An award of specific loss benefits payable to claimant that became part of her estate after her death from non-work-related causes are subject to the employer’s subrogation lien upon the proceedings of a third party settlement for claimant’s work injuries

The claimant was at a work-related restaurant event when she fell from a high stool and landed on her back. The employer acknowledged the injury by issuing a Notice of Compensation Payable and made benefits payments to the claimant. Later, she filed a review petition to expand the description of the injury and filed a civil complaint against the restaurant. The civil lawsuit resulted in a settlement of $4,375,000.

The parties then completed a Third Party Settlement Agreement, which entitled the employer to a net lien amount from the civil settlement and 41% of ongoing weekly payments to satisfy its obligation to reimburse its pro-rata share of the claimant’s fees and expenses until the subrogation interest was exhausted. The claimant set up a special needs trust for the third party settlement funds for herself during her lifetime and named her brother as trustee and her daughter as the beneficiary after her death. The claimant’s condition worsened, and ultimately, her lower right leg below the knee was amputated. The claimant filed a petition seeking specific loss benefits for the loss of the leg, but she died the following day. The Workers’ Compensation Judge granted the petition and awarded 350 weeks of specific loss benefits under § 306(c)(5) of the Act, but reduced the amount of those benefits pursuant to the employer’s subrogation rights and interests. The trustee appealed to the Appeal Board, which affirmed the judge.

On appeal to the Commonwealth Court, the trustee argued that the specific loss benefits awarded by the Workers’ Compensation Judge were payable for the original, full temporary total disability rate, not the subrogation rate. According to the court, the issue hinged on whether there was “equatability” between the claimant’s pending specific loss benefits and her third party recovery funds. If so, the employer’s subrogation interests would be retained. The court pointed out that where, after a claimant’s death, surviving children become eligible for fatal claim benefits in their own right, rather than derivatively, the equatability that supports an employer’s right to post-mortem subrogation is broken.

The court rejected the trustee’s argument that any equatability ended with the claimant’s death because, although she was eligible for specific loss benefits, she was unable to personally receive those benefits. The court also dismissed the trustee’s argument that in instances such as this one, specific loss benefits become analogous to fatal claim survivor benefits and are, therefore, not subject to subrogation. The court pointed out that under § 306(g) of the Act, when a claimant dies of a cause not related to her work injury, any specific loss benefits to which she was already entitled, but did not collect, are heritable and, thus, subject to subrogation. The court affirmed the Workers’ Compensation Judge and the Appeal Board and dismissed the trustee’s appeal.

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