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Self-Insured Employer Is Not Entitled To Subrogation Of A Workers’ Compensation Lien For Periods An employee Is Eligible For Benefits Concurrently

June 5th, 2018

In Commonwealth v. Workers’ Comp. Appeal Bd. (Piree), 995 C.D. 2017, 2018 WL 1611532 (Pa.Cmwlth. Apr. 4, 2018), the Commonwealth Court of Pennsylvania reaffirmed that a self-insured employer is not entitled to subrogation of a workers’ compensation lien for periods an employee is eligible for benefits concurrently under the Heart and Lung Act and Workers’ Compensation Act.  Claimant, an agent for the Pennsylvania’s Office of Attorney General, sustained injuries in a work-related motor vehicle accident.  Claimant was eligible for and did receive medical benefits and payment of his full salary from the Office of Attorney General’s payroll fund pursuant to the Heart and Lung Act, 53 P.S. § 637(a).  At the same time, Employer’s third party workers compensation administrator, Inservco, reimbursed the Employer for amounts due under the workers’ compensation claim.

Claimant also pursued a third party action for the motor vehicle collision.  During this process, Inservco asserted to Claimant’s third party counsel that there was a recoverable workers compensation lien of approximately $300,000.00.  However, Inservco and the third party counsel did not discuss that Claimant was receiving fully salary under the Heart and Lung Act or that the workers compensation payments made by Inservco were being remitted to Employer.  As a result, the purported workers compensation lien was included as part of Claimant’s third party settlement.

After Claimant settled the third party case, both Claimant and Employer filed Petitions to Review Compensation Benefits to determine if Employer was entitled to reimbursement of the workers’ compensation lien.  The workers compensation judge determined that the Employer was entitled to reimbursement for the portion of benefits payable under the Workers Compensation Act that were included in the third party settlement.

The Workers Compensation Appeal Board reversed the WCJ based on the Commonwealth Court’s holding in Stermel v. Workers’ Compensation Appeal Board (City of Philadelphia), 103 A.3d 876 (Pa. Cmwlth. 2014).  In Stermel, the court held that self-insured public employers compensating employees injured in motor vehicle accidents under both the WC Act and the Heart and Lung Act were excluded “from subrogating any indemnity or medical expenses, regardless of how they were categorized” by the self-insured employer, “because the claimant was still due full salary and benefits due to his coverage under the Heart and Lung Act.”  Id. at 877.  This holding was reiterated in Pennsylvania State Police v. Workers’ Comp. Appeal Bd. (Bushta), 149 A.3d 118, 120 (Pa. Cmwlth. 2016), appeal granted, 168 A.3d 1260 (Pa. 2017).

Based on Stermel and Bushta, the Commonwealth Court was “constrained” to affirm the order to the WCAB as to the issue of subrogation.   The court acknowledged that the reason Heart and Lung benefits are not subject to subrogation is because Section 1722 of the MVFRL precludes plaintiffs from recovering those benefits from a responsible tortfeasor, and that here, Claimant did recover those benefits.  However, the court reasoned that the lien was included in the third party settlement because Inservco erroneously characterized Claimant’s Heart and Lung benefits as workers compensation benefits.  The court declined to allow Inservco’s mischaracterization of the benefits to “provide the basis upon which to subrogate those funds.”  Doing so, “would defeat the Court’s understanding of the legislative intent of the statute and create an incentive for future mischaracterizations of benefits.”

The case was still remanded to determine Employer’s right to subrogation for benefits paid after Claimant’s injuries were deemed permanent and he began receiving benefits solely under the Workers’ Compensation Act.

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