Workers’ Compensation litigation: Using Subrogation as a Claim Cost Reduction Tool
Many employers are familiar with handicap reimbursement awards and the favorable impact such awards often have on claim costs and workers’ compensation premiums. “Subrogation” is a lesser known tool that can be utilized to reduce claim costs and premiums as well.
Subrogation permits the Bureau of Workers’ Compensation (BWC) or a self-insured employer to assert an interest in a settlement or judgment between an injured worker and the third party tortfeasor that caused the injury. For instance, where an employee is injured in an automobile accident while in the course of his employment, the BWC or self-insured employer can assert the right to recover claim costs from the motorist at fault in the accident.
The Ohio Revised Code states that the payment of workers’ compensation benefits creates a right of recovery in favor of the BWC and self-insured employers against the person or entity (the tortfeasor) that is responsible for causing an employee’s injury. Under the statute, the BWC and a self-insured employer are defined as “statutory subrogees” and their “subrogation interest” includes past, present and estimated future payments of compensation, medical benefits, rehabilitation costs, or death benefits and any other costs or expenses paid to or on behalf of the claimant.
The statute sets forth a mathematical formula to be used to determine the amount of the subrogation interest. The mechanics of the formula are beyond the scope of this article; however, it should be noted that the formula permits the injured worker to offset the subrogation interest by the amount of attorney fees, costs or other expenses incurred by the injured worker while trying to obtain the settlement or judgment. Thus, it is unusual that the statutory subrogee recovers all of the claim costs incurred as a result of the tortfeasor’s conduct. In the event that the statutory subrogee and the injured worker cannot agree on the amount of the subrogation interest, the matter may be referred to the BWC for a settlement conference. Alternatively, the parties may agree to utilize some other binding or non-binding alternative dispute resolution process, such as mediation.
As statutory subrogees, the BWC and a self-insured employer have an automatic interest in an injured worker’s claim against the tortfeasor. No settlement, compromise, judgment, award, or other recovery in any action or claim by an injured worker can be finalized unless the statutory subrogee is given prior notice and a reasonable opportunity to assert its subrogation rights. If notice is not given, or if a settlement or compromise excludes any amount paid by the statutory subrogee, the tortfeasor and the injured worker are jointly and severally liable to pay the statutory subrogee the full amount of the subrogation interest.
In addition, the statute authorizes the statutory subrogee to step into the shoes of the injured worker in order to assert its subrogation interest. Thus, a statutory subrogee is permitted to institute legal proceedings against the tortfeasor if the injured worker is unwilling to do so, and may fully participate in any settlement negotiations.
In the case of a state-funded employer, the net amount recovered by the BWC reduces the employer’s claim costs dollar for dollar which, in turn, can lead to a reduction in workers’ compensation premiums. However, noticeably absent from the definition of a statutory subrogee is the state-funded employer itself. Thus, a state-funded employer that has paid salary continuation in lieu of the BWC paying temporary total disability (TTD) compensation does not have a statutory claim against the injured worker or the tortfeasor to recover any amounts paid. Therefore, it is important for the state-funded employer to consider whether the payment of salary continuation will be more beneficial than authorizing TTD compensation and relying on subrogation to keep claim costs in check.
If your company has questions regarding workers’ compensation litigation or would like to discuss strategies that utilize subrogation and other cost reduction methods to minimize the impact of workers’ compensation claims, please contact Scott Coghlan or Scott Gedeon.