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Limitations on Employer’s Subrogation Rights: Whitmoyer v. WCAB (Mountain Country Meats)

November 17, 2021
August 2, 2018
Pennsylvania - August 2, 2018
Limitations on Employer’s Subrogation Rights: Whitmoyer v. WCAB (Mountain Country Meats)

In Whitmoyer v. WCAB (Mountain Country Meats), No. 52 MAP 2017, the Pennsylvania Supreme Court addressed the issue of the scope of recovery of an employer, against the balance of recovery, when a claimant receives monies from a third party lawsuit stemming from a work injury.  

In Whitmoyer, the claimant sustained a work related amputation of part of his arm in January of 1993. Following the work incident, his employer began paying all medical expenses incurred by the claimant, pursuant to the terms of the Act. Shortly after the work incident, the parties reached an agreement to pay the claimant specific loss benefits, which resolved the claimant’s entitlement to disability benefits entirely. However, the employer remained liable for the payment of claimant’s medical expenses.  

Thereafter, the claimant received a third party settlement in the amount of $300,000. At that time, the employer’s net subrogation lien totaled $81,627.87. After the deduction of the third party litigation expenses, and the deduction of the net subrogation lien, there was a “balance of recovery” in the amount of $189,416.27. Notably, pursuant to the Third Party Settlement Agreement form, the balance of recovery was defined as a “fund for credit against future workers’ compensation payable, subject to reimbursement to claimant of expense of recovery at a rate of 37% on credit used.” The Third Party Settlement Agreement was never fully executed by the parties.

While it was the employer’s position that it was entitled to a credit against future medical bills in accordance with the Third Party Settlement Agreement until the balance of recovery was exhausted, claimant’s counsel disputed same. In light of the dispute, the employer continued to pay claimant’s full medical expenses, without taking a credit.

In September of 2012, the employer filed a Modification Petition requesting that the unsigned Third Party Settlement Agreement be modified to reflect the additional medical expenses incurred since the third party settlement. During the litigation of that Petition, claimant maintained the position that the employer was not entitled to a credit against future medical expenses. At the time of the litigation, the employer had paid a total of $206,670.88 for the work injury.

The WCJ granted the Modification Petition and found that the employer was entitled to a reduction of the percentage credit to 26.09% of future medical expenses, up to the balance of recovery amount of $189,416.27.

The claimant appealed to the WCAB arguing that the Act only allows for a credit on account of future installments of compensation, namely indemnity benefits, none of which were being paid. Thus, the claimant argued that the employer had no right to a credit for the payment of medical expenses. The WCAB affirmed the WCJ Decision/Order and the claimant again appealed.

On appeal, the Commonwealth Court noted that, while no Court had yet addressed the distinct term of “instalments of compensation” noted in Section 319 of the Act, that it has been long been held that medical expenses constitute “compensation” under Section 319 of the Act. On the basis that medical expenses constitute “compensation,” the Commonwealth Court found that the employer was entitled to a credit for the future medical expenses against the balance of recovery. The claimant appealed to the Pennsylvania Supreme Court.  

In applying its analysis, the Pennsylvania Supreme Court noted that, under Section 319 of the Pennsylvania Workers’ Compensation Act, employers are “subrogated to the right of the employe” and, therefore, are entitled to reimbursement for certain expenses where a third party caused the claimant’s injury. Specifically, the Court noted that Section 319 notes as follows:

Any recovery against such third person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employe, his personal representative, his estate or his dependents, and shall be treated as an advance payment by the employer on account of any future instalments of compensation.

In applying its analysis, the Court focused on the language “instalments of compensation” to determine whether that applied to both disability benefits and payment of medical expenses. In doing so, the Court noted that, throughout the Workers’ Compensation Act, the word “compensation” is regularly used and often refers to one or more type of benefits. However, in Section 319 of the Act, the legislature purposely used the term “instalments of compensation” which the Court noted was a far more specific term then compensation.

The Court further noted that disability benefits, per the Act, are to be paid “in periodical installments” whereas there is/was no such requirement for medical expenses. Therefore, the Court held that, when a claimant recovers proceeds from a third party settlement, an employer is limited to drawing down again that recovery only to the extent that future disability benefits are payable to the claimant. Accordingly, the Court held that an employer is not entitled to a credit for future medical expenses against a balance of recovery.