Case Summary: Subrogation Rights /Liens on Third Party Settlement

David Easter-Rozelle v. City of Charlotte (N.C. Ct. of Appeals, 12/1/15)

This is a significant case concerning defendants’ subrogation rights and recovery of the third party lien. Defendants should always assert potential workers’ comp liens and plaintiffs have an obligation to notify defendants of third-party claims.

Plaintiff sustained compensable injuries to his neck and shoulder on June 18, 2009.  Defendants accepted the claim under an Industrial Commission Form 60 and all appropriate benefits were paid.  The treating physician kept plaintiff out of work through June 29, 2009.  At that point, plaintiff contacted his employer and was instructed to get a new work note from his doctor.

On the way to his doctor’s office to pick up a new work note, plaintiff was involved in a motor vehicle accident and sustained a traumatic brain injury.  Plaintiff retained separate counsel to represent him in the MVA, and ultimately settled the personal injury claim.  Those funds were dispursed without either reimbursement to defendants for their workers’ comp lien, or a superior court order extinguishing the lien.

Plaintiff subsequently mediated the workers’ compensation claim, at which point, plaintiff’s comp attorney became aware of the MVA and asserted that those injuries should be covered under the workers’ compensation claim.   Plaintiff filed a Form 33 on that issue, and defendants denied the claim based on estoppel and because the settlement proceeds from the personal injury claim were disbursed incorrectly.  The Deputy Commission denied plaintiff’s claim, citing Hefner v. Hefner Plumbing Co.  Plaintiff appealed and the Full Commission reversed, finding plaintiff’s injuries compensable.

Defendants appealed and the Court of Appeals reversed the Full Commission decision.  Although the Court noted that the Hefner case was decided prior to the current version of N.C.G.S. 97-10.2, that decision was still relevant.  Further, the Court held that N.C.G.S. 97-10.2 was enacted “for the employer to have involvement and consent in the settlement process, including allocation and approval of costs and fees, and determination of the employer’s lien.  Allowing the employee to settle with the third party tortfeasor, determine the allocation, distribute funds, and later claim entitlement to workers compensation benefits would eviscerate the statute’s intent.”  Here the employer was not provided an opportunity to participate in the settlement or allocation of the recovery disbursement.

Accordingly, the Court held that “where an employee is injured in the course of his employment by the negligent act of a third party, settles with the third party, and proceeds of the settlement are disbursed in violation of N.C.G.S. 97-10.2, the employee is barred from recovering compensation for the same injuries from his employer in a proceeding under the Workers Compensation Act.”

PRACTICE TIP – A workers’ compensation claimant is required to involve the workers’ compensation carrier in the settlement process for the liability claim and disbursement of those funds without the comp carrier’s involvement or Commission/Court approval will likely bar plaintiff from receipt of workers’ compensation benefits for the same injury.