Neumann v. American Family Ins.

• Decision Date: 13 May 1997
• Docket Number: No. A-96-207,A-96-207
• Citation: 563 N.W.2d 791,5 Neb.App. 704
• Parties: Lori NEUMANN, Appellee and Cross-Appellant, v. AMERICAN FAMILY INSURANCE, Appellant and Cross-Appellee.
• Court: Nebraska Court of Appeals

Page 791

563 N.W.2d 791

5 Neb.App. 704

Lori NEUMANN, Appellee and Cross-Appellant, v. AMERICAN FAMILY INSURANCE, Appellant and Cross-Appellee.

No. A-96-207.

Court of Appeals of Nebraska.

May 13, 1997.

Syllabus by the Court

1. Declaratory Judgments: Appeal and Error. When a declaratory judgment action presents a question of law, an appellate court has an obligation to reach its conclusion independent from the conclusion reached by the trial court with regard to that question.

2. Workers' Compensation: Subrogation: Tort-feasors. When a third person is liable to the employee or to the dependents, for the injury or death, the employer shall be subrogated to the right of the employee or to the dependents against such third person. Neb.Rev.Stat. § 48-118 (Reissue 1993).

3. Workers' Compensation: Subrogation: Tort-feasors. Any recovery by the employer against such third person, in excess of the compensation paid by the employer after deducting the expenses of making such recovery, shall be paid forthwith to the employee or to the dependents. Neb.Rev.Stat. § 48-118 (Reissue 1993).

4. Subrogation: Words and Phrases. Subrogation is substitution of one person who is not a volunteer, the subrogee, for another, the subrogor, as the result of the subrogee's payment of a debt owed to the subrogor so that the subrogee succeeds to the subrogor's right to recover the amount paid by the subrogee.

5. Subrogation: Equity. Generally, under principles of equity, subrogation is unavailable until the debt owed to a subrogor has been paid in full.

6. Insurance: Contracts: Statutes: Subrogation. In the absence of a valid contractual provision or statute to the contrary, an insurer may exercise its right of subrogation only when the insured has obtained an amount that exceeds the insured's loss.

7. Workers' Compensation: Subrogation: Statutes. The right of an employer to subrogation for amounts paid to the injured employee as workers' compensation payments is well established in Nebraska statutory law.

8. Workers' Compensation: Subrogation: Statutes. Because the workers' compensation carrier's right of subrogation is statutory, the fact that an injured employee is not fully compensated by the tort-feasor does not prevent the compensation carrier from fully recovering on its right to subrogation.

9. Attorney Fees: Costs. The common fund doctrine provides that an attorney whose efforts create a fund to which others also have a claim is entitled to recover his or her fees and costs from the entirety of that fund.

10. Workers' Compensation: Subrogation: Attorney Fees. An injured plaintiff is not entitled to recover attorney fees where the interests of the compensation carrier are fully and adequately represented by its own counsel and the compensation carrier did not rely on plaintiff's counsel to effect the recovery of its subrogation interest.

11. Insurance: Attorney Fees: Equity. When an insurance company has benefited from the work done by an insured's attorney, there is no inequity in requiring it to bear its fair share of the collection expense.

Eugene L. Hillman and Patricia McCormack, of McCormack, Cooney, Hillman & Elder, Omaha, for appellant.

Joseph B. Muller, of Law Offices of Ronald J. Palagi, P.C., Omaha, for appellee.

IRWIN, SIEVERS, and MUES, JJ.

SIEVERS, Judge.

This suit is a declaratory judgment action concerning the entitlement, under Neb.Rev.Stat. § 48-118 (Reissue 1993), of the parties to moneys obtained from a settlement with a third-party tort-feasor. The principal issue is whether a person injured during the course of her employment and who settles a third-party liability claim must receive full compensation for her injuries before a subrogated workers' compensation insurance carrier is entitled to share in the settlement proceeds paid by the third-party tort-feasor. A secondary issue is the compensation carrier's liability to the injured party's attorney for fees and expenses, in the event the compensation carrier is entitled to any of the settlement proceeds.

FACTUAL BACKGROUND

On January 15, 1991, Lori Neumann, an employee of Simmonds Restaurant Management, was traveling west on Link 28 K in Omaha, Nebraska, when she was struck by an automobile driven by Lori A. Mazour. Neumann's car came to rest in the center lane of Link 28 K where it was struck again from the rear about 25 minutes later. The second collision, involving Aaron T. Bush, caused most, if not all, of Neumann's injuries. Both collisions arose out of and were in the course of Neumann's employment and are compensable under the Nebraska Workers' Compensation Act. Neumann's injuries and damages included disabling lower back injuries requiring extensive surgery, permanent limitation of motion and functional disability, significant pain and suffering, and the loss of earning capacity.

American Family Insurance, as the workers' compensation carrier for Neumann's employer, Simmonds Restaurant Management, paid benefits totaling $140,766.46 ($112,227.65 in medical expenses and $28,538.81 in temporary total disability payments). Neumann's workers' compensation claim remains open, and payment of additional benefits in the future appears virtually certain.

Neumann and American Family agreed to settlement of the liability claims against the third-party tort-feasors. American Family was not involved in the negotiations or the prosecution of the claims and at no time retained an attorney separate from Neumann's. IMT Insurance Company, the liability carrier for Bush (the driver of the second car), agreed to pay the liability limit on Bush's coverage of $100,000. Farmers Mutual of Nebraska, the liability carrier for Mazour (the driver of the first car), agreed to pay $20,000, with $2,000 thereof to be paid to Neumann's husband, Kevin, on his claim for loss of consortium. Neumann and American Family stipulated that the $120,000 was all that could reasonably be obtained from the tort-feasors and their insurers. The parties further stipulated that the $120,000 was insufficient to compensate Neumann for her injuries and damages. Finally, it was stipulated that Neumann, through her counsel, the Law Offices of Ronald J. Palagi, P.C., conducted the negotiations with the liability carriers, by reason of which Neumann's attorneys claimed an attorney fee of $39,333 and out-of-pocket expenses in the amount of $1,241.62; American Family denied these claims.

PROCEDURAL BACKGROUND

Neumann petitioned the district court for Douglas County for a declaratory judgment concerning the rights and liabilities of the parties (Neumann and American Family) with respect to the settlement proceeds of $120,000. A "Stipulation of Facts" was prepared and submitted by the parties, and both parties filed motions for summary judgment, contending they were entitled to the entire $120,000. These motions were overruled, and a trial was held before the district court. The trial court determined that there should be an "equitable division" of the proceeds and ordered that the remaining $118,000 be divided, $92,000 going to Neumann and $26,000 to American Family for its workers' compensation subrogation claim. The district court denied the claim of Neumann's counsel for attorney fees and out-of-pocket expenses. Both parties moved for a new trial, which the trial court denied. This appeal and cross-appeal followed.

ASSIGNMENTS OF ERROR

Both parties assert that the district court erred in failing to grant their motions for summary judgment and in apportioning the funds from the third-party settlement with the tort-feasors. Both parties claim that they are entitled to the entire $118,000. Neumann also asserts that the district court erred in denying her an award of attorney fees and expenses and that if American Family receives any recovery, attorney fees and costs should be assessed against American Family.

STANDARD OF REVIEW

Summary judgment is proper only when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. Anderson v. Nashua Corp., 251 Neb. 833, 560 N.W.2d 446 (1997); Burke v. Blue Cross Blue Shield, 251 Neb. 607, 558 N.W.2d 577 (1997).

When a declaratory judgment action presents a question of law, an appellate court has an obligation to reach its conclusion independent from the conclusion reached by the trial court with regard to that question. Burke v. Blue Cross Blue Shield, supra; Farm Bureau Ins. Co. v. Bierschenk, 250 Neb. 146, 548 N.W.2d 322 (1996).

Determinations of factual issues in a declaratory judgment action will not be disturbed on appeal unless they are clearly wrong. Woodmen of the World Life Ins. Soc. v. Yelich, 250 Neb. 345, 549 N.W.2d 172 (1996); Columbia Nat. Ins. v. Pacesetter Homes, 248 Neb. 1, 532 N.W.2d 1 (1995).

ANALYSIS

This case squarely presents the question of whether a workers' compensation insurance carrier claiming a right of subrogation under § 48-118 is entitled to all of the money from a tort settlement, even though the tort settlement is inadequate to fully compensate the injured employee for her damages. In other words, even though the injured employee is not "made whole" by the tort-feasor, is the compensation carrier still entitled to recover all of the workers' compensation benefits paid to the employee? The evidence is that the payments made by the compensation carrier exceed the amount of the tort settlement, but there has been no judicial determination as to the amount needed to fully compensate Neumann for her injuries.

Right of Subrogation.

Both American Family and Neumann argue that they are entitled to the entire $118,000 settlement. The district court found that it was "required to make an equitable division of proceeds due to the fact that full recovery was impossible." Other than noting...