Employer’s Future Subrogation Rights Under Section 319 of the Workers’ Compensation Act Limited by Pennsylvania Supreme Court

The Pennsylvania Supreme Court has addressed an employer’s subrogation rights against the balance of recovery when a claimant receives a third-party settlement or award stemming from a work injury. In a monumental decision, Whitmoyer v. Workers’ Compensation Appeal Board (Mountain Country Meats), 186 A.3d 947 (Pa. 2018), the court has adversely impacted the rights of employers under Section 319 of the Pennsylvania Workers’ Compensation Act. Summarily, the court reversed a longstanding subrogation precedent by holding that employers are no longer entitled to a future credit against ongoing medical benefit payments when resolving or being awarded monies in a third-party lawsuit.

In Whitmoyer, the claimant sustained serious work-related injuries in 1993, resulting in the amputation of part of his arm, for which he was paid specific loss benefits that were commuted to a lump sum in 1994. While the commutation resolved the claimant’s entitlement to indemnity benefits, liability was retained by the employer for payment of ongoing causally-related and reasonable and necessary medical expenses.

In 1999, the claimant entered into a settlement with third parties related to his injury for a lump sum of $300,000. After calculating and deducting the employer’s net subrogation lien, and accounting for the insurer’s pro rata share of litigation expenses, the claimant was left with a balance of $189,955.86. A third party settlement agreement was drafted, whereby the workers’ compensation insurer was entitled to a net subrogation lien and a reimbursement rate on future payment of compensation. On the settlement agreement, the term “balance of recovery” was defined as “a fund for credit against future workers’ compensation payable, subject to reimbursement to claimant of expenses of recovery at the rate of 37% on credit used.”

Upon receipt, counsel for the claimant submitted the first of two letters to the insurer, primarily asserting that payment of the net lien would be made and that the insurer would not be entitled to a credit against future medical expenses since said credit applied only to future “installments of compensation,” excluding medical expenses, pursuant to the language of Section 319 of the Act. While the insurer’s representative executed the third party settlement agreement, counsel for the claimant did not sign the document. The insurer also cashed the check for the net lien recovery as of the date of the third-party settlement. Reasonable and necessary medical expenses that were directly attributable to the work injury continued to be paid by the insurer for several years thereafter, without assertion of a credit or reimbursement rate.

In 2012, the insurer filed a petition to modify compensation benefits, seeking an adjustment to the third party settlement agreement to reflect medical expenses paid since its execution. The Workers’ Compensation Judge granted the modification petition, specifically holding that the reimbursement rate and future credit calculated on the third party settlement agreement applied to future medical expenses. In so holding, the judge awarded a percentage credit for payment of future medical expenses.

On appeal, the claimant asserted that Section 319 of the Act only allows a credit on future installments of compensation, i.e., indemnity benefits, none of which remained to be paid since they were commuted in 1994. However, the Workers’ Compensation Appeal Board affirmed, holding that it was well settled that medical expenses are compensation payments subject to the subrogation rights against the claimant’s recovery from a third party.

In a divided en banc opinion, the Commonwealth Court affirmed, reasoning, in part, that Pennsylvania appellate courts have consistently concluded that medical expenses constitute “compensation” under Section 319 of the Pennsylvania Workers’ Compensation Act. The claimant subsequently appealed to the Pennsylvania Supreme Court, arguing in summary fashion that the Commonwealth Court’s decision improperly reads the word “installments” out of the language of Section 319 and urged the court to consider a distinction between the meaning of “compensation” and “installments of compensation.” The claimant submitted that the latter refers to disability benefits, not medical expenses. Conversely, the employer asserted that, as was set forth in the underlying Commonwealth Court decision, “compensation” has repeatedly been interpreted to include both indemnity benefits and medical expenses, both in and outside the purview of Section 319 of the Act.

The primary issue thus presented to the Supreme Court involved an interpretation of the term “installments of compensation” in Section 319 of the Act, which, in turn, demanded that the court both ascertain and effectuate the intention of the General Assembly. In doing so, the court noted its obligation to take care to give meaning to every word and provision in the statute in question.

The court ultimately reversed the underlying decision after an analysis of the language set forth in Section 319, finding that for purposes of subrogation, the future credit/reimbursement rate applies to future indemnity benefits, not future medical expenses. The court reasoned that inclusion of the words “installments of compensation” in Section 319 references payment of disability benefits only, as medical expenses, in theory, cannot be paid in installments. Further, medical expenses were not characterized as regular and periodic in nature, as were the payment of indemnity benefits. The court held that the terms “compensation” and “installments of compensation” are, in fact, distinct and that a third-party recovery in excess of the subrogation lien is considered an advance payment of benefits under Section 319 of the Act. This advance payment intended by the General Assembly was said to be on account of future disability benefits, not medical expenses.

The court further reasoned, “[t]o conclude that ‘installments of compensation’ carries the same meaning as ‘compensation’ would render the words ‘installment of’ meaningless. Our rules of statutory construction do not permit such as result.” The court viewed “installments of compensation” as clear and unambiguous in its exclusion of medical expenses. It was, therefore, held that an employer is not entitled to a credit/reimbursement rate for future medical expenses against a balance of recovery following resolution of a third-party claim.

Importantly, the court did not specifically address whether this change will be applied retroactively. Similarly, the court was silent as to situations in which both parties have executed and entered into a third party settlement agreement, contrary to the facts set forth in Whitmoyer. However, the absolute right to subrogation under Section 319 of the Act for employers, their insurers and third party administrators has undoubtedly been adversely impacted moving forward. While subrogation can be asserted against both indemnity and medical benefits paid to date, future medical benefits can no longer be recouped from a claimant’s balance of recovery.

*Dan is a shareholder in our Pittsburgh, Pennsylvania office. He can be reached at 412.803.1181 or dwdeitrick@mdwcg.com.

_{Defense Digest, Vol. 25, No. 1, March 2019. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2019 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}