Liberty Mut. Ins. Co. v. Western Cas. & Sur. Co.

• Decision Date: 07 November 1974
• Docket Number: No. 11551--PR,11551--PR
• Citation: Liberty Mut. Ins. Co. v. Western Cas. & Sur. Co., 527 P.2d 1091, 111 Ariz. 259 (Ariz. 1974)
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, a corporation, Appellant, v. WESTERN CASUALTY & SURETY COMPANY, a corporation; Arthur O. Martinez and Patricia Martinez, husband and wife; Joseph McDuffee and Colleen McDuffee, husband and wife; and Antonio Torres and Belen Torres, husband and wife, Appellees.
• Court: Arizona Supreme Court

Page 1091

527 P.2d 1091

111 Ariz. 259

LIBERTY MUTUAL INSURANCE COMPANY, a corporation, Appellant, v. WESTERN CASUALTY & SURETY COMPANY, a corporation; Arthur O. Martinez and Patricia Martinez, husband and wife; Joseph McDuffee and Colleen McDuffee, husband and wife; and Antonio Torres and Belen Torres, husband and wife, Appellees.

No. 11551--PR.

Supreme Court of Arizona, In Banc.

Nov. 7, 1974.

O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears by Lawrence H. Lieberman, Phoenix, for appellant.

Lesher & Scruggs, by D. Thompson Slutes, Tucson, for appellee Western Cas. & Sur.

W. Mercer Bouldin, Tucson, for appellees Martinez, McDuffee & Torres.

STRUCKMEYER, Justice.

This is an appeal by Liberty Mutual Insurance Company from an amended judgment in an action in interpleader. Opinion of the Court of Appeals, 21 Ariz.App. 363, 519 P.2d 216 (1974), vacated and judgment of the Superior Court reversed.

Appellees, Arthur O. Martinez, Joseph McDuffee and Antonio Torres, hereinafter called the individual appellees, sustained certain minor injuries when plaster dust blew in their eyes during the course of their employment with the Floyd Hartshorne Plastering Co., Inc. They were treated for the injuries at the Tucson General Hospital by Doctors Ronald E. Dennis and Jack Leon Edwards. Extensive damage was caused to their vision when toxic materials were left in their eyes.

The individual appellees brought suit for damages for malpractice against the hospital and the two doctors. In that suit, a settlement was obtained by the terms of which Western Casualty, the liability carrier for the doctors and the hospital, tentatively agreed to pay $500,000; $270,000 to Martinez, $150,000 to McDuffee, and $80,000 to Torres. The settlement was contingent upon the court finding the total amount of damages to the workmen by the acts of the alleged malpractice and upon a finding of the amounts attributable to the various items of damage suffered by them.

The trial court found, and by letter dated October 8, 1971 so advised counsel, that the amount of total damages to each of the three workmen was: Martinez, $650,000; McDuffee, $200,000; Torres, $100,000. It also found that of the $270,000 to be received in settlement by Martinez, $100,000 was attributable to medical expenses, loss of income past and future, and loss of future earning capacity; for McDuffee, for the same items, $50,000; and for Torres, $30,000. The remainder, the trial judge attributed to pain, suffering, embarrassment, humility and inconvenience, loss of consortium, and the loss of pleasures in life from the enjoyment of a sound body. An amended judgment was entered which reflected the findings of the court.

Western Casualty filed the present action, a complaint in interpleader, naming the three individual appellees and the Liberty Mutual Insurance Company as defendants, and deposited with the court the sum of $56,094.36. It alleged that Liberty Mutual as the workmen's compensation carrier for the Floyd Hartshorne Plastering Company had paid medical and compensation benefits on behalf of the individual appellees in that amount and that Liberty Mutual claimed the right to approve the settlement and a lien on the entire amount of the proceeds by virtue of A.R.S. § 23--1023.

The individual appellees cross-claimed, asking for a declaratory judgment that Liberty Mutual was not entitled to have the full amount of its alleged liens repaid in that attorney's fees and expenses should first be deducted, nor was it entitled to full credit against any future liability that it may have to the individual appellees for future compensation benefits. In this latter respect, they urged that Liberty Mutual's lien did not embrace that portion of the settlement proceeds attributed to items of damage recoverable in a civil suit but not covered under workmen's compensation.

The court in the present action ordered that of the $56,094.36 on deposit with it, $45,245.30 be distributed to Liberty Mutual and $9,349.06 as and for attorney's fees and $1500 as and for costs and expenses be distributed to W. Mercer Bouldin, attorney for the individual appellees. Further, the court computed a credit against future liability under the Workmen's Compensation Act to which Liberty Mutual would be entitled. It split the balance of the recovery from the settlement into six separate items of damages, allowing Liberty Mutual a lien only on three of the items, namely the 'medical expense, lost income past and future, and loss of future earning capacity.'

By A.R.S. § 23--1023, ¹ as amended Laws of 1968, if an employee who is entitled to compensation is injured or killed by the wrong of another not in the same employ, such injured employee may pursue an action for damages against such other person and if he proceeds against such other person, compensation and medical, surgical and hospital benefits must be paid to him by the insurance carrier for the employer. The insurance carrier is given a lien after deducting the attorney's fees and reasonable expenses of litigation on the amount 'actually collectible' to the extent of the compensation, medical, surgical and hospital benefits paid.

The first question presented is whether A.R.S. § 23--1023 permits the workmen's compensation carrier's lien to be depleted by the amount of the employee's attorney's fees and reasonable expense of litigation.

This question was answered by this Court in Ruth v. Industrial Commission, 107 Ariz. 572, 490 P.2d 828 (1971), and See Ruth v. Industrial Commission, 14 Ariz.App. 324, 483 P.2d 65 (1971). We held that the employer's insurer could not be required to pay a share of the attorney's fees.

Appellees urge, however, that this case presents a different set of facts in that the individual appellees' claim did not arise specifically out of the industrial accident but was based upon a separate tort committed upon the injured workmen by the malpractice of the doctors and the hospital. They rely on a statement in Larson on Workmen's Compensation Law, Volume II, § 72.65(a), that there is a difference in that a malpractice action involves liability for only part of the injury while every other third party action involves the liability of the third party for the entire injury, that in malpractice actions there is an inequity in that the original uncomplicated injury might have actually been caused by the employer's negligence, but that in a malpractice recovery the employee's money to the extent of the recovery in malpractice will be used to reimburse the employer for his own wrong.

Larson suggests, in paragraph 72.65(d), that the best solution would be Amendments to third party statutes so that the employer's carrier in being reimbursed out of the malpractice damages is allowed only so much of his outlay as was caused by the malpractice and that if the judgment in malpractice segregates non-compensable and compensable items, the employer's reimbursement must come only out of that portion of the damages attributed to compensable items.

But we think this is plainly a matter for the Legislature and was so recognized by Larson when he said that the 'best solution would be amendments to third party statutes *...