When a workers’ compensation injury is caused by a negligent third party (other than the employer), the injured worker has the right to sue the wrongdoer for damages in civil court. The employer or insurance carrier also has subrogation interest – a right of recovery against the negligent party. In such instances, there are 2 critical situational components to remember in determining if subrogation is warranted:
- Unlike workers’ compensation, which is a no-fault system, in the civil arena the employer or insurer must show that the third party was at fault in order to recover claim costs.
- If the employer’s negligence is determined to be a causal factor, their rights to recovery will be reduced proportionately.
Recognizing Subrogation Potential
Generally there are three types of claims that could be caused by a third party:
- The action or inaction of a third party (e.g., a motor vehicle accident)
- Claims that occur on property owned by a third party (e.g., slip and fall claims)
- Claims involving machinery or equipment that is owned or maintained by a third party
Investigating Subrogation Claims
In such cases, it is critical that a thorough investigation is performed quickly in order to preserve evidence and protect the interests of the employer or insurer. Appropriate forms of investigation depend on the type of claim. They include:
- Reports – Police, CHP, OSHA, Index, et al.
- Photographs and surveillance tapes
- Environmental studies
- Product information, warranties, repair records, instruction manuals, invoices, shipping orders, maintenance logs, training records, etc.
- Witness statements and depositions
- Leases and rental agreements
- Insurance policies and indemnification agreements
There are three ways to protect the employer’s or insurer’s subrogation interests:
- Complaint in Intervention – Employer can become a party to a civil case already filed by the injured worker
- Complaint – Primarily used when the injured worker does not file a civil complaint
- Notice of Lien – Offers the least amount of protection as the injured worker may settle without the lien claimant
Reimbursement vs. Credit
The workers’ compensation claim and a related civil action do not typically follow the same timeline. Often, the workers’ compensation claim will take longer, and may be resolved when the civil case settles.
The workers’ compensation benefits paid at the time of the civil settlement represent the employer’s claim for reimbursement. The benefits that will be paid in the future represent the employer’s potential credit. There is a strategy in asserting and settling the employer’s claim for credit that will depend on the strength of the case and the percentage of comparative negligence.
Subrogation Recoveries Directly Impact the Bottom Line
A strong workers’ compensation program ensures subrogation is not an afterthought. Claims adjusters should be actively trained, and possess the skills, to properly handle subrogation. Investigations must be thorough, going beyond determining compensability of the workers’ compensation claim. Adjusters need to quickly recognize third party negligence at the front end of a claim, aggressively pursuing recovery throughout the claim. Failure to identify potential subrogation is a missed opportunity to recover claims costs that directly impact the bottom line, and could represent millions of dollars in saving.