Subrogation Settlement ‘Extinguishes’ Employee’s Claim for Med Expenses

Frank Ferreri

Denver, CO (WorkersCompensation.com) – In insurance law, subrogation allows someone else to stand in the insured’s shoes to pursue the insured’s claims, and as a Colorado worker found out, that may affect the ability of the insured to sue a third party for damages.

According to Colorado’s top court in Delta Air Lines Inc. v. Scholle, No. 19SC546 (Colo. 04/12/21), when a workers’ compensation insurer settles its subrogation claim for reimbursement of medical expenses with a third-party tortfeasor, the injured employee’s claim for past medical expenses is “extinguished completely.”

Injury, Compensation

A United Airlines worker who drove luggage tugs from the terminal to waiting planes was stopped at a stop sign on a return trip to the terminal when he was rear-ended by a Delta Air Lines employee. The worker experienced several serious injuries that required him to miss work and to receive medical treatment over the course of several years.

The worker applied for and received workers’ compensation insurance from United, which covered all medical expenses resulting from the worker’s on-the-job injuries as well as a portion of his lost wages. The worker sued Delta, seeking to recover compensation for economic damages, noneconomic damages, physical impairment, and disfigurement.

At trial, the jury awarded the worker $1.5 million in damages, but due to misconduct by the worker’s attorney, the court ordered a new trial. In that trial, the court awarded the worker $64,750 in noneconomic damages and $194,426 in economic damages.

However, in a separate lawsuit, Delta settled its case with United, and the court reduced the award to the worker by the amount United paid in workers’ compensation, bringing the worker’s economic damages award to $0.

On appeal, the court reversed the judgement with respect to the worker’s medical expenses, holding that workers’ compensation payments were collateral source benefits because an employee’s entitlement to receive them arises out of the employment contract. Because Delta had not contributed to the contract between United and the worker, the court found that Delta was not entitled to “reap the benefit of a contract for which [it] paid no compensation.”

Delta appealed to the Colorado Supreme Court.

Colorado Subrogation

Under state law, an insurer that has paid benefits is subrogated to the underlying claims the employee would have against a third-party tortfeasor. The law also details that the subrogation right provided to insurers includes all compensation and all medical, hospital, dental, funeral, “and other benefits and expenses to which the employee” is entitled.

In this case, United paid for all of the worker’s medical care related to the on-the-job injury as well as other compensation under Colorado’s Workers’ Compensation Act. United then exercised its subrogation right to sue Delta as the third-party tortfeasor.

The court explained that because “United was standing in [the worker’s] shoes when it pursued the claim against Delta, United’s settlement extinguished any claim that [the worker] would have had to recover medical expense damages for services provided in relation to the on-the-job injury and paid by workers’ compensation.”

Thus, the Colorado Supreme Court majority agreed with the trial court that the worker could not sue Delta for anything other than noneconomic damages or economic damages that weren’t fully covered by workers’ compensation. Such damages could include: 1) lost wages; 2) physical impairment; 3) disfigurement; and 4) non-covered medical expenses.

A dissenting justice in the case asserted that the majority misread state law and reasoned that United was subrogated only to the extent of the amounts that it paid on the worker’s behalf. In this justice’s view, the worker should still be able to sue for damages above the amount United paid him.

Nonetheless, based on the majority’s decision in the case, the lower court’s ruling was reversed and remanded.

Companion Case

On the same day it issued the Scholle decision, the Colorado Supreme Court reached a similar conclusion in a companion case, Gill v. Waltz, No. 19SA174 (Colo. 04/12/21). There, the Centennial State’s top court addressed an on-the-job car accident a worker experienced when he was struck by a commercial truck. Because workers’ compensation benefits covered the medical expenses required under state law, and the insurer settled its subrogation claim with the trucking company, the worker’s case was extinguished.

The worker in the Gill case argued that he could still pursue a claim for the difference between the amounts billed and the amounts paid, but the court disagreed.

Because the amounts paid were dictated by state law and because the subrogation right applied to “all medical benefits and expenses that the employee” was entitled to under the law, there was “no claim for the difference between the amounts billed and amounts paid that survive[d] [the insurer’s] settlement of the claim for damages arising out of those services.”

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