Suburban Delivery v. WCAB (FITZGERALD)

• Decision Date: 17 September 2004
• Parties: SUBURBAN DELIVERY, Petitioner v. WORKERS' COMPENSATION APPEAL BOARD (FITZGERALD), Respondent.
• Court: Pennsylvania Commonwealth Court

858 A.2d 219

SUBURBAN DELIVERY, Petitioner v. WORKERS' COMPENSATION APPEAL BOARD (FITZGERALD), Respondent.

Commonwealth Court of Pennsylvania.

Argued March 5, 2003.

Decided September 17, 2004.

Christopher H., Philadelphia, for petitioner.

Nicholas J. Starinieri, Philadelphia, for respondent.

BEFORE: COLINS, President Judge, and SMITH-RIBNER, Judge, and PELLEGRINI, Judge, and FRIEDMAN, Judge, and LEADBETTER, Judge, and JUBELIRER, Judge, and LEAVITT, Judge.

OPINION BY Judge SMITH-RIBNER.

The sole question before the Court as stated by Suburban Delivery (Employer) is whether the Workers' Compensation Appeal Board (Board) erred in affirming the order of the Workers' Compensation Judge (WCJ), who concluded that the annuity obtained by Stephen Fitzgerald (Claimant) in his third-party tort claim structured settlement was properly valued at its present value, or cost, rather than at its minimum guaranteed payout, for purposes of calculating Employer's subrogation lien against the third-party recovery.¹ Employer requests the Court to reverse the order of the Board and to hold that the future value of Claimant's annuity shall be used in calculating Employer's pro rata share of attorney's fees, future credits and any grace periods in computing its subrogation lien.

I

The WCJ made explicit and concise findings of fact after conducting a hearing on Employer's petition to review compensation benefits offset. In its petition Employer requested subrogation and a credit for funds that Claimant received on January 10, 2000 from the third-party tort claim structured settlement of his negligence lawsuit filed in the Court of Common Pleas of Philadelphia County for damages arising out of injuries that Claimant sustained in a work-related automobile accident that occurred on November 4, 1996. Claimant was injured when the delivery truck that he was operating for Employer on Interstate 95 in Philadelphia was struck in the rear by a tractor-trailer. Specifically, the WCJ found that Claimant along with Employer and its insurance carrier, Ohio Casualty West American, agreed to use January 10, 2000 as the appropriate date for determining the amount of total disability compensation paid to Claimant, totaling $228,621.20 ($54,198.93 for indemnity and $174,425.27 for medical expenses), and for determining the amount of Employer's subrogation lien. Employer has paid no compensation to Claimant since that date.

Claimant settled his third-party tort action for $l,435,000, which included a total cash upfront payment of $807,777 plus $627,223 for the purchase price of an annuity. See Settlement Release, R.R. 3a-7a. The tort action settlement release and Claimant's attorney's fees were based on the present value of the settlement, and the WCJ found no reason to use any other figure for calculating the amount to be repaid Employer's carrier. The annuity provided for guaranteed monthly payments of $3,000 over 30 years, commencing in January 2000, and specific lump sum payments of $50,000, $100,000 and $100,000, respectively, to be made in December 2006, December 2010 and December 2012.

Claimant paid his attorney $478,333.33 in attorney's fees and paid $7,861.15 in costs, and his counsel paid Employer's insurance carrier $151,154.34 to satisfy in full its net subrogation lien, based upon the present value of Claimant's annuity. Employer refused to execute a compromise and release agreement, which would have eliminated all of its future obligations to Claimant, and elected instead to pursue its petition claiming that repayment of its subrogation lien should have been calculated on the minimum guaranteed payout of $2,137,777 rather than on the settlement's present value of $1,435,000. Adopting Employer's position would result in an increase in its net recovery lien of over $25,000.²

The WCJ denied Employer's petition after determining that case law and common fairness dictated using the present value of Claimant's settlement when calculating Employer's subrogation lien. Moreover, Claimant was willing to execute a compromise and release, which would eliminate all future obligations of Employer's carrier in view of Claimant's receipt of monthly annuity payments and his additional receipt of social security benefits. The WCJ relied upon this Court's decision in A.C. & S. v. Workmen's Compensation Appeal Board (Dubil), 151 Pa.Cmwlth.314, 616 A.2d 1085 (1992), which adopted the present value approach in calculating the amount due to satisfy a subrogation lien. He found that the circumstances here more closely paralleled those in A.C. & S. than those in Allegheny Beverage Corp. v. Workmen's Compensation Appeal Board (Wolfe), 166 Pa.Cmwlth.646, 646 A.2d 762 (1994), relied upon by Employer. The WCJ discussed the pivotal distinctions between A.C. & S. and Allegheny Beverage, and he stated that A.C. & S. was applied in virtually all cases that were factually similar to the case sub judice.

The Board agreed with the WCJ that the present value, or purchase price, of Claimant's annuity was the appropriate figure to use when calculating the amount due to satisfy Employer's subrogation lien. The Board relied upon A.C. & S. as controlling authority, and it too concluded that Allegheny Beverage did not apply because in that case the carrier received no repayment of its lien from the claimant's settlement proceeds.³ In determining that the WCJ correctly applied the law, and noting that the most significant distinction between Allegheny Beverage and the present case is that the carrier has received all funds owed under its lien, the Board made the following cogent comments at page 5 of its August 14, 2002 opinion:

An annuity is merely an investment of money and annuities have a cost. We ... do not see any reason why Defendant should get benefit from the return on Claimant's investment in the annuity. If, in a non-annuity situation, Claimant took a portion of the settlement money received and invest[ed], no one would reasonably argue that Defendant should have a subrogation interest in the return on Claimant's investment. Thus, here, where Defendant's subrogation lien has been satisfied with the up-front money, Defendant's future subrogation should be calculated on the remaining amount that Claimant received from his settlement, i.e. the amount of money used to purchase the annuity, not the amount of money that the annuity may ultimately earn.

The Court approves of the Board's logic in rejecting Employer's arguments, and it concludes that the Board did not err in following controlling authority and in upholding the decision of the WCJ.

II

Section 319 of the Workers' Compensation Act (Act), Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 671, which governs the subrogation rights of an employer and its insurance carrier, provides in relevant part as follows:

Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employe, his personal representative, his estate or his dependents, against such third party to the extent of the compensation payable under this article by the employer; reasonable attorney's fees and other proper disbursements incurred in obtaining a recovery or in effecting a compromise settlement shall be prorated between the employer and employe, his personal representative, his estate or his dependents. The employer shall pay that proportion of the attorney's fees and other proper disbursements that the amount of compensation paid or payable at the time of recovery or settlement bears to the total recovery or settlement. Any recovery against such third person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employee, his personal representative, his estate or his dependents, and shall be treated as an advance payment by the employer on account of any future installments of compensation.

The Pennsylvania Supreme Court has stated clearly that an employer's right to subrogation under the Commonwealth's workers' compensation system is automatic and that the employer is subrogated to third-party recoveries received by a claimant to the extent of the workers' compensation paid. See Thompson v. Workers' Compensation Appeal Board (USF & G Co.), 566 Pa. 420, 781 A.2d 1146 (2001)

. Under Section 319 of the Act, when a claimant's third-party recovery provides an employer with repayment of its accrued subrogation lien, the employer must assume its proportionate share of the costs expended to recover that amount and must reimburse the claimant for legal expenses associated with the accrued lien at the time of its liquidation. See P. & R. Welding & Fabricating v. Workmen's Compensation Appeal Board (Pergola), 664 A.2d 657 (Pa.Cmwlth.1995), aff'd,

549 Pa. 490, 701 A.2d 560 (1997). Moreover, a recovery that exceeds the accrued lien must be treated as an advance payment of the employer's future compensation obligation, thereby providing the employer with a "grace period" from making compensation payments. Id.

In Brubacher Excavating, Inc. v. Workers' Compensation Appeal Board (Bridges), 575 Pa. 168, 171-172, 835 A.2d 1273, 1275-1276 (2003), the Supreme Court reiterated the following principles that apply in subrogation cases:

Subrogation in our workers' compensation system is a significant and firmly established right. Specifically, while subrogation is an important equitable concept that applies whenever a debt or obligation is paid by one party though another is primarily liable, Smith v. Yellow Cab Co., 288 Pa. 85, 135 A. 858, 860 (1927), in the realm of workers' compensation, it has assumed even greater stature. Our Court has stated that the statutory right to subrogation is "absolute and can be abrogated only by choice." Winfree v. Philadelphia Elec. Co., 520 Pa. 392, 554 A.2d 485, 487 (1989). This is so because the statute granting subrogation "clearly and unambiguously" provides that the employer

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