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Credit in Third-Party Cases:
How to Coordinate the Civil and
WC Cases
Interview with James G. Butler, Esq.
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| Marjory Harris interviews
Jim Butler, a civil litigator who is also a certified specialist
in workers’ compensation law
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HARRIS: Jim,
you are one of the rare attorneys who does civil litigation but also
knows workers’ compensation, and who will protect the referring
workers’ comp attorney and not wipe out the comp case with
a huge credit. What does the comp attorney have to do when there
is also a civil attorney in the picture?
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BUTLER: First let me say that a WC
attorney has a duty to ascertain if there are third party cases.
As Justice Brandeis observed a century ago:
“The duty of a lawyer today is not that
of a solver of legal conundrums: he is indeed a counsellor at law.
Knowledge of the law is of course essential to his efficiency,
but the law bears to his profession a relation very similar to
that which medicine does to that of the physicians. The apothecary
can prepare the dose, the more intelligent one even knows the specific
for most common diseases. It requires but a mediocre physician
to administer the proper drug for the patient who correctly and
fully describes his ailment. The great physicians are those who
in addition to that knowledge of therapeutics which is open to
all, know not merely the human body but the human mind and emotions,
so as to make themselves the proper diagnosis – to know the
truth which their patients fail to disclose… “ (Mason,
Alpheus Thomas: Brandeis: A Free Man’s Life (1946) p. 80)
What
was true in 1893 is certainly true today in the increasingly complex
and technologically advanced society in which we live. In the context
of personal injury consultations between lawyer and layperson,
it is reasonably foreseeable the latter will offer a selective
or incomplete recitation of the facts underlying the claim; request
legal assistance by employing such everyday terms as "workers'
compensation," "disability," and "unemployment";
and rely upon the consulting lawyer to describe the array of legal
remedies available, alert the layperson to any apparent legal problems,
and, if appropriate, indicate limitations on the retention of counsel
and the need for other counsel. In the event the lawyer fails to
so advise the layperson, it is also reasonably foreseeable the
layperson will fail to ask relevant questions regarding the existence
of other remedies and be deprived of relief through a combination
of ignorance and lack or failure of understanding. And, if counsel
elects to limit or prescribe his representation of the client,
i.e., to a workers' compensation claim only without reference or
regard to any third party or collateral claims which the client
might pursue if adequately advised, then counsel must make such
limitations in representation very clear to his client. Thus, a
lawyer who signs an application for adjudication of a workers'
compensation claim and a lawyer who accepts a referral to prosecute
the claim owe the claimant a duty of care to advise on available
remedies, including third party actions. Nichols
v. Keller (1993)
15 Cal. App. 4th 1672 at 1686.
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California Civil Code §3517
states that “No one can take advantage of his own wrong.” The
leading cases of Witt v. Jackson (1961) 57 Cal.2d 57 and Associated
Construction & Engineering Co. v. WCAB (1978) 22 Cal.3d 829 hold
the employer may not profit by its own wrongdoing by claiming a third
party credit in the workers’ compensation case.
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Thus, the worker’s comp attorney
must be eternally vigilant for the presence of the third party. Winston
Churchill said, “the price of freedom is eternal vigilance.”
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The worker’s comp attorney
must be eternally vigilant for the presence of the third party.
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Where the compensation attorney refers
a third party case to a third party specialist, the third party specialist
may confirm the referral, as well as the specific amount, with a
letter which is copied to the client. This affirms
the commitment to pay the referral fee and further informs the client
as to the existence of the referral fee as mandated by Rule 2-200
of Rules of Professional Conduct.
Not all third party attorneys are knowledgeable and compassionate
enough to agree to protect the compensation attorney’s prospective
fee. Indeed, in some small economic value cases of no employer fault,
that may be economically feasible. Once the referral is confirmed,
the notion of protecting “the referring attorney” from
the credit is complicated. In a straightforward motor vehicle accident
where the applicant/plaintiff is injured through the negligence of
a third party, there is no method by which the compensation attorney’s
referral fee can be protected against the inevitable claim of third
party credit. Although in my firm, we have from time to time articulated
employer fault involving, for example, the burned out filament at
a turn signal or brake signal, the failure of a seat belt to accurately
latch (we term this “false latching.”) In the more garden
variety rear ender circumstances, the credit may in fact eat up the
workers’ compensation case. The result is a balancing analysis.
The astute advocate must consider the value of the compensation case
and the value of the third party case. Sometimes knowing more may
be helpful. In a motor vehicle accident which results in paraplegia
with a $15,000 policy limit, the credit can be exhausted or used
up by the payment by the injured (or her health insurer) of the amount
of the credit asserted by the employer. In some, but not all, cases,
the third party attorney may agree to pay the foreseeable attorney’s
fee of the compensation attorney out of the third party recovery
assuming that the third party recovery is sufficiently generous.
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Rule 2-200 Financial Arrangements
Among Lawyers (in relevant part)
(A) A member shall not divide a
fee for legal services with a lawyer who is not a partner of, associate
of, or shareholder with the member unless:
(1) The client has consented
in writing thereto after a full disclosure has been made in writing
that a division of fees will be made and the terms of such division;
and
(2) The total fee charged by all lawyers is not increased solely
by reason of the provision for division of fees and is not unconscionable
as that term is defined in rule 4-200.
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HARRIS: What
are the exceptions to the employer’s right to a credit, and
how can the workers’ comp attorney prove the exception applies?
BUTLER: With respect to the law of
employer fault, California Civil Code §3517
states, “No one can take advantage of his own wrong.” The
leading case of Witt v. Jackson (1961) 57 Cal. 2d 57 and Associated
Construction and Engineering v. WCAB (1978) 22 Cal. 3d 829
hold that the employer may not profit by its own wrong-doing by
claiming a third party credit in the workers’ compensation
case where there is employer fault. I describe this as the employer “having
the blood of the injured worker upon his hands.” The employer
may not simply, like Pontius Pilate, attempt to wash his hands
of the blood of the injured worker.
As
is articulated above where the employer is at fault, the fault
is the lever. The job of every attorney representing plaintiffs/applicants
in injuries arising out of the workplace is to stealthily assemble
evidence of employer fault and to put into play a plan of action
aimed at defeating the employer’s claim for reimbursement.
Here, creativity and cash for the joint client start with the same
capital “C”. To fail to prepare for the reimbursement
claim by the employer is to prepare to fail in the arena of economic
justice for the joint client.
Just as there are 50 ways to leave your lover, so are there numerous
ways to evade, eviscerate, and extirpate credit. One way referred
to above is to “use up” the credit. So where applicant
faces a credit generated by employer fault and there is a threshold
of say $50,000, the employee may procure insurance which pays for
medical treatment in the amount of $50,000. By submitting the paid
bills which show $50,000 worth of credit and an employer’s
claim of credit in the amount of $50,000, an employer’s claim
of credit can be “used up” and the worker become entitled
anew to any and all benefits and serendipitously the employee’s
attorney becomes re-entitled to the attorney’s fee earned
in engendering the benefits referred to previously.
There are a variety of other ways in which credit claims may be
defeated. They may be defeated by litigating the issue of employer
fault in the personal injury case. Every injured worker who receives
workers’ compensation benefits and files suit is required
by Labor Code §§3853, 3708.5, and 3860(a) to send the
employer and the workers’ compensation carrier a notice of
action pending with a copy of the complaint and to provide notice
to these entities of settlement of the third party case. My practice
is to serve on defendants an answer asserted by the civil defendant
alleging employer fault with a copy of plaintiff’’s
complaint. This puts the workers’ compensation carrier on
notice of the fact that the civil defendant asserts employer fault.
The injured workers’ spouse may also file a claim for loss
of consortium. A loss of consortium claim is not subject to any
employee’s claim of credit because the uninjured spouse is
not a claimant under the compensation policy.
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Just as there are 50 ways to
leave your lover, so are there numerous ways to evade, eviscerate,
and extirpate credit.
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HARRIS: What
if a serious and willful safety violation appears to be an available
remedy in the comp case? Will the S&W interfere with the third
party case? What are the strategy considerations?
BUTLER: Where there is employer fault,
I always file a petition for Serious and Willful in the comp case.
This is a nail through the heart of any fabricated employer fault
argument on the part of the compensation defense attorney after settling
of the third party case. Naturally the payment of the 50% in additional
benefits in the compensation case does not harm the worker or the
attorney who prosecutes the Serious and Willful.
There are some cases, however, where one might refrain from filing
the Serious and Willful application. When it is filed, be aware that
the defense attorney in the civil case may be able to introduce it
into evidence in the civil case to enhance the allegation of employer
fault.
The comp attorney needs to understand that in the civil case there
are two types of damages: 1) special (damages paid out of pocket
including past and future wage loss, past and future medical treatment,
past and future vocational rehab, and past and future loss of household
services damages). Liability for special damages is joint and several
so if an employer has the blood of an injured worker on his hands,
the civil defendant may not reduce his liability for special damages
by the employer fault; and 2) General (damages payable for the damage
to the person. They are colloquially pain and suffering and are paid
on account of anxiety, embarrassment, pain, suffering, etc). Pursuant
to California Civil Code §§1431 &1431.5 (“The
Fair Responsibility Act of 1986”), liability for general damages
after DaFonte v Up-Right, Inc. (1992) 2 Cal 4th 593 is several only.
That means that no civil defendant may be required to pay for the
employer’s percentage of the general damages.
An employee may settle a claim he or she may have against the third
party without the consent of the employer pursuant to Labor Code
section 3859(b). The Federal rule under the Longshore Act, however,
is to the contrary, requiring not only notice but employer approval
of employee’s third party settlements.
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No civil defendant may be required
to pay for the employer’s percentage of the general damages.
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HARRIS: How
is the credit calculated?
BUTLER: The Supreme Court in Associated
Construction and Engineering v. WCAB (1978) 22 Cal. 3d 829,
843 held: “When
the issue of an employer's concurrent negligence arises in the
context of his credit claim based on a third party settlement,
the board must determine the appropriate contribution of the
employer since the employee's recovery does not represent a judicial
determination of tort damages. Specifically, the board must determine
(1) the degree of fault of the employer, and (2) the total damages
to which the employee is entitled. The board must then deny the
employer credit until the ratio of his contribution to the employee's
damages corresponds to his proportional share of fault. Once
the employer's workers' compensation contribution reaches this
level, he should be granted a credit for the full amount available
under section 3861. Only when such level of contribution has
been reached, however, will grant of the statutory credit adequately
accommodate the principle that a negligent employer should not
profit from his own wrong.”
Thus, where the employer’s negligence is 40% and the total
value of the case is $1,000,000 the threshold number is $400,000.
Under this scenario, the comp carrier would not be entitled to lien
reimbursement until it has paid more than $400,000 in benefits. Similarly,
the carrier will get no credit in the WC case against future benefits
until it has paid out $400,000 in benefits. The employer’s
credit rights can only be asserted against the amount the injured
worker actually receives from the third party after deduction of
attorney’s fees and cost. It should be noted that where credit
is issued, it applies not only against indemnity but also against
the employee’s award of future medical treatment absent an
express waiver by defendant. The right of the employer\carrier to
credit also extends to the employer’s liability to provide
vocational rehabilitation or job retraining benefits.
It is possible to get the compensation carrier to agree to waive
credit when it obtains reimbursement of lien rights in the third
party case. The specific wording of the release will control credit.
Where there has been no determination of employer fault in the
civil arena, the employer must file a Petition for Credit before
the WCAB and proceed pursuant to Roe v. WCAB (1974) 12
Cal. 3d 884. In Roe the
California Supreme Court held that the issue of employer fault
should be raised in the compensation proceedings where an allegedly
negligent employer seeks a credit against its future compensation
liability to the extent of the employee’s recovery against
a third party. To be determined in a Roe proceeding:
1. an employer’s
degree of fault
2. the employee’s total
damages
3. The employer’s proportional responsibility pursuant
to Associated Construction and Engineering Code
v. WCAB (supra).
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The “board must determine
(1) the degree of fault of the employer, and (2) the total damages
to which the employee is entitled. The board must then deny the employer
credit until the ratio of his contribution to the employee's damages
corresponds to his proportional share of fault. Once the employer's
workers' compensation contribution reaches this level, he should
be granted a credit for the full amount available under [Labor Code]
section 3861.”
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HARRIS: What
kind of wording is required to protect the comp case from credit?
BUTLER: As a rhetorician (with a degree
in Rhetoric from UC Berkeley), I find that the polemic language used
to protect the workers’ compensation case from the assertion
of credit by an employer is multi-faceted and multi-factorial. The
first step is engaging the compensation carrier who seeks reimbursement
through a lien in a third party case (this is usually the pattern
where the employer recognizes that it has the blood of the injured
worker upon its hands) or a complaint in intervention (generally
speaking, where the employer who does not recognize the fault of
the employer in contributing to or causing the injury to the worker
will be actively intervening in the case and attempting to protect
its claim for reimbursement through the active involvement of an
attorney).
In the instance where the carrier obtains reimbursement for its lien
rights the astute plaintiff’’s attorney will structure
the negotiation in such a way that the individual representing the
comp carrier in the lien claim agrees to waive its claim for credit.
There, the language should be conspicuous, plain and clear: “The
lien claimant (insert name of industrial carrier) agrees that by
payment of this reimbursement claim it waives any and all claim of
credit in the workers’ compensation matter.” The clearer
the reality the sharper the language. Like much else in the law,
there are a variety of fields of grey between the black of full reimbursement
and the white of the waiver of reimbursement. Thus, there are a number
of subtleties that the astute advocate can bear in mind. The language
might read: “The lien claimant\complainant in intervention
agrees to accept the sum of _____ for its lien of ______. It does
so with full recognition that pursuant to the case of Southern
California Edison v. WCAB (Tate) (1997) 58 Cal.App. 4th 766, asserted “credit
is reduced by the payment from the third party defendant” or “the
workers’ compensation carrier which receives reimbursement
for its claim of credit recognizes that applicant\plaintiff contends
that the employer has substantial fault in causing the third party
case and recognizes the weakness of any claim of credit in the compensation
arena should it be so bold as to assert same.” Such language
is generally negotiable and as in arena wrestling, the stronger advocate
trumps.
There is no clear answer to this conundrum. As we said back
in the days of Students for a Democratic Society, “Dare to
struggle. Dare to win.”
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Butler Viadro LLP handles significant
personal injury and wrongful death claims arising out of construction
and other general industry accidents, dangerous premises, defective
products, vehicle accidents, maritime accidents, and other general
negligence matters.
Jim Butler, Esq.
Butler Viadro, LLP
414 13th Street, 7th floor
Oakland, CA 94612
Tel:
510-287-2400
info@butlerviadro.com
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