Jones Act; Insurer’s Right to Subrogation under Workers’ Compensation Act

Arlet v. Workers’ Comp. Appeal Bd., 237 A.3d 615 (Pa. Cmwlth. 2020), allocatur granted May 26, 2021, appeal docket 12 WAP 2021

The Pennsylvania Supreme Court granted allocatur in this case to determine whether an insurer has a right to subrogation under Section 319 of the Workers’ Compensation Act (Act) for worker’s compensation benefits paid to an employee under the Jones Act when the employee was determined to not be covered by the Jones Act.

As summarized by the Commonwealth Court, the Jones Act:

…is part of the U.S.’s body of maritime law, and was enacted by Congress to provide heightened protection to workers who are exposed to the perils of the sea. Chandris, Inc. v. Latsis, 515 U.S. 347, 354, 115 S.Ct. 2172, 132 L.Ed.2d 314 (1995). In relevant part, it provides a “seaman” the ability to sue his employer for negligence to recover for injuries sustained during the course of his employment. Id. Filing a suit in negligence is a seaman’s only remedy; he has no remedy under workers’ compensation laws. Id. at 355-56, 115 S.Ct. 2172. Once an individual is found to be covered by federal maritime law, the state workers’ compensation law is preempted. Hill v. Workmen’s Compensation Appeal Board (Spirit of Philadelphia), 703 A.2d 74, 78-80 (Pa. Cmwlth. 1997). Additionally, where applicable, the Act is “the exclusive remedy for an injured employee seeking redress for a work related injury from his employer, [Section 303 of the Act,] 77 P.S. § 481(a).” Vandervort v. Workers’ Compensation Appeal Board (City of Philadelphia), 899 A.2d 414, 418 (Pa. Cmwlth. 2006).

Slip op. at 2-3 n.5.

Claimant Arlet worked as a shipwright for Flagship Niagara League (Employer) maintaining the U.S. Brig Niagara. Acadia Insurance Company (Insurer) issued a Commercial Hull Policy to Employer. The Commercial Hull Policy provided coverage for the Brig Niagara, protection and indemnity liability coverage for the crewmembers, and included a waiver of the right to subrogate against affiliate, subsidiary or interrelated companies of Employer. In the course of his employment, Arlet was injured when he fell on an icy sidewalk on employer’s premises. Thereafter, Insurer paid Arlet “maintenance and cure” benefits pursuant to the Protection and Indemnity Clauses of the Commercial Hull Policy. Arlet filed a petition seeking workers’ compensation benefits under the Act. Employer contested the claim, asserting that Arlet’s remedy was governed by the Jones Act. After learning that Employer’s compensation policy was lapsed at the time of Arlet’s injury, Arlet filed an Uninsured Employers Guaranty Fund (UEGF) claim, which was consolidated with the pending workers’ compensation case. The WCJ bifurcated the proceedings to first determine if Arlet was a “seaman,” making the Jones Act his exclusive remedy. Before the WCJ, Arlet argued that the Jones Act maintenance and cure benefits were paid to him incorrectly because he was not a “seaman” based on the nature of his employment. Employer countered that Arlet was injured while working on repairs to the U.S. Brig Niagara, and, while his job did not involve sailing, Arlet was employed as a shipwright and was considered a member of the crew, such that his injuries would be covered under the Jones Act.  The WCJ held that Arlet was a “seaman” under the Jones Act. On appeal, the Workers’ Compensation Appeal Board (Board) reversed the WCJ, finding that Arlet was not a “seaman” under the Act, explaining that:

[T]he evidence reflects that Claimant currently works on the [Brig Niagara] only over the winter when it is in port or dry-docked, and we see no indication that he is ever exposed to the perils of the sea, we must conclude that he is not a seaman for purposes of the Jones Act.

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Therefore, we must conclude as a matter of law that Claimant was a land-based employee and not a seaman pursuant to the Jones Act, and thus we cannot agree that an award of benefits pursuant to the Jones Act would be appropriate. Consequently, pursuant to Section 101 of the [Act, 77 P.S. § 1], Claimant is entitled to seek an award of workers’ compensation benefits.

Slip op. at 4. The Board remanded the case to proceed on the merits. On remand, the WCJ concluded:

    1. [Employer], being uninsured at the time of this injury, is responsible for payment of the difference between Workers’ Compensation benefits and Maintenance & Cure benefits. [ ] Employer provided insurance coverage for Claimant through the [Commercial Hull Policy]. [ ] Employer took steps to insure that [ ]Claimant, as an employee, only worked in jobs that involved servicing the Brig Niagara thus providing coverage under the [Commercial Hull Policy]. [Insurer] correctly paid the benefits pursuant to [the Commercial Hull Policy]. [ ] Claimant is not entitled to double coverage, however, he is entitled to be made whole. [Employer], in not providing Workers’ Compensation benefits, is liable for the additional benefits afforded by the [ ] Act. In this case, this amounts to $5046.71 in wage loss benefits … and no medical benefits since these were paid in full.

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    1. There is no subrogation owed to [Insurer], since according to [its] own investigation, [it] correctly paid under [the Commercial Hull Policy]. Neither [ ] Claimant nor the medical providers are entitled to double recovery.

Slip op. at 6. Both Arlet and UEGF appealed to the Board. Having previously determined that Claimant was not a seaman for purposes of the Jones Act, on remand the Board held that Arlet “was a member of the crew for purposes of the [Commercial Hull Policy],” thus Insurer was not entitled to subrogation under Section 319 of the Act. Arlet appealed to Commonwealth Court.

Commonwealth Court held that, as a matter of law, the term “crewmember” is interchangeable with “seaman” for purposes of the Jones Act. Therefore, because the remedies under the Jones Act and Workers’ Compensation Act are exclusive, the WCAB erred in concluding that Arlet was entitled to Jones Act maintenance and cure benefits and workers’ compensation benefits for the same injury. However, the court affirmed the Board’s decision on other grounds, holding that the employer’s Commercial Hull Policy that paid “maintenance and cure” benefits, which included hospital, medical or other expenses, to Arlet was not entitled to subrogate against the employer because an insurer is unable to subrogate its own insured, reasoning that:

It is well-settled that an insurer cannot subrogate against its own insured. Keystone Paper Converters, Inc. v. Neemar, Inc., 562 F. Supp. 1046, 1048 (E.D. Pa. 1983) (“there exists a large body of law to the effect that an insurer may not subrogate against its own insured.”); Employers of Wausau v. Purex Corp., 476 F. Supp. 140, 142 (E.D. Pa. 1979). “By definition, subrogation can arise only with respect to the rights of an insured against third persons to whom the insurer owes no duty.” Remy v. Michael D’s Carpet Outlets, 391 Pa.Super. 436, 571 A.2d 446, 447 (1990). For an insurer to prevail against its own insured in a subrogation action contravenes public policy. Employers of Wausau, 476 F. Supp. at 143.

There is no dispute that Employer is the named insured under the Commercial Hull Policy, pursuant to which Insurer paid “maintenance and cure” benefits to Claimant. R.R. at 195a-96a. Insurer is now attempting to recover from its own insured the sums paid to Claimant under the Commercial Hull Policy. Insurer, as Ms. Briggs noted in the claim file, is unable to subrogate against its own insured. See Employers of Wausau, 476 F. Supp. at 142; R.R. at 168a. To permit subrogation in this case would be a direct violation of the well-settled rule that an insurer is unable to subrogate against its own insured. SeeKeystone Paper Converters, 562 F. Supp. at 1048; Employers of Wausau, 476 F. Supp. at 142.

Slip op at 13.

The Pennsylvania Supreme Court granted allocatur as to the following issue:

Did the Commonwealth Court of Pennsylvania err as a matter of law in its July 29, 2020 Opinion and Order when it affirmed the W[orkers’ Compensation  Appeal Board]’s  finding  that  Acadia  [Insurance  Company]  did  not  have  a  right  of subrogation for benefits paid to [Petitioner] under a Jones Act [Section 33 of the Merchant Marine Act of 1920, 46 U.S.C. § 688] policy of insurance, despite the Commonwealth Court’s initial holding in this case that [Petitioner] was not a seaman and/or crew member entitled to the benefits which Acadia should not have paid him?

For more information, contact Kevin McKeon or Dennis Whitaker.

For more information, contact Kevin McKeon or Dennis Whitaker.