August 31, 2021 • Legislative & Regulatory

The Superior Court of Pennsylvania Offers a Lesson in Allocating Settlement Proceeds

In early August, the Pennsylvania Superior Court issued a decision that is instructive on the allocation of settlement proceeds. The facts and procedural history of the case are as follows. John Gleason, an employee of a medical imaging group (MIG), was performing maintenance on an MRI machine at a hospital where an explosion and fire occurred, injuring Mr. Gleason. He sustained severe burns when his hair, skin, and clothing caught fire. He was badly scarred, disfigured and suffered temporary blindness. He collected workers’ compensation benefits for his injuries. 

The Gleason’s filed two claims against various defendants alleging negligence and loss of consortium. The defendants answered the complaints and filed crossclaims. All the actions were consolidated. The Court’s decision provides little additional history. We learn the Gleasons reached a settlement agreement with the defendants and filed a petition seeking the trial court's approval of the terms. The agreement provided for a total settlement payment of $1.45 million. This sum was allocated between Mr. and Mrs. Gleason for their respective claims. There is no formula for allocating damages in a liability case. There is, however, an obligation to be fair and reasonable. That is, any allocation should make sense based on the facts. In this case Mr. Gleason was allocated $580,000 on the negligence claims. Mrs. Gleason’s loss of consortium allocation was $870,000 or $290,000 more than her husband, the physically injured party. All the defendants joined in support of the Gleason’s petition without taking a position on the allocation amounts. The trial court approved the unposed settlement after reviewing the documentation and oral argument. 

The Hartford was MIG’s workers’ compensation carrier. It paid $988,474. to and on behalf of Mr. Gleason in medical expenses, wage loss benefits, and to fund a Medicare Set Aside Account for his future medical expenses. The Hartford asserted a lien for all payments. The Gleason’s offered The Hartford $352,287, a sum representing the funds remaining from Mr. Gleason’s settlement after deducting attorneys’ fees and costs. 

The cross claims were not disposed of by the settlement and the case remained on the Court’s trial list. The Hartford petitioned to intervene seeking to protect its statutory lien interests under Section 319 of the Pennsylvania Workers Compensation Act. The trial court denied The Hartford’s petition. 

The Hartford filed a second petition to intervene. It was also denied. An appeal followed. The Court, under civil rule 1925 (a) issued an opinion The Hartford’s appeal “is premature” and “not ripe” for an appeal. 

Much of the appellate decision addresses the procedural status of the case, and whether the Superior Court had jurisdiction. The Court concluded it did after reviewing the applicable standards for appellate review.  

Some of the language in this decision is helpful to understand a carrier’s rights in a case with a procedural history like the Gleason’s. For example, the Court observes “the ability of an insurance carrier that has paid substantial workers’ compensation benefits to and on behalf of an employee to recover its statutory lien from the award of money the employee has received in a civil lawsuit is too important to be denied review, as the carrier has an absolute right to recovery and its interest outweighs the efficiency interest in discouraging piece meal litigation.” 

The court comments further Section 319 of the Pennsylvania Workers Compensation Act “provides that the employer [carrier] shall recover from the settlement the amount it previously paid to the claimant, minus the claimants legal costs of recovering that amount.” 

Citing Van Den Heuval v. Wallace 555 A2d 162 (Pa. Super. 1989) the Court determined a workers’ compensation carrier is entitled to intervene in a third-party tort action to the extent of the workers’ compensation benefits which had been paid to the employee. It noted it was unrealistic to suggest the carrier's interest could be adequately protected by subsequent action against the employee. The Van Den Heuval Court observed, if the third-party action settled without notice to the carrier, the subrogation claim would be “at the mercy of the employee who, having receive payment can dispose of the settlement proceeds as he chooses” Id at 163.  

The panel concluded the trial court's order denying intervention had “the practical effect of denying relief to [ the carrier] which cannot fully protect its subrogation interest in any other way [and therefore] the order denying intervention in this case is an appealable order.” 

The decision concludes with a discussion about the impact of the Court denial on The Hartford’s right to intervene in the settlement. It observed Hartford’s subrogation interest was not protected and it was without recourse to effectively challenge the consortium apportionment calculation. The apportionment agreement, confirmed by the trial court, limited The Hartford lien to $350,000 when it had paid almost a million dollars in benefits. 

The lesson in this case is simple. When there are multiple parties who have an interest in a claim resolution, particularly one that could extinguish the rights of other parties, take care to ensure all parties’ rights are protected. 

The Court noted there was a Medical Set Aside (MSA) in the settlement. We do not know how CMS’ interests were protected, and if there are no funds remaining in Mr. Gleason’s settlement could CMS pursue the substantial loss of consortium proceeds. 

The case was remanded to the trial court to address The Hartford’s lien. One must wonder if plaintiff/injured worker counsel is now sensitized to matters such that he will bring CMS into the case as another necessary party.


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