appellant Michelle Hughes reveals the following: Hughes was an employee of Southern Auto Supply. Respondent Argonaut Insurance Company (Argonaut) provided workers' compensation insurance to the employer. On December 8, 1997, while on the job, Hughes was in an automobile accident with a third party. Argonaut paid Hughes workers' compensation benefits in the amount of $5,324.07.
Thereafter, Hughes pursued a personal injury claim against the third party; she did not sue. The parties settled for the sum of $12,104.75.
Argonaut asserted a lien against the settlement; the settlement check was endorsed to Hughes, Argonaut and Hughes's attorney. Hughes tendered $3,549.38 to Argonaut, representing the full value of the insurer's workers' compensation lien ($5,324.07) reduced by one-third withheld for attorney fees.
Argonaut refused the tender, insisting on its right to collect the lien in full. Hughes offered to place the disputed difference ($1,774.67) in escrow, pending resolution of the matter. Argonaut refused.
Argonaut's refusal to negotiate the check led to litigation, with Hughes asserting causes of action for insurance bad faith, intentional interference with contractual relations, interference with prospective economic advantage, wrongful assertion of lien and declaratory and injunctive relief. In her representative capacity Hughes also challenged Argonaut's practices on behalf of the general public, asserting violations of California's unfair competition law (UCL). (Bus. & Prof. Code, § 17200 et seq.)
After initiation of the lawsuit, Argonaut agreed to distribute the settlement funds, while holding the disputed $1,774.67 in a trust account.
The trial court sustained Argonaut's demurrer without leave to amend, ruling that it did "not have subject matter jurisdiction" over Hughes's complaint, and that such jurisdiction resided exclusively with the Workers' Compensation Appeals Board (WCAB). This appeal followed.
This case presents the central question: Which tribunal has jurisdiction to decide the dispute over allocation of attorney fees incurred in reaching settlement with a third party—the WCAB or the superior court? Hughes has staged a lineup of arguments against WCAB jurisdiction; not one can overcome the hurdles of sections 3860 and 5300 of the Labor Code.1
Article XIV, section 4 of the California Constitution vests the Legislature with "plenary power ... to create, and enforce a complete system of workers' compensation, by appropriate legislation...." Pursuant to this authority, the Legislature promulgated a complete statutory scheme governing compensation to employees for injuries sustained in the course and scope of their employment. (§ 3201 et seq., or Workers' Compensation Act (WCA).)
An employer's liability for compensation under the WCA is "in lieu of any other liability whatsoever to any person" and exists for "any injury sustained by his or her employees arising out of and in the course of the employment ... in those cases where the ... conditions of compensation concur ...."2 (§ 3600, subd. (a).) When the conditions of compensation concur, "the right to recover such compensation is ... the sole and exclusive remedy of the employee ... against the employer." (§ 3602, subd.(a).) The veil of protection cloaking employers by virtue of this exclusivity policy extends to workers' compensation insurance carriers as well. (§ 3850, subd. (b).)
Although the employee is limited to workers' compensation benefits from his or her employer, when the work-related injury is caused by a stranger to the employment relationship the employee may also recover personal injury damages from the third party. (§ 3852; Summers v. Newman (1999) 20 Cal.4th 1021, 1023-1024, 86 Cal.Rptr.2d 303, 978 P.2d 1225.) However, to foreclose a double recovery while also enabling the employer to shift its financial burden for compensation benefits to the responsible third party, the WCA affords employers subrogation rights against third party tortfeasors. (Quinn v. State of California (1975) 15 Cal.3d 162, 166-167, 124 Cal.Rptr. 1, 539 P.2d 761; see Sea-Land Service, Inc. v. Workers' Comp. Appeals Bd. (1996) 14 Cal.4th 76, 82, 58 Cal.Rptr.2d 190, 925 P.2d 1309.) Thus, an employer has a right of reimbursement for workers' compensation benefits it has paid or become obligated to pay when its employee recoups damages from a third party tortfeasor by way of judgment or settlement. (§§ 3856, 3860.) Additionally, the employer may redeem its outlay for benefits by suing the tortfeasor directly (§§ 3852, 3854), or by joining an action brought by the employee (§ 3853).
In turn, upon payment of benefits for injuries caused by a third party, the workers' compensation insurer can also recoup its expenditures by suing the third party; intervening in the employee's suit; or asserting a lien on any recovery the employee obtains from the third party. (§§ 3850, subd. (b), 3852, 3856, subd. (b); Neiv Plumbing Contractors, Inc. v. Nationwide Mutual Ins. Co. (1992) 7 Cal.App.4th 1088, 1093, 9 Cal.Rptr.2d 469.)
The availability of statutory subrogation rights spawns rival claims to the common fund of damages secured from the third party. Now the interests of employers, insurers and attorneys whose efforts aid judgment or settlement compete against the interest of the injured employee in maximizing his or her recovery. Section 3860 and its companion, section 3856, set forth the priorities for distributing funds obtained through settlement with the third party tortfeasor (§ 3860) or by way of judgment (§ 3856).3 When settlement is effected, with or without suit, proceeds from the recovery are to be used first to pay costs of settlement, including reasonable attorney fees; second, to refund the employer's reimbursable compensation costs; and finally any balance to the employee. (§ 3860; Summers v. Newman, supra, 20 Cal.4th at pp. 1027-1028, 86 Cal.Rptr.2d 303, 978 P.2d 1225.)
Where, as is alleged here, settlement is prompted solely through the labors of the employee's attorney, then the settlement costs,4 including reasonable attorney fees, are deducted from the amount of settlement prior to reimbursing the employer. (§ 3860, subd. (c).) Because the employer is a passive beneficiary in this situation, its reimbursement rights are subject to reasonable fees and expenses for the services that created the common fund. (Quinn v. State of California, supra, 15 Cal.3d at p. 176, 124 Cal.Rptr. 1, 539 P.2d 761; Gapusan v. Jay, supra, 66 Cal.App.4th at pp. 744-745, 78 Cal.Rptr.2d 250.)
The statutory priority scheme also addresses who determines the amount of expenses and attorney fees. These amounts (§ 3860, subd. (f), italics added.)
Our Supreme Court has explained how the fee setting process works under the analogous situation detailed in section 3856 when an action against a third party tortfeasor is prosecuted successfully to judgment by the employee's attorney alone. Under such circumstances the employer must bear its fair share of attorney fees. Quinn v. State of California, supra, 15 Cal.3d at p. 166, 124 Cal.Rptr. 1, 539 P.2d 761.) The court's job is to first calculate a reasonable fee, and then having fixed that fee, to "make a reasonable apportionment of it between the parties benefitted by the recovery." (Id. at p. 175, 124 Cal.Rptr. 1, 539 P.2d 761, fn. omitted.)
Against this background, we treat Hughes's contentions on appeal.
The core activity upon which all causes of action hinge is Argonaut's purportedly wrongful assertion of the full value of its lien, in derogation of the section 3860 duty to apportion attorney fees. That statute situates jurisdiction to determine the reasonable amount of attorney fees to be deducted from Hughes's settlement with the WCAB. Where settlement occurs after suit is filed, or if the settlement requires court approval, the court sets the amount of litigation expenses and attorney fees. Otherwise, the WCAB will make these decisions. (§ 3860, subd. (f); Summers v. Newman, supra, 20 Cal.4th at p. 1027, 86 Cal.Rptr.2d 303, 978 P.2d 1225.) Hughes did not sue the third party, nor does the complaint suggest that the settlement required court approval. Therefore, the WCAB, not the superior court, decides the...
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