Third-Party Claims and Workers’ Compensation Subrogation

In certain limited circumstances, injured workers may bring a civil claim arising out of the incident that caused his or her work injury. These civil claims may include pain and suffering and other types of monetary damages not available under the Minnesota Workers’ Compensation system. The employee may not sue his or her employer for causing his or her injury, but the injured worker may sue a third-party who is at fault, meaning that the other person or entity’s negligence caused the injured worker’s injury. Third-party claims typically arise in work-related motor vehicle accidents, construction accidents, products liability claims, or premise liability claims.

When a claimant brings a third-party claim against a separate party, the workers’ compensation insurance carrier maintains a “subrogation interest” in the litigation. The defendant in the civil law suit will have to pay back the workers’ compensation insurance carrier as the defendant’s negligence caused the injury and ensuring disability with monetary damages. This interplay creates a nuanced relationship between the injured worker and the employer and insurer, which may even be described as, “the enemy of my enemy is my friend.”

The third-party defendant or “tortfeasor” may sue the employer for contribution to the employee’s civil claim based on the employer’s negligence in causing the employee’s injury, as described in Lambertson v. Cincinnati Corporation, 257 N.W.2d 679 (Minn. 1977). In some cases, the work comp insurer may agree to “waive and walk” under Minnesota Statute § 176.061, subdivision 11, meaning the insurer will waive the subrogation claim as a part of a settlement and avoid a Lambertson claim in the civil context. The injured worker cannot recover from the employer for his or her work injury so it is not in his or her best interest to allege negligence on behalf of his employer. As a party of a work comp settlement with the employee, the insurer and employer may also agree to waive and assign his or her future subrogation interest as and for additional consideration. This future subrogation interest can be very valuable for the employee.

The quintessential case that describes this relationship between the employer and employer and insurer and the distinct types of settlements in third-party claims is Naig v. Bloomington Sanitation, 288 N.W.2d 891 (Minn. 1977). The workers’ compensation insurance carrier maintains a separate right of recovery as against the defendant; however, frequently it is in the parties’ best interest to unite against the civil defendant to maximize each party’s recovery. A work comp insurer could separately settle its workers’ compensation subrogation claim on an independent basis, which is commonly referred to as a reverse-Naig basis, as defined in Folstad v. Eder, 467 N.W. 2d 608 (1991).

If the employee and employer and insurer agree to “no-naig” and “no reverse-naig,” meaning neither party will settle out its interest as against the civil defendant without the other’s agreement, then the parties must agree on how to allocate the settlement proceeds. If the civil suit were to proceed to trial and the plaintiff, or employee, were to successfully recover damages against the civil defendant, the recovery is generally distributed as outlined by the formula in Minnesota Statute § 176.061, subdivision 6. The distribution formula allows for the possibility that the monetary damages recovered may not fully compensate the plaintiff for his or her losses. For example, the civil defendant may only have $500,000 in an insurance policy; however, the plaintiff’s damages may exceed $1 million. Rather than engage in drawn out litigation against a defendant who is “judgement proof,” meaning he or she may not have money in excess of the insurance policy limits, the defendant may offer the full policy limits. The plaintiff may then bring a claim against his or her own insurance policy for under-insured motorist coverage, in the case of a motor vehicle collision. The distribution formula also allows that of the $500,000 recovered in the civil case, attorney fees are deducted as well as litigation costs. The workers’ compensation subrogation interest is then reduced by what is referred to as the “cost of collection”.

Don’t wait to get an attorney involved if you believe you may have a third-party claim arising out of your Minnesota workers’ compensation claim. The process can be complex and you want to be sure you receive the full benefits to which you are entitled. Contact Meuser Law Office, P.A. for a free no-obligation consultation and claim evaluation. If you have a third-party claim it is imperative to use a firm with experience in work comp as well as personal injury. Call us today at 1-877-746-5680.

by Mary Beth
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