PA Supreme Court Slams The Door Shut On Direct Lawsuits By Workers’ Compensation Insurers

The Pennsylvania Supreme Court’s decision in Chen v. Kamara (Hartford Ins. Grp. on Behalf of Chen v. Kamara, No. 24 EAP 2017, 2018 WL 6070474, Pa. Nov. 21, 2018), closed the door for workers’ compensation insurance carriers to file direct subrogation actions against liable third parties, regardless of how the complaint is captioned.  The Court held that the carrier’s subrogation rights against a third-party tortfeasor remain “in the injured employee” unless the injured employee “assigns her cause of action or voluntarily joins the litigation as a party plaintiff.”  Chen makes it clear that, in Pennsylvania, even a straightforward liability case with straightforward subrogation potential must be run through the injured worker. The Court did leave the door open for insurance carriers to potentially pursue a direct claim under an assignment of rights.  Unfortunately, the Court did not clarify how or why this is a viable option, so any pursuit under an assignment of rights is likely to be challenged.

The facts of Chen are relatively simple; a worker at a Thrifty Rental Car, Chunli Chen, was hit by a car driven by a third-party driver, Kafumba Kamara, while she was standing in her employer’s parking lot.  For reasons not entirely clear, Ms. Chen did not want to participate in a third-party case against the driver, forcing her employer’s workers’ compensation insurer, The Hartford, to pursue its subrogation claim directly.  Under the specter of Domtar Paper (Liberty Mut. Ins. Co. v. Domtar Paper Co., 631 Pa. 463, 113 A.3d 1230 (2015)), The Hartford’s attorneys captioned the plaintiff in the complaint as “The Hartford Insurance Group on behalf of Chunli Chen.”  Additionally, the complaint sought to establish the right of recovery of with respect to all parties for the full amount of Ms. Chen’s claim. In essence, this approach tracked the language of Section 319 of the Workers’ Compensation Act, as under the statute, the amount the carrier can recover on its lien is directly proportional to the total value of the third-party claim.  As subrogation professionals are aware, a large lien on a bad liability case generally results in a very small recovery in Pennsylvania based on the apportionment language in Section 319. By bringing the lawsuit on behalf of the injured worker and establishing the full value of the entire claim, The Hartford would avoid the Court’s main fear in Domtar: splitting the cause of action.  The Hartford would also be able to easily calculate its reimbursement amount and either request the judge mold the verdict to that amount or hold the excess in trust for the worker.

This approach was based under the assumption that the fatal flaw in Domtar was not the insurance carrier’s pursuit of a direct action itself, but rather the “as subrogee of” language utilized in the caption of the complaint.  The theory was that captioning the complaint “on behalf of” the injured worker and bringing the full tort claim (not just the subrogation interest) would avoid splitting the cause of action and qualify as bringing the action “in the name of the injured employee”, as required under Domtar (“the employer/insurer’s right of subrogation under Section 319 must be achieved through a single action brought in the name of the injured employee”).

Unfortunately, the Supreme Court elected to stay the course and hold that the right of recovery flows exclusively through the worker’s decision to bring a claim, or the worker’s “participation” in the action, regardless of the language used in the caption.  “Participation” by the worker is essentially a nullity, however, as it would mean the worker is suing the tortfeasor in his or her own right, which would perfect the insurance carrier’s subrogation rights automatically. It remains doubtful that the Court would allow a claim “on behalf of” a worker where the worker was “participating” but not a party-Plaintiff in the caption.  On the other hand, it may leave some wiggle room for an insurance carrier to file “on behalf of” the injured worker solely to preserve the statute of limitations, and then go back and involve the injured worker at a later point in time.

In the last paragraph of its opinion, the Court noted that absent participation or “the injured employee’s assignment”, the carrier could not enforce its Section 319 right of subrogation against a responsible third party.  While this appears to open the door for insurance carriers to simply obtain assignments of rights from reluctant workers, there are significant legal hurdles that must be overcome to validate this approach. For example, as far back as the 1800’s, the Pennsylvania Supreme Court has held that “unliquidated damages in tort cannot be assigned.”  See e.g. Sensenig v. Pennsylvania Railroad Co., 78 A. 91 (1910).  The rationale in Chen, however, leaves open the possibility that a carrier can circumvent this ban by arguing it has a legitimate interest in the underlying claim.

The assignment of tort claims was banned by the Court in order to prohibit speculation or “champerty”, whereby uninvolved parties would profit by buying assignments of damages from claimants.  An assignment is “champertous” if the assignee has no legitimate interest in the litigation, expends his or her own money prosecuting the suit, and is entitled by the bargain to share in the proceeds.  Belfonte v. Miller, 243 A.2d 150 (Pa. Super 1968).  However, carriers could argue they have a completely legitimate interest in the litigation due to their substantial subrogation lien.  Subsequent opinions have held that if the rights being assigned are more akin to property rights, not “personal” rights to the individual injured, then the assignment may be valid.  See Hedlund Mfg. Co., Inc. v. Weiser, Stapler & Spivak, 539 A.2d 357 (Pa. 1988).  

We believe the next battleground will be over a direct action by the carrier pursuant to an assignment of rights.  It remains to be seen what the Court will do with an assignment of an injured worker’s “personal” rights to an insurance carrier that has a legitimate interest in the recovery, arguably akin to a property interest.  Unfortunately, the decision in Chen did not provide concrete law to help carriers recover in these most frustrating situations.

When pursuing a workers’ compensation subrogation recovery, it is important to rely on a partner that understands the nuances of this ever-changing and often-confusing area of law. If you have any questions about the implications of this important case, please contact John M. Popilock at PopilockJ@StutmanLaw.com, or 215-283-1177 ext. 121.

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