In a case involving workers’ compensation, the Commonwealth Court ruled recently that when a third-party tortfeasor’s insurance carrier becomes insolvent, an employer’s solvent insurer has no subrogation rights to any funds paid to the plaintiff in connection with her third-party medical malpractice lawsuit. Specifically at issue in Cullen v. Pennsylvania Property and Casualty Insurance Guaranty Association is whether the subrogation rights of an employer under Section 319 of the Worker’s Compensation Act are nullified when the third-party recovery is paid pursuant to the Pennsylvania Property and Casualty Insurance Guaranty Association Act. A three-judge panel, led by Judge Bonnie Brigance Leadbetter and including Judges James Gardener Collins and William J. Lederer ruled unanimously in favor of the claimant, Janet Cullen.

Writing the eight-page opinion of the Court, Judge Leadbetter said: "For these reasons, we conclude that where the third-party tortfeasor’s insurance carrier becomes insolvent requiring the Association to act as guarantor, the statutory scheme shifts the normal burden of loss and requires the solvent insurer to remain responsible for the payment of workers’ compensation benefits." Leadbetter concluded: "In this circumstance, the claimant may not recover from the third-party tortfeasor those losses which have been satisfied by workers’ compensation benefits, and the workers’ compensation carrier is precluded from exercising its traditional right of subrogation."

The Court’s decision is important because it determines whether a claimant’s third-party recovery is subject to a double offset. The Court concluded that the Legislature intended that the offset of Section 1817(a) of the Pennsylvania Property and Casualty Insurance Guaranty Association Act to bar subrogation under the Workers’ Compensation Act. "To allow a double offset would be manifestly inconsistent with the humanitarian purposes of the Act," Judge Leadbetter wrote.

History

According to the Court’s opinion, Cullen sustained a work-related injury in 1993 and received benefits through her employer’s workers’ compensation carrier, U.S. Fire Insurance Company. According to the court’s opinion, U.S. Fire eventually paid Cullen $168,905.52 in workers’ compensation benefits, according to the Court’s opinion.

According to the Court, the Cullens subsequently filed a malpractice action against various medical providers, including Walter Dearolf, III, M.D., as a result of medical treatment Janet received for her work-related injury. The malpractice action eventually settled in July 1998 for the total sum of $450,000, wherein Janet received $325,000 in settlement of her claim and her husband received $125,000 for loss of consortium, according to the Court’s opinion.

However, Leadbetter wrote that prior to the Cullens’ settlement of the third-party action, Dearolf’s insurance carrier, Physician’s Insurance Company (PIC), was ordered into liquidation. The Court said that pursuant to the Guaranty Association Act, the Pennsylvania Property and Casualty Insurance Guaranty Association (PPCIGA) assumed the handling of PIC’s claims, including the Cullens’. Leadbetter explained that as the guarantor of PIC, the Association was responsible for the first $200,000 of the settlement amount and the Fund was responsible for the remaining balance of $250,000.

According to the Court’s opinion, in January 1999, the Association tendered $31,094.48 ($200,000 minus the amount of workers’ compensation benefits employer paid to Cullen) and the Fund tendered $250,000.

Then, in July 1998, shortly after the Cullens settled their third-party medical malpractice action, U.S. Fire filed a petition to enforce subrogation rights, alleging it was entitled to subrogate against Cullens’ third-party recovery in the amount of $168,905.52 for workers’ compensation benefits paid to Cullen as a result of her injury.

In January 1999, the Cullens filed a declaratory judgment that both Section 319 and Section 1817(a) could not be given effect because this would require Cullen to deduct the amount she received in workers’ compensation benefits twice from her third-party recovery when she only received such benefits once, according to the Court’s opinion. The proceedings regarding U.S. Fire’s petition were stayed by the Court on April 7, 2000.