Paine v. Water Works Supply Co.
| Decision Date | 07 July 1978 |
| Docket Number | No. 47854.,47854. |
| Citation | 269 NW 2d 725 |
| Parties | Patricia J. PAINE, Widow of Marshall S. Paine, Deceased, Respondent, v. WATER WORKS SUPPLY CO., et al., Relators. |
| Court | Minnesota Supreme Court |
Meagher, Geer, Markham, Anderson, Adamson, Flaskamp & Brennan, M. J. Coyne and Gary Hagstrom, Minneapolis, for relator.
Schiefelbein & Greenberg, Minneapolis, for respondent.
Heard before ROGOSHESKE, TODD, and YETKA, JJ., and considered and decided by the court en banc.
This certiorari appeal by an employer-insurer from a decision of the Workers' Compensation Court of Appeals concerns again the difficult and perplexing problem of the relationship among employers, employees, and third-party tortfeasors under provisions of the Workers' Compensation Act. Specifically, the question raised is whether, under Minn.St. 176.061, subd. 5, an employer-insurer is entitled to deduct from compensation dependency benefits payable to a widow an allocation of the amount she received in settlement of a third-party tortfeasor action against a vendor of intoxicating liquor under the Dram Shop Act, Minn.St. 340.95. For the reasons which follow, we hold that the employer-insurer is entitled to such deduction and reverse the court of appeals.
Employee, Marshall S. Paine, was killed in an automobile accident on February 7, 1974. In April 1974, his widow, Patricia J. Paine, instituted two proceedings: (1) A claim for dependency benefits under the Workers' Compensation Act upon allegations that the decedent met death arising out of and in the course of his employment, and (2) a dram shop action against The Baron and its owners under Minn.St. 340.95 for loss of property and means of support, including allegations of common-law negligence. Both claims were disputed. The workers' compensation claim was joined, heard, and denied by a compensation judge in January 1975 on the ground that employee's death was not work-related. In April 1975, while the widow's appeal to the court of appeals was pending, she settled the dram shop action for $36,000 and executed a general release of all claims or causes of action against The Baron and its owners. The court of appeals thereafter heard and, in July 1975, reversed the compensation judge, awarding the widow dependency benefits against employer-insurer. Upon the latter's appeal, we affirmed the award. Paine v. Water Works Supply Co., 309 Minn. 549, 243 N.W.2d 156 (1976). Thereafter, employer-insurer petitioned the worker's compensation division to credit a portion of the dram shop settlement against employer's compensation liability as provided by § 176.061, subds. 5 and 6.1 The compensation judge awarded a credit of $14,941.56, computed in accordance with the formula set forth in § 176.061, subd. 6. Upon the widow's appeal, the court of appeals held that the employer-insurer was not entitled to a credit by way of subrogation to the widow's claim. Employer-insurer appeals.
The question of whether employer-insurer is entitled to allocation of the widow's settlement requires a review of the law governing the subrogation rights of employer and compensation insurer in actions against a third-party tortfeasor.
Under § 176.061, subd. 5,2 employer and its compensation insurer are subrogated to the widow's rights against the third-party liquor vendor to the extent of the aggregate amount of employer's compensation liability. Enghusen v. H. Christiansen & Sons, Inc., 259 Minn. 442, 107 N.W.2d 843 (1961). According to the statute, either the widow or the employer is entitled to pursue an action upon those rights against the liquor vendor. The proceeds received in judgment or settlement of all claims in which employer has a subrogation interest are to be divided between employer and the widow according to the formula set forth in § 176.061, subd. 6.3 The third-party liquor vendor is liable upon all such subrogated claims only for damages sustained by the employee and therefore only once. Where the employee or his dependent maintains an action against a third-party tortfeasor upon claims to which the employer is subrogated and settled such action without notifying the employer, we have recognized that the employer is entitled to credit a portion of the settlement proceeds against its compensation liability, and to the extent the employer's subrogation claim exceeds the credit against compensation payments created by the settlement, its rights under subd. 5 to maintain an independent action against the third party are not cut off by the settlement. Modjeski v. Federal Bakery of Winona, Inc., 307 Minn. 432, 240 N.W.2d 542 (1976) (); Lang v. William Bros Boiler & Mfg. Co., 250 Minn. 521, 85 N.W.2d 412 (1957) (). The employer has the option to forego an independent action and accept only the credit out of the employee's settlement of its subrogated claims against the third party in full or partial satisfaction of its subrogation rights. Modjeski v. Federal Bakery of Winona, Inc. supra.
It is also well established that the employee or his dependent has a right to settle independent claims against a third party to which the employer is not subrogated without subjecting the proceeds of such a settlement to the statutory credit in satisfaction of the employer's subrogation interests, so long as the employer's right to continue an independent subrogation action against the third party remains unaffected. Naig v. Bloomington Sanitation, Minn., 258 N.W.2d 891 (1977); Liberty Mut. Ins. Co. v. Nutting Truck & Caster Co., 295 Minn. 211, 203 N.W.2d 542 (1973). In Naig v. Bloomington Sanitation, supra, we held that the employer was not entitled to a credit against compensation liability out of an employee's settlement with a third-party tortfeasor where (a) the employer had notice of the settlement negotiations, (b) the settlement compensated only damages to the employee which are not cognizable under the Workers' Compensation Act and are therefore not subject to subrogation by the employer, and (c) the employer's right to maintain an independent action to the full extent of its subrogated claims against the third party were preserved by the third party's admission that the settlement encompassed none of the employer's subrogated interest.
Employer-insurer contends that, under the plain language of § 176.061, subds. 5 and 6, as applied to a wrongful death action settlement in Modjeski v. Federal Bakery of Winona, Inc., supra, part of the settlement of the widow's dram shop action must be credited against compensation liability in satisfaction of employer's subrogation rights against the liquor vendor.
The widow urges that the determination of the court of appeals disallowing any credit out of her dram shop settlement should be upheld. Her arguments are essentially three. (1) The settlement of a dram shop action should never be subject to a credit against compensation liability under § 176.061, subd. 5, because the employer has an independent cause of action against the liquor vendor under § 340.95,4 and settlement of the employee's action against the liquor vendor therefore does not cut off any of the employer's right to maintain an independent subrogation action against the vendor. (2) The elements of damages compensated in the widow's dram shop recovery are not cognizable under the Workers' Compensation Act and employer had notice of the settlement, so that under our holding in Naig v. Bloomington Sanitation, supra, the settlement proceeds should not be subjected to any credit against compensation liability. (3) In Milbank Mutual Ins. Co. v. Kluver, 302 Minn. 310, 225 N.W.2d 230 (1970), we held that an uninsured-motorist insurance carrier may not claim a credit against its insurance liability for proceeds received by the insured in a dram shop settlement with a third party where the insured had not recovered to the full extent of her losses. By analogy, no credit should be allowed against worker's compensation liability unless the widow has been fully compensated for her losses. We do not agree that any of these arguments mandates denial of the statutory credit against employer's compensation liability.
1. While an employer or a compensation insurer may maintain an action in its own name against the vendor of intoxicating liquor under § 340.95,5 § 176.061, subd. 5, specifically provides that, as to claims by an employee against a third party to which the employer may be subrogated, "such third party is not liable to any person other than the employee or his dependents for any damages resulting from the injury or death." It is clear that the purpose of this provision is to assure that the third-party tortfeasor is liable no more than once for the same elements of damages arising out of an employee's injury or death, despite the employer's independent subrogation rights against the third party created under § 176.061, subd. 5. It is also clear that § 176.061, adopted after the enactment of the Dram Shop Act in Minnesota, is controlling in actions where a credit against compensation liability is at issue. Section 176.061, subd. 2, clearly provides:
Giving effect to § 176.061, the provisions of § 340.95 may not be construed to create double liability by a third-party liquor vendor to both the employee's widow and the subrogated...
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