Peters v. North River Ins. Co. of Morristown, N.J.

• Decision Date: 27 June 1985
• Docket Number: No. 84-3284,84-3284
• Citation: 764 F.2d 306
• Parties: Terrence PETERS, Plaintiff-Appellee, v. NORTH RIVER INSURANCE COMPANY OF MORRISTOWN, NEW JERSEY and Bergeron Shipyards, Inc., Intervenors-Appellants, v. SPEEFLO MANUFACTURING CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 306

764 F.2d 306

1986 A.M.C. 886

Terrence PETERS, Plaintiff-Appellee, v. NORTH RIVER INSURANCE COMPANY OF MORRISTOWN, NEW JERSEY and Bergeron Shipyards, Inc., Intervenors-Appellants, v. SPEEFLO MANUFACTURING CORPORATION, Defendant-Appellee.

No. 84-3284.

United States Court of Appeals Fifth Circuit.

June 27, 1985.

Lugenbuhl, Larzelree & Ellfson, Anthony J. Staines, Charles E. Lugenbuhl, New Orleans, La., for intervenors-appellants.

Harry T. Widmann, New Orleans, La., for Terrence Peters.

David K. Persons, Metairie, La., for Speeflo Mfg. Corp.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before RANDALL, JOHNSON and GARWOOD, Circuit Judges.

RANDALL, Circuit Judge:

This appeal presents the question whether an injured worker covered by the Longshoremen's and Harbor Workers' Compensation Act and a third-party tortfeasor may settle their dispute independently of the employer's subrogation claim for reimbursement of the amount of compensation benefits paid to the worker pursuant to the Act. We hold that, while the worker and the third party may allocate responsibility for reimbursement between themselves, settlement of the worker's claim necessarily settles the employer's subrogation claim and entitles the employer to reimbursement to the extent of the funds that the third party has agreed to pay in settlement. Accordingly, the judgment of the district court is reversed, and the case is remanded with instructions.

I. BACKGROUND

On February 17, 1982, Terrence Peters (Peters) suffered an on-the-job eye injury when a spray gun that he was cleaning escaped his grasp and struck him in the face. At the time of the accident, Peters worked for Bergeron Shipyards, Inc. (Bergeron) at its shipyard in Plaquemines Parish, Louisiana. Following the accident, Bergeron's insurance carrier, North River Insurance Company (North River), voluntarily began, without a formal compensation award, to pay Peters benefits to which he was entitled under the Longshoremen's and Harbor Workers' Compensation Act (LHWCA or the Act), 33 U.S.C. Secs. 901 et seq. North River ultimately paid approximately $30,000 in medical bills and compensation payments.

Approximately one year after the accident, Peters commenced this diversity lawsuit against Speeflo Manufacturing Corporation (Speeflo), the manufacturer of the spray gun, in which he asserts negligence and product liability claims under Louisiana law. North River and Bergeron ¹ intervened and alleged that, to the extent of compensation benefits paid to Peters pursuant to the Act, they are subrogated to his rights against third parties. The complaint in intervention alleges that the subrogation claim "take[s] precedence over all of the claims of Terrence Peters" and should be paid first out of any recovery obtained by Peters from Speeflo.

Peters and Speeflo settled their dispute on the day before the scheduled trial date. Intervenors, however, did not participate in the settlement negotiations and did not reach a settlement agreement with either Peters or Speeflo. The settlement agreement between Peters and Speeflo was not written down. The agreement's terms came to light, however, during proceedings on Peters' motion to enforce the settlement. The district court received evidence of the negotiations and found that Peters and Speeflo settled the case on the following terms: "Plaintiff, [Peters,] was to receive $60,000, and in addition defendant, [Speeflo,] was obligated either to settle or litigate the intervenors' claim [for reimbursement of compensation benefits paid to Peters]." 586 F.Supp. at 1391. ²

Following the settlement, Intervenors moved for recognition that their right to recoup the compensation benefits paid to Peters constitutes a lien that attached automatically as soon as Speeflo and Peters agreed to the compromise. Intervenors did not specify whether the lien should be satisfied from the $60,000 paid to Peters or from funds retained by Speeflo. The thrust of their position was apparently that an agreement between the settlors to allocate responsibility for the compensation lien does not change the rule that the lien attaches to a judgment or settlement fund automatically and that the employer or its compensation carrier is entitled to recover the compensation benefits paid without independently proving the liability of the third party against whom the worker has asserted a cause of action.

The district court denied Intervenors' request for recognition of their compensation lien and set the intervention for trial. Intervenors moved for reconsideration of that ruling and, in the alternative, for summary judgment. The district court acknowledged that Intervenor's position would be correct if Peters and Speeflo had settled the case without mentioning the compensation lien. The district court denied the motions, however, on the theory that, because the settlement agreement between Peters and Speeflo expressly does not compromise the reimbursement claim, Intervenors must either themselves settle with Speeflo or must establish their right to reimbursement at trial by "proving the alleged tortfeasor's negligence." 586 F.Supp. at 1395.

The intervention was tried on April 11, 1984. Intervenors persisted in the view that, because of settlement for an amount in excess of the compensation benefits paid to Peters, they were entitled to automatic reimbursement in full without having to prove Speeflo's liability for Peters' injuries. Accordingly, Intervenors simply presented evidence of the amount of compensation benefits that they had paid on account of Peters' injuries and prayed for judgment in that amount against either Peters or Speeflo. The district court, on the other hand, persisted in the view that, because Peters and Speeflo expressly excluded the intervention from the scope of the settlement, Intervenors could not recover unless they established Speeflo's liability for Peters' injuries. Accordingly, the district court dismissed the intervention, and this appeal followed. The only issue on appeal is whether a worker and a third-party tortfeasor may settle their dispute independently of the employer's compensation lien.

II. OVERVIEW OF THE LHWCA

A brief overview of the Act's compensation scheme will place in context the district court's decision and the parties' positions. The LHWCA allocates the costs of industrial accidents through a compromise between the rights of employees and employers that is typical of many workers' compensation schemes: an injured worker is entitled to "prompt and certain" compensation benefits from his employer even if the employer is not to blame for the accident, see Louviere v. Shell Oil Co., 509 F.2d 278, 283 (5th Cir.1975), cert. denied, 423 U.S. 1078, 96 S.Ct. 867, 47 L.Ed.2d 90 (1976); the benefits, however, are generally less than the worker could recover under traditional tort compensation systems and constitute the employer's exclusive liability for the worker's injuries, see 33 U.S.C. Sec. 905(a). To accomplish its "manifest purpose ... to assure prompt aid to the employee when his need is greatest," Louviere, 509 F.2d at 283, the Act encourages the voluntary payment of benefits, see 33 U.S.C.A. Sec. 914(a), (d), but also provides an administrative procedure for resolving disputed cases, see id. Sec. 914(d); 20 C.F.R. pt. 702 (1984).

We have recognized that the compensation scheme of the Act furthers at least two other objectives, both of which are particularly relevant to the issue in this case; (1) "placing the burden ultimately on the company whose default caused the injury," Louviere, 509 F.2d at 283 (quoting Italia Societa v. Oregon Stevedoring Co., 376 U.S. 315, 324, 84 S.Ct. 748, 754, 11 L.Ed.2d 732 (1964)), and (2) "protect[ing] employers who are subject to absolute liability by the Act," id. (quoting Pope & Talbot, Inc. v. Hawn, 346 U.S. 406, 412, 74 S.Ct. 202, 206, 98 L.Ed. 143 (1953)). The Act, as interpreted by the Supreme Court, furthers these objectives by (1) preserving a compensated worker's remedies against third parties; (2) allowing the employer in certain circumstances to assert the worker's rights against third parties when the worker has failed to do so; (3) denying third parties a right of contribution or indemnity from the employer even when the employer is at fault; (4) allowing the employer to recoup from third-party recoveries the benefits paid to the worker even if the employer is at fault; and (5) preserving the employer's right to assert its own independent cause of action against third parties for recovery of the compensation benefits paid to the worker. Because an understanding of these loss-shifting concepts is essential to proper resolution of this appeal, we shall briefly review them.

A. The Worker's Third-Party Cause of Action

First, we shall examine the worker's third-party cause of action. Section 33(a) of the LHWCA, 33 U.S.C. Sec. 933(a), preserves a compensated worker's right to recover damages from parties other than his employer. The substantive right to recover against third parties is, of course, generally determined by law independent of the LHWCA. ³ The Act does, however, regulate the procedure for asserting the worker's third-party claim and the manner in which the fruits of that claim shall be distributed. If the worker accepts compensation "under an award in a compensation order filed by the deputy commissioner, an administrative law judge, or the [Benefits Review] Board," the Act gives him six months in which to commence an action against a third party who may be responsible for his injuries. See 33 U.S.C. Sec. 933(b). If the worker does not commence an action within the six-month period, all of his rights against third parties are automatically assigned to the employer who may during the next ninety days assert the worker's rights against third parties. Id. During the assignment period, the employer's control of the worker's cause of...