Hunter v. Midwest Coast Transport, Inc.

• Decision Date: 18 August 1987
• Citation: 511 N.E.2d 615,400 Mass. 779
• Parties: Milton J. HUNTER v. MIDWEST COAST TRANSPORT, INC. & et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 615

511 N.E.2d 615

400 Mass. 779

Milton J. HUNTER v. MIDWEST COAST TRANSPORT, INC. & et al. ¹

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Dec. 4, 1986.

Decided Aug. 18, 1987.

Daniel C. Crane, Cambridge, for plaintiff.

Gary D. Buseck (Richard L. Neumeier, Boston, with him), for defendants.

Before HENNESSEY, C.J., and WILKINS, ABRAMS, LYNCH and O'CONNOR, JJ.

O'CONNOR, Justice.

This case presents the following question certified to this court by the United States District Court for the District of Massachusetts "With respect to third-party recoveries by employees whose injuries are covered by [the Massachusetts Workers' Compensation Act, G.L. c. 152], does Massachusetts law require that the attorney's fees and costs paid by an employee, as well as the amount of compensation already paid by the insurer, be deducted from the total recovery for the purpose of calculating the amount of the 'excess' to be used as an offset against future compensation payments by the insurer?" ² We answer the certified question in the affirmative. Also, in the interest of a complete resolution of this case, we advise that Massachusetts law requires the insurer (including a self-insurer) to pay its share of attorney's fees and costs by paying a fraction of the employee's future claims for benefits as those claims arise until the total amount of claims equals the statutory "excess." The fraction of each claim to be paid by the insurer is the same ratio that the plaintiff's attorney's fees and costs bear to the amount of the total recovery from the third party. When the total amount of these claims equals the statutory excess, the insurer's obligation to make full compensation payments resumes.

In this diversity action pending in the Federal court, the plaintiff seeks a declaratory judgment as to the nature of the defendants' obligations to bear a share of the attorney's fees that the plaintiff incurred in bringing and settling a third-party tort action. The parties stipulated as follows. In November, 1980, the plaintiff was injured while driving a truck in the course of his employment by the defendant Midwest Coast Transport, Inc. ("MCT"). As a result, the plaintiff became a quadraplegic. Pursuant to his rights under the Massachusetts Workers' Compensation Act, the plaintiff sued various third parties, not including the present defendants, and obtained a judgment of $3,000,000. Notices of appeal were filed. In October, 1984, the plaintiffs and the defendants in the tort action, as well as MCT, entered into a settlement agreement as a result of which a judgment was entered for the plaintiff in the amount of $3,000,000, ³ and the appeals were voluntarily dismissed.

From the date of the accident until September, 1984, when it ceased making compensation payments, MCT had paid the plaintiff $230,368.82 for his medical and nursing care and attendance and weekly compensation benefits. MCT was self-insured for payments up to $250,000, and carried an excess policy with the defendant Transportation Insurance Company ("TIC"). Pursuant to the settlement agreement, and in conformity with G.L. c. 152, § 15, the plaintiff paid MCT $149,524.04, reimbursing MCT for the $230,368.82 it had paid the plaintiff less $76,789.61 attorney's fees and $4,055.17 costs. The attorney's fee was one-third of $230,368.82. The parties also stipulated that, from October 6, 1985, to February 5, 1986, the plaintiff incurred further expenses of $45,776.78 for medical and nursing care and attendance, and that he would continue to incur such expenses as a result of his injuries.

The certified question has arisen in connection with a United States District Court judge's consideration of cross-motions for summary judgment. It is apparent from the judge's memorandum that his objective is to obtain from this court a declaration that will be dispositive of this case, and that he has concluded that our answer to the certified question will be dispositive. We answer the certified question, and a second, related question because it is our view that answering the certified question alone will not be sufficient to meet the District Court judge's objective.

Under G.L. c. 152, § 15, the plaintiff is entitled to the "excess" of his third-party recovery over the $230,368.82 MCT paid to the plaintiff. Section 15 makes no express provision regarding an insurer's right to offset any part of such an "excess" against its liability for workers' compensation payments of medical and nursing expenses incurred after the plaintiff's recovery from the third party. However, that right was established by this court in Richard v. Arsenault, 349 Mass. 521, 524-525, 209 N.E.2d 334 (1965), in which we concluded that "full effect will be given to the general policy against double recovery and the reimbursement provisions of § 15 by treating the excess as an offset against future compensation payments."

In Richard v. Arsenault, we did not address the question we are called on to answer now. In Richard, we did not consider, as we must here in order to answer the certified question, whether the excess to be treated as an offset is the statutory excess, that is, "the amount by which the total sum received in payment for the injury, exclusive of interest and costs exceeds the compensation paid under [G.L. c. 152]," as the defendants contend, or, rather, the statutory excess less the plaintiff's attorney's fee and costs, as the plaintiff contends. The question in Richard was whether the insurer was entitled to any offset. The parties had agreed on how the offset should be computed if the insurer was entitled to one.

Here, as the Federal judge observed, "[t]he reason [the] plaintiff seeks an immediate or eventual reallocation of responsibility for his attorney's fees is evident. Under the system defendants contend is correct, defendants receive a credit against their liability for future compensation equal to the amount of plaintiff's total recovery less the amount returned to the insurer. Plaintiff, however, must pay his attorney's fees out of this 'excess.' Defendants' credit [would exceed] plaintiff's net recovery by the amount of plaintiff's share of the attorney's fees. Consequently, plaintiff's net excess recovery will be exhausted before defendants' credit. Thus, plaintiff seeks to avoid this result either by having defendants pay one-third of his future medical bills as they are incurred, until those bills equal the amount of his gross excess, or by reducing [the defendants'] credit against future liability payments by the amount of plaintiff's share of his attorney's fees so that defendants' net credit is equal to plaintiff's net excess" (footnotes omitted). From the plaintiff's perspective, at stake in the instant case is the insurer's potential liability for nearly $1 million in compensation benefits.

Our holding in Richard was expressly grounded on concerns about fairness, especially the "principle underlying the workmen's...