September 14, 2006

Loss of
Consortium

The underlying facts were that the Plaintiff, John Urmann, was the President/Owner of a coal company. In 1995, he was severely injured in an automobile accident. That accident occurred while he was in the course and scope of his employment, resulting in the Plaintiff receiving workers’ compensation benefits that were paid by his company’s workers’ compensation carrier.

The Plaintiff and his wife, Mary Lee Urmann, filed a third-party personal injury action, alleging that the Defendants’ negligence caused the Plaintiff’s injuries.

The case was then mediated in the Allegheny County Court of Common Pleas. Through mediation, an agreement was reached to settle the case for $300,000. The settlement was to be apportioned with the Plaintiff receiving $50,000, as compensation for his physical and mental injuries, and his wife receiving $250,000 for her loss of consortium claim.

Apportioning more money for consortium necessarily reduced the potential recovery of the workers’ compensation subrogation lien, which was significantly based on the husband’s injuries.

The Plaintiffs notified the workers’ compensation insurance carrier of the settlement agreement, and the Plaintiffs petitioned the trial court for approval of the settlement terms. That petition was opposed by the workers’ compensation insurance carrier. It opposed the settlement apportionment on grounds that 80% of the settlement proceeds were being distributed for the settlement of a consortium claim, while only 20% of the settlement proceeds were settling the underlying personal injury claims. Apportioning more money for consortium necessarily reduced the potential recovery of the workers’ compensation subrogation lien.

An evidentiary hearing concerning the settlement was then held before the trial court. The first witness called by the Plaintiffs was the attorney who had represented the Defendants during the settlement negotiations. His testimony was that the Defendants had originally offered only $25,000, with the attorney evaluating the potential exposure for liability to be in a range of between $75,000 and $125,000. However, that assessment changed during the mediation hearing, as counsel and the casualty insurance carrier had an opportunity to meet with the Plaintiffs, and also to assess the Plaintiff’s then-current condition.

Although the Plaintiff had largely recovered from his physical injuries, his injuries had rendered him mentally disabled with diagnoses for major depressive disorder, organic mood disorder, and with a cognitive disorder with impaired intellectual functioning. Defense counsel and the casualty carrier also assessed the degree to which the Plaintiff’s wife would have to deal with the Plaintiff’s mental deficits into the indefinite future.

The defense counsel and casualty carrier concluded that the loss of consortium claim was far more substantial than a typical loss of consortium claim.

Based on those assessments, the defense counsel and casualty carrier concluded that the loss of consortium claim was far more substantial than a typical loss of consortium claim, and more significant, for settlement purposes, than the Plaintiff’s personal injury claim.

As a result of the assessments made by defense counsel and the casualty carrier during the mediation, the settlement offer was increased to $300,000, which offer the Plaintiffs accepted.

Also testifying before the trial court was the Plaintiff’s adult daughter, who testified as to the changes that her father had gone through post-accident, including being incapable of assuming his daily responsibilities necessitating that the mother/wife assume complete responsibility for her husband’s accident-related changes. The daughter also testified to other changes that had occurred within the spousal relationship, particularly in terms of the changes that the Plaintiff-wife had to deal with on a daily basis.

Also testifying was the Plaintiff-wife, whose testimony involved the amount of time and effort that she was now required to spend simply caring for her husband.

Concluding the evidentiary hearing, the trial court judge began by noting the “legal sensitivity” of the issue confronting the court, being “it is the responsibility of the court to make sure that the allocation of the settlement is a fair apportionment based on the facts of the case, as distinguished from whether the apportionment is allocated not based on the facts but designed only to maximize the net recovery to the Plaintiffs at the expense of the workers’ compensation subrogation lien.”

The trial court judge approved the settlement agreement, incorporating the unusual apportionment in terms of the consortium claim.

Finding that the marital relationship had been “fundamentally destroyed”, the trial court judge found as fact that the settlement apportionment was “based on a good faith attempt to apportion the claim based on the facts, rather than on a motivation intended to, and designed to, or motivated to limit or reduce the subrogation lien.” Concluding as much, the trial court judge approved the settlement agreement, incorporating the unusual apportionment in terms of the consortium claim.

The workers’ compensation carrier appealed the trial court’s approval of the settlement agreement on several grounds, including public policy considerations, and that insufficient evidence existed to establish that the settlement apportionment was either fair or warranted by the facts.

The Court also noted that the trial court had placed the burden of proof as to the fairness and reasonableness of the settlement apportionment on the Plaintiffs, and that the workers’ compensation insurance carrier had not objected to the relevancy of any evidence presented.

On review before the Superior Court, the court found that the evidence of record before the trial court was sufficient, both in terms of its weight and credibility, to support the trial court’s approval of the settlement apportionment. The Court also noted that the trial court had placed the burden of proof as to the fairness and reasonableness of the settlement apportionment on the Plaintiffs, and that the workers’ compensation insurance carrier had not objected to the relevancy of any evidence presented by the Plaintiffs, nor had the workers’ compensation carrier offered any evidence of its own in rebuttal to the Plaintiffs’ evidence that the settlement apportionment was fair and reasonable. Accordingly, the Superior Court concluded that the trial court did not abuse its discretion when it determined that the Plaintiffs had presented sufficient “non-economic” evidence in support of their petition.

A workers’ compensation insurance carrier does not have a subrogation claim against a loss of consortium settlement or award.

Tackling the public policy arguments raised by the workers’ compensation insurance carrier, the Court correctly noted that under Darr Construction Co. v. WCAB, 715 A.2d 1075 (Pa. 1998), a workers’ compensation insurance carrier does not have a subrogation claim against a loss of consortium settlement or award, as consortium is a separate and independent cause of action from the tort claim of an injured worker.

The Darr court had recognized that the structuring of loss of consortium settlements potentially created an opportunity for abuse to shield settlement funds from being subject to recovery from a workers’ compensation insurance carrier’s subrogation lien interest, but the Darr court had noted that an employer or insurance carrier, fearing abuse in the improper structuring of a consortium settlement, was always free to seek recourse before a trial court as to whether the consortium settlement was unreasonably apportioned.

The Superior Court concluded in Urmann that “there can be no question that neither law nor public policy was violated by the trial court’s approval of the settlement agreement” in the Urmann case.

Noting that the trial court had been keenly aware of the problematic nature of structuring a settlement agreement when greater settlement funds are being attributed to a loss of consortium claim than to the personal injury claim against which the workers’ compensation insurance carrier enjoys a subrogation right, the Superior Court in Urmann concluded that “there can be no question that neither law nor public policy was violated by the trial court’s approval of the settlement agreement.”

Finding that the workers’ compensation insurance carrier failed to prove that the trial court’s approval of the settlement apportionment was clearly contrary to the weight of the evidence, or was violative of either public policy or any legal precedents, the Superior Court affirmed the trial court’s approval of the settlement apportionment.

Practical Tips

The Urmann opinion illustrates an unusual case that seemingly justified a fair result that under different circumstances would certainly suggest impropriety and potential fraud in the settlement apportionment.

Third-party settlements that involve resolving workers’ compensation subrogation liens should involve the early participation of the workers’ compensation insurance carrier.

However, it illustrates two key points. First, third-party settlements that involve the necessity of resolving/satisfying workers’ compensation subrogation liens should involve the early intervention/participation of the workers’ compensation insurance carrier in the settlement negotiation process, so that the compensation carrier is on an equal footing with other parties in terms of assessing the potential liabilities, and damages at issue, beyond the mere calculation of the subrogation lien, as well as the potential settlement/verdict range applicable to the unique facts of each case.

Second, in the event of a disagreement as to how a third party settlement is being apportioned, the parties always have available the opportunity to seek trial court approval of the settlement, thereby protecting all involved parties from any potential overreaching or abuse.

So what do we really think of this decision?

A fair decision should be limited to its facts, and should not paint a broad brushstroke empowering Plaintiffs to devise new schemes for selective apportionment of settlements.

On balance, this is probably a fair decision that should be limited to its facts, and should not paint a broad brushstroke empowering Plaintiffs to devise new schemes for selective apportionment of settlements potentially subject to subrogation liens. Nor should it send shock waves through the halls of insurance carriers seeking to litigate objections to settlements subject to the subrogation sniff test of “show me the money.”

Again, on balance, it is a unique case, limited to its facts, and not floating as an all-but-submerged iceberg eagerly awaiting the prow of a surging lien in the moonlight-deprived and all-too-choppy seas of subrogation.

It clearly establishes a precedent for both sides, permitting either party to petition a trial court for approval of a settlement apportionment.

Moreover, it clearly establishes a precedent for both sides, both Plaintiffs and subrogation carriers, permitting either party, or both, to petition a trial court for approval of a settlement apportionment, with the trial court hearing evidence and rendering findings based on an evidentiary record. Further protection is then afforded with the disappointed party having a right of appeal, obviously subject to appellate procedures.

In this vein, this opinion is not an anomaly, but is merely an extension of dicta in the Supreme Court’s holding in Darr.

It is incumbent upon subrogation carriers to be actively involved in the third-party settlement process.

Of course, it is incumbent upon subrogation carriers to be actively involved in the third-party settlement process whenever it is anticipated that a workers’ compensation subrogation lien will need to be resolved in the context of the third-party settlement.

The best practice, and one advocated by our Firm, is that the subrogation carrier be involved in this process at the earliest outset, requiring the third parties, including Plaintiff and the Defendants, to maintain contact with the subrogation carrier. They should advise as to discussions involving settlement and/or mediation, so that the subrogation carrier is not surprised post-settlement or at the mediation conference with the third parties advising that the subrogation carrier must compromise or reduce its lien as otherwise settlement and/or mediation could potentially fail.

The earlier the subrogation carrier is involved in this process, the less likely its interests are suborned to those of either the Plaintiff or the third party Defendants.

Questions

Questions concerning this decision, or any questions involving workers’ compensation or casualty litigation practice and procedures, can be directed to our attorneys.

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