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Tort reform in Texas has brought many changes to the practice of law. Since 2003, third party practice has changed significantly. Specifically, third party practice in Texas may have the unintended effect of eliminating certain workers' compensation lien and subrogation interests thereby undermining established Workers' Compensation subrogation law that provides that the "first money paid [to] or recovered by the employee, or his representatives, belongs to the compensation carrier paying the compensation, and until it is paid in full, the employee or his representatives have no right to any funds." Argonaut Ins. Co. v. Baker, 87 S.W.3d 526, 530 (Tex. 2002); Fort Worth Lloyds v. Haygood, 151 Tex. 149, 246 S.W.2d 865, 869 (1952); "First money reimbursement is crucial to the worker's compensation system because it reduces costs for carriers (and thus employers, and thus the public) and prevents double recovery by workers." Tex. Mut. Ins. Co. v. Ledbetter, 251 S.W.3d 31, 35 (Tex. 2008). While one might suggest the problem is one of statutory drafting, the statute as written is contrary to established workers' compensation law.
This analysis begins in 1995, when the Texas Civil Practices & Remedies Code first provided that the proportionate responsibility provisions would apply in tort cases involving "responsible parties" in Section 33.002(a). Acts 1995, 74th., Leg. ch. 136 §1 (eff. Sept. 1, 1995). Section 33.002(c) also provided that the chapter would also not apply to actions to recover workers' compensation benefits or to exemplary damage cases involving the employer. Id. Section 33.004 was amended in 2003, to provide a more detailed description of the procedure for designation including a deadline for doing so. Amended by Acts 2003, 78th Legis., ch. 204, §§4.03,4.04, 4.10.2, eff. Sept. 1, 2003. Finally, CPRC Section 33.004(d) was added in 2011 regarding timely disclosure of responsible parties as a basis for appropriate designation. H.B. 274, §§5.01, 5.02, 82nd., Legis. eff. Sept. 1 2011. By virtue of the ability to designate responsible third parties, defendants are able to submit the negligence of the employer, a party immune from liability to an injured worker by virtue of workers' compensation, to a jury for a determination of responsibility. CPRC 33.003: Acts 1995 supra; Acts 2003 supra.
The effect of a negligence determination with respect to an employer as a responsible third party is to reduce the amount of the recovery of the plaintiff. TRCP 33.012. In an apparent attempt to even out the scales of justice, the Labor Code was also amended in 2003 at 417.001 to include the following language:
The insurance carrier's subrogation interest is limited to the amount of the total benefits paid or assumed by the carrier to the employee or the legal beneficiary, less the amount by which the court reduces the judgment based on the percentage of responsibility determined by the trier of fact under Section 33.003, Civil Practice and Remedies Code, attributable to the employer.
Some commentators have observed that the Legislature changed subrogation rights as a means of "trimming" the recovery of the workers' compensation insurance carrier. State Bar Litigation Report Advocate Fall 2003 - Proportionate Responsibility, p. 43. The key language of the amendment is the phrase "reduces the judgment" in contrast to "reduces the lien or subrogation interest." As written the language of this amendment may have the unintended consequence of allowing the reduction of the lien to zero depending on the net amount of the judgment and the percentage of the employer's negligence. Such an interpretation means that recovery of a workers' compensation lien will be dependent in part on the decision of a defendant to timely designate the employer as a third party. The recovery may also hinge on the desire of the parties to present a case against an unrepresented party. Given the absence of an effective advocate for the designated parties, self-insured workers' compensation employers and carriers will have their interests affected by unrepresented employers.
It is also important to note that the concept of "first money paid" is reflected in other concepts of workers' compensation law. Generally, acceptance of settlement funds without regard to the rights of the workers' compensation carrier might subject parties to the transaction to liability. Capitol Aggregates, Inc. v. Great Am. Ins. Co., 408 S.W.2d 922, 923-24 (Tex. 1966); Fort Worth Lloyds, 246 S.W.2d at 870-71; Traders & Gen. Ins. Co. v. W. Tex. Utils. Co., 140 Tex. 57, 165 S.W.2d 713, 716 (1942). Acceptance of settlement funds in contravention of the carrier's rights also subjects the workers' attorney to liability to the carrier. Estrada v. Wausau Ins. Co., 985 S.W.2d 480, 483-84 (Tex. App.-San Antonio 1998, pet. denied). In light of the protection granted to the carriers workers' compensation subrogation interests, it is clear that the language of the statute was intended to address a reduction of the lien amount by the employer's percentage of negligence rather than complete elimination of the lien by reduction based on a percentage of the judgment.
In summary, it appears that the priority of the workers' compensation lien may no longer be certain. The right of the workers' compensation carrier and the employer in its capacity as a self insured to obtain the "first money paid" may be severely compromised. In order to restore Texas law and protect the workers' compensation lien, it is likely that the Texas Legislature will need to amend the Labor Code.
Please contact Arthur Val Perkins (firstname.lastname@example.org or 713.276.5008) at Gardere if you are interested in working on a legislative solution to this issue. Our Litigation Section and Government Affairs Practice Group are made up of experienced attorneys who are able to work on language in 2012 that would be introduced as legislation when the Texas Legislature meets in 2013.
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