Supreme Court decides that the right of subrogation and reimbursement under Section 319 of the Act is precluded by the Section 213 provision of absolute governmental immunity such that a governmental entity is not subject to subrogation claims.
The claimant fractured her right ankle when a public transit bus on which she was a passenger was involved in a motor vehicle accident. The injury occurred in the course and scope of her employment with the employer. She filed a workers’ compensation claim for the injuries, which was granted by a Workers' Compensation Judge.
Thereafter, the claimant filed a third-party lawsuit against the public transit company in which the employer, through its workers’ compensation insurer, filed a notice to protect its subrogation rights under Section 319 of the Act. The third party case settled for $75,000, with the public transit company agreeing to “defend, indemnify and hold Claimant harmless with respect to any claim, suit, petition or other action brought against Claimant...for payment of the workers’ compensation lien.”
The employer filed a Claim Petition asserting its subrogation rights against the third party recovery, which the claimant challenged on the basis that the public transit company was immune from claims of subrogation or reimbursement from the third party tort recovery under Section 213 of the Act, which provides that a government entity shall “benefit from sovereign and official immunity from claims of subrogation or reimbursement from a claimant’s tort recovery.” The Judge agreed with the claimant, finding that Section 213 government immunity applies to both subrogation claims asserted by an employer against a government entity and reimbursement from settlement proceeds a government pays to an injured employee.
The Appeal Board reversed, holding that Section 213 immunity only extends to direct actions for recovery against a governmental entity. The Commonwealth Court affirmed the Board on the basis that Section 319 provides for an absolute and automatic right of subrogation.
On appeal to the Pennsylvania Supreme Court, the claimant argued that the plain language of Section 213 provides for immunity in two situations: (1) a direct suit against a government entity for subrogation and (2) claims for reimbursement from a tort recovery for a settlement with a government unit. The first level of immunity would be negated, the claimant asserted, if a third party recovery is subject to a subrogation claim such that the government entity then has to account for the amount of a workers’ compensation lien in the third party settlement. The employer relied on the long-held automatic and absolute right to subrogation in order to prevent double recovery by the claimant and to preclude a negligent third party from escaping liability for which the employer is obligated to pay.
The Supreme Court found for the claimant, precluding subrogation from the third party recovery. In doing so, it had to decipher the legislative intent of the seemingly contradictory provisions of Sections 213 and 319 of the Act. In the Court's view, there was just one limitation on the right to subrogation—the immunity under Section 213 in tort cases involving the Commonwealth, its political subdivisions, agencies and employees. It found that there were two distinct types of proceedings where immunity applies—one for subrogation, where the employer and workers’ compensation carrier step into the shoes of the claimant to recover from the third-party tortfeasor, and reimbursement, which the Court characterized as an independent cause of action to the employer/insurer against an employee who receives a third party settlement or award. In so holding, the Court explained that immunity in reimbursement-type actions protects the public because “proper structuring” of settlement agreements prevents a double recovery, negligent governments do not escape liability for damages and public money is not used where an employer shoulders at least part of the claimant’s compensation.
Case Law Alert - 1st Quarter 2013