Naig v. Bloomington Sanitation, 46983

• Decision Date: 07 October 1977
• Docket Number: No. 46983,46983
• Citation: 258 N.W.2d 891
• Parties: Melvin W. NAIG, Relator, v. BLOOMINGTON SANITATION, et al., Respondents, State Treasurer, Custodian of the Special Fund.
• Court: Minnesota Supreme Court

Page 891

258 N.W.2d 891

Melvin W. NAIG, Relator, v. BLOOMINGTON SANITATION, et al., Respondents State Treasurer, Custodian of the Special Fund.

No. 46983.

Supreme Court of Minnesota.

Oct. 7, 1977.

Syllabus by the Court

An employee has a right to compromise his claims which are not cognizable under the Worker's Compensation Act in a settlement with a third-party tortfeasor. If the employer is notified of such settlement negotiations and if the employee demonstrates that the resulting settlement compromises only damages not recoverable under worker's compensation or allocates the settlement into recoverable and nonrecoverable claims, the employer cannot credit the nonrecoverable portion of the settlement against compensation payments. In this case, the employee demonstrated that the settlement did not affect the employer's subrogation rights.

Richard C. Smith and Larry Meuwissen, Minneapolis, for relator.

Van Eps & Gilmore and George R. Benton, Minneapolis, for Bloomington Sanitation et al.

Warren Spannaus, Atty. Gen. and Winston Ehlmann, Sp. Asst. Atty. Gen., St. Paul, for State Treasurer.

Heard before KELLY, TODD, and YETKA, JJ., and considered and decided by the court en banc.

KELLY, Justice.

Relator seeks review by writ of certiorari of a decision of the Worker's Compensation Court of Appeals crediting part of a third-party tort settlement against claims by relator for compensation benefits exclusive of medical expenses. We affirm in part and reverse in part.

On January 8, 1970, relator suffered an injury arising from and in the course of his employment with Bloomington Sanitation. Bituminous Casualty Corporation provided worker's compensation coverage for Bloomington Sanitation and relator received compensation benefits.

The circumstances of relator's injury gave rise to a tort action, prosecuted by relator and his wife, against several third parties. The employer and its compensation insurer were advised of the initiation of this action and the insurer agreed to permit relator's attorney to represent its subrogation interest. ¹

Shortly before the trial date of September 10, 1975, the parties began settlement negotiations. On September 8, relator's attorney sent a letter to the compensation insurer, withdrawing his representation because a conflict of interest had arisen during the negotiations. As stated in relator's brief:

" * * * At that time and during the following days, several telephone conversations occurred between Richard C. Smith, who represented the employee and George R. Benton, who represented the compensation insurer. Through its attorney, the compensation insurer was put on notice that the employee intended to negotiate a settlement which would not include any items for which the insurer might have a subrogation claim under the Workers' Compensation statute."

Apparently relator had received a settlement offer acceptable to him, but unacceptable to the compensation insurer. On September 11, the parties to the tort action read a stipulation of settlement into the record of the Hennepin County District Court. Neither the employer nor compensation insurer was present or a party to the settlement, although they were aware that they were no longer represented by relator's attorney. Relator and his wife received $18,000 for, in the words of relator's counsel, "pain and suffering, the loss of consortium of Mr. Naig and of Mrs. Naig, the embarrassment, humiliation that has occurred because of the loss to this man of his earning ability, financial problems in the home, the scars that are on his body, and the general disability as opposed to his prior situation." Plaintiffs signed a general release and the tort action was dismissed with prejudice, pursuant to stipulation. The parties agreed that the settlement "encompasse(d) everything other than the subrogated interest of the compensation carrier."

On October 24, 1975, the employer and compensation insurer filed a petition with the Worker's Compensation Division for an order that would allocate the proceeds of relator's third-party settlement. Relator objected to the petition and the employer withheld benefit payments, prompting relator to file a claim petition. The matter came before a compensation judge who issued an order allocating $7,538.80 ² of the settlement as a credit against claims by relator for compensation and medical expenses under the Worker's Compensation Act. Relator appealed to the Worker's Compensation Court of Appeals, which sustained the order except insofar as it provided a credit against medical expenses.

This case presents us with another opportunity to examine the confusing and difficult relationships among employers, employees, and third-party tortfeasors under the Worker's Compensation Act. The question presented here is whether an employer may credit against compensation payments that portion of a settlement between an employee and third-party tortfeasor which compensates the employee for damages which are not cognizable under the Worker's Compensation Act.

The employer and its compensation insurer were subrogated to relator's rights against the third-party tortfeasors because compensation benefits had been accepted by relator. Minn.St. 176.061, subd. 5 (quoted in footnote 1, supra ). Even so, relator could settle his tort claims without the employer's consent, but such settlement could not affect the employer's subrogation rights. Lang v. William Bros Boiler & Mfg. Co., 250 Minn. 521, 531, 85 N.W.2d 412, 419 (1957). More pertinently, we noted in Liberty Mut. Ins. Co. v. Nutting Truck & Caster Co., 295 Minn. 211, 216, 203 N.W.2d 542, 545 (1973):

" * * * (W)hen an employee has received workmen's compensation and then commences an action against a third party, the employee has a right to dispose of his claim for bodily injuries against the third party by excluding from the settlement any amounts due his employer and insurer by way of subrogation. The employee can make this type of separate settlement, but such a settlement does not affect the rights of the employer or the workmen's compensation carrier to continue its statutory subrogation action against the third-party tortfeasor * * *." (Italics supplied.)

When an impasse with his employer was reached, relator endeavored to compromise only those claims not recompensed by worker's compensation, i. e., items of recovery not subject to his employer's subrogation rights.

The employer and its insurer nevertheless suggest that part of the settlement must be credited against compensation payments according to the schedule set forth in Minn.St. 176.061, subd. 6. ³ We disagree. If an employee settles only those claims not subject to subrogation by the employer, the employer in no way is prejudiced by the settlement. It possesses not only the right to intervene in the employee's suit but also the right to maintain actions in its own name to enforce its subrogation rights and...