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Third Party Claims

    Worker's compensation benefits are the exclusive remedy of an employee for an industrial injury against the employer, any other employee of the same employer and the worker's compensation insurer. There are very limited exceptions, usually involving an action against a co-employee for an assault intended to cause bodily harm, or against a co-employee for negligent operation of a motor vehicle not owned or leased by the employer. No employee of a temporary help agency who makes a claim for compensation may make a claim or maintain an action in tort against any employer who compensates the temporary help agency for the employee's services. Wis. Stat. § 102.29(6)-(7).   Bauernfeind v. Zell, 190 Wis.2d 701, 713, 528 N.W.2d 1 (1995); Kopfhamer v. Madison Gas & Electric Co., 258 Wis.2d 359, 654 N.W.2d 256 (Ct. App. 2002).

    The term "third party claim" is frequently used to describe a tort claim by a worker against a person other than the employer or a co-employee. An injured employee, the employer or worker's compensation insurer may sue a third party tortfeasor who is responsible for the employee's injuries. The employee claims damages for injuries above and beyond worker's compensation benefits. Such damages include pain and suffering, mental anguish, and derivative claims for loss of society and companionship. The employer or worker's compensation insurer seeks reimbursement of amounts paid for such items as medical bills or disability. Each has an equal voice in the claim under Wisconsin law. A workers' compensation insurer may seek to recover damages for an injured employee’s pain and suffering against third party, even though injured employee elects not to participate in third-party action.  Thresherman’s Mut. Ins. Co. v. Page, 217 Wis.2d 451, 577 N.W.2d 335 (1998).

    An adjuster that administered claims for an employer's workers' compensation insurer was held immune from a third party negligence action brought by employee for damages he allegedly sustained as a result of adjuster's delay in authorizing his neck surgery for his work-related injury, based on exclusive remedy provision of Workers' Compensation Act.  The court said that the because the adjuster was an agent of insurer, and because the exclusive remedy doctrine applied to agents and representatives of employer, in order to be consistent, it also applied to representatives of the insurer.  Walstrom v. Gallagher Bassett Services, Inc., 239 Wis.2d 473, 620 N.W.2d 223 (Ct. App. 2000).

    Any recovery from a third party must be shared according to the formula of Section 102.29, Wis. Stats. The formula provides that costs of collection (attorneys' fees and disbursements, usually about one third of the gross) are deducted off the top of the recovery. Meyer v. Michigan Mut. Ins. Co., 233 Wis.2d 493, 609 N.W.2d 167 (Ct. App. 2000). From the balance remaining, the employee receives one third. From the balance remaining, the worker's compensation insurer is reimbursed up to the amount it has paid. If there is any balance remaining, it belongs to the employee. However, the WC insurer is entitled to a "cushion" out of the remaining balance for future payments it might have to make. Richtman v. Honkamp, 245 Wis. 68, 13 N.W.2d 597 (1944). If the cushion is paid to the employee, it is a credit against future worker's compensation payments. If it is escrowed or reserved by the worker's compensation insurer, the insurer keeps the interest as part of the cushion. Sutton v. Kaarakka,168 Wis.2d160, 483 N.W.2d 259 (Ct. App. 1992)(over 1 million dollars was escrowed in a trust account for the cushion and all the interest was applied to the cushion).

    Assume $25,000 is paid by the worker's compensation insurer. Three examples are listed below of the distribution of third party settlement proceeds under the formula based on differing settlement amounts:

 

 

    Sometimes there is not enough money from the settlement of the third party claim to reimburse the worker's compensation carrier in full, or to provide a cushion to the employee against future worker's compensation benefits. A settlement of any third party claim is void unless the settlement and distribution of proceeds is approved by the Circuit Court or Department of Workforce Development.

    Problems may arise when the employee or worker's compensation insurer seeks to maximize their share to the prejudice of the other.

    The costs of collection sometimes include the worker's compensation insurer's attorney fees. When a worker's compensation insurer hires its own attorney, who prosecutes the case along with the employee's attorney, the attorneys must share the "costs of collection" in the first part of the formula of Section 102.29, based on their mutual efforts. The insurer still is entitled to recover back its lien under the formula without deducting its lawyer's fees out of its share. Zentgraf v. Hanover Ins. Co., 250 Wis.2d 281, 640 N.W.2d 171 (Ct. App. 2001); Diedrick v. Gehring, 62 Wis.2d 759, 216 N.W.2d 193 (1974).

    An injured employee's spouse and children have third party tort claims for loss of society and companionship. These claims are not subject to the formula for distribution under Section 102.29. DeMuelenaere v. Transport Ins. Co., 116 Wis.2d 322, 342 N.W.2d 56 (Ct. App. 1983); Kottka v. PPG Industries., Inc.,130 Wis2d 499, 388 N.W.2d 160 (1986). The same is true for claims of loss of society and companionship in wrongful death third party cases, but all proceeds for pecuniary loss, including loss of support and loss of services are included in the amounts subject to the worker's compensation insurer's lien. Johnson v. ABC Insurance Company, 193 Wis.2d 35, 532 N.W.2d 130 (1995).

    The worker's compensation insurer may participate in a settlement even if there are insufficient liability insurance proceeds to compensate all claimants or to make the employee whole. Martinez v. Ashland Oil, Inc., 132 Wis.2d 11, 390 N.W.2d 72 (Ct. App. 1986). When there are multiple claimants against insufficient liability insurance funds, either the parties will negotiate an agreement or the Court will hold a hearing to:

1.      determine the value of each claim;

2.      prorate the settlement proceeds among the claims;

3.      distribute the amounts allocated to claims not subject to Section 102.29;

4.      distribute the amounts allocated to claims subject to Section 102.29 according to the formula.

Brewer v. Auto-Owner's Ins. Co., 142 Wis.2d 864, 418N.W.2d 841 (Ct. App. 1987).

    There are ways to minimize the reimbursement to the worker's compensation insurer when the employee is married. Assume a $60,000 settlement and $25,000 worker's compensation lien. If the employee is single, the worker's compensation insurer gets full reimbursement. If the employee is married and one third of the claim is assigned to the spouse for loss of society and companionship, the worker's compensation insurer receives less than full reimbursement and the employee and spouse increase their net from $15,000to $22,221.

    Both the employee and worker's compensation insurer can recover interest on the verdict and judgment when a third party case is tried. Hauboldt v. Union Carbide Corp., 160 Wis.2d 662, 467 N.W.2d 508 (1991). Interest is prorated between the employee's claim and the worker's compensation insurer's claim.

    A worker's compensation insurer is entitled to reimbursement of its lien out of the lump sum portion of a partially structured settlement and cannot be forced to accept delayed payments. Skirowski v. Employers Mutual Cas. Co., 158Wis.2d 242, 462 N.W.2d 245 (Ct. App. 1990); Simanek v. Miehle-Goss-Dexter,113 Wis.2d 1, 334 N.W.2d 910 (Ct. App. 1983).

    A worker's compensation insurer may participate in an employee's medical malpractice claim which aggravates an industrial injury, Sutton v. Kaarakka,159 Wis.2d 83, 464 N.W.2d 29 (Ct. App. 1990), but not a legal malpractice claim, Smith v. Long, 178 Wis.2d 797, 505 N.W.2d 429 (Ct. App. 1993).

    An insurer may seek reimbursement under Section 102.29 from the entire proceeds of an injured employee's liability claim against the responsible third party, including proceeds attributable to the aggravation of a pre-existing injury, even if such aggravation was not considered when the worker's compensation case was compromised. Nelson v. Rothering, 174 Wis.2d 296, 496 N.W.2d 87 (1993).

    A worker's compensation insurer cannot seek reimbursement from the proceeds of an injured employee's uninsured motorist claim, because it is based on contract, not tort. Berna-Mork v. Jones, 174 Wis.2d 645, 498 N.W.2d 221(Ct. App. 1993). However, an automobile insurance policy providing uninsured or underinsured motorist coverage may exclude amounts paid or payable under worker's compensation law, pursuant to the 1995 amendments to Section 632.32, Wis. Stats. The statutory amendments supercede prior case law that barred such exclusions.

    Although worker's compensation benefits are the exclusive remedies of an employee against an employer, the employee may bring a third party action against the parent corporation of his employer-subsidiary if the parent corporation is responsible as a third party tort feasor acting in a manner other than a shareholder. Miller v.Bristol-Meyer Co., 168 Wis.2d 863, 485 N.W.2d 31 (Ct. App. 1992). However, if an employer or insurer has an enforceable indemnification agreement with a third party tort feasor, and ends up paying the tort damages along with the worker's compensation benefits, the worker's compensation insurer is entitled to share in the recovery of the tort damages along with the employee. Houlihan v. ABC Ins. Co., 198 Wis.2d 133, 542 N.W.2d 178 (Ct. App. 1995).

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