Recovery by subrogation of benefits paid pursuant to the Heart and Lung Act
Tiano v. City of Phila. (WCAB), 2023 WL 5282783 (Pa. Cmwlth.) (unreported), allocatur granted Mar. 20, 2024, appeal docket 14 EAP 2024
In this case, the Pennsylvania Supreme Court will consider whether a self-insured, government entity is prohibited from subrogating Heart and Lung Benefits Act benefits from a third-party settlement received by an injured employee. Commonwealth Court summarized the factual background as follows:
Claimant was employed as a police officer by Employer. On October 20, 2016, Claimant sustained a work-related injury after falling into a utility hole. Employer accepted responsibility for Claimant’s injury by a Notice of Compensation Payable under the Workers’ Compensation Act (the WC Act). In lieu of WC benefits, Employer paid HLA benefits to Claimant.
In August 2019, Claimant was awarded $450,000 from a settlement against PECO Energy Co., the third-party tortfeasor responsible for her injury. Claimant has recovered $50,000 of the settlement. After dispersing attorney’s fees and additional costs, a total of $264,385.31 remains in escrow pending resolution of the HLA lien.
In April 2020, Employer filed review and modification petitions seeking subrogation against Claimant’s third-party recovery. Employer asserted a lien of $325,074.63, comprised of $13,782.26 in medical payments, $319,206.63 in wage loss benefits, and $5,868.00 in indemnity payments.
On May 29, 2020, while Employer’s petitions were pending before the WCJ, the parties reached an agreement to cease HLA benefits because Claimant had achieved maximum medical improvement. Additionally, Employer presented evidence that Claimant’s HLA benefits had changed to WC benefits.
On June 9, 2021, the WCJ denied Employer’s petitions in part and limited its subrogation right to benefits paid after the parties’ settlement. The WCJ determined that prior to the parties’ agreement, Claimant was only paid HLA benefits. The WCJ concluded that once the HLA benefits stopped pursuant to the parties’ agreement, Claimant then began receiving WC benefits. Accordingly, the WCJ found that Employer could begin subrogating paid WC benefits as of the May 29, 2020 agreement. Employer appealed.
The Board affirmed in part, reversed the WCJ on the subrogation issue, and remanded for calculations. Bd. Op., 4/18/22, at 13. Citing established precedent from this Court, the Board concluded that because the third-party settlement arose from a non-motor vehicle related cause of action, Employer has a subrogation right to paid HLA benefits from the date of the work injury, October 20, 2016. Id. at 9-12.
Slip op. at 2-3. Claimant appealed to Commonwealth Court, arguing that Employer cannot recover HLA benefits from a third-party settlement regardless of the cause of the underlying injury and that even if a subrogation right exists, sovereign immunity prohibits Employer’s recovery because Claimant is a government employee. Employer countered that it is only barred from subrogating paid HLA benefits where the underlying action involves a motor vehicle and that sovereign immunity does not apply.
Commonwealth Court held that Employer was entitled to recover paid HLA benefits from Claimant’s third-party recovery, concluding that:
This Court has expressly resolved this issue. While there is no functional equivalent to Section 319 of the WC Act, which affords employers a subrogation right to paid WC benefits, 77 P.S. § 671, Pennsylvania common law has recognized an employer’s right to subrogation of paid HLA benefits against a third-party tortfeasor. City of Phila. v. Zampogna, 177 A.3d 1027, 1030 (Pa. Cmwlth. 2017). See also Stermel, 103 A.3d at 878; Fulmer v. Pa. State Police, 647 A.2d 616, 619 (Pa. Cmwlth. 1994); Cmwlth. v. Workers’ Comp. Appeal Bd. (Piree), 182 A.3d 1082, 1087 (Pa. Cmwlth. 2018); Kenney v. Workers’ Comp. Appeal Bd. (Lower Pottsgrove Twp. & Del. Valley Workers’ Comp. Tr), 213 A.3d 1055, 1060 (Pa. Cmwlth. 2019). The public policy support for subrogation is three-fold, it allows for prevention of: (1) a claimant’s double-recovery, (2) an employer from making payments based on a third-party’s negligence, and (3) a third-party escape of liability for its negligence. Id. Our Supreme Court has long recognized that “[t]here can be no question of the right of the [employer] to recover by way of subrogation from the third[-]party tortfeasor all the salary, medical and hospital expenses paid to or for [the claimant].” Topelski v. Universal S. Side Autos, Inc., 180 A.2d 414, 420 (Pa. 1962) (emphasis added).
Thus, in Pennsylvania, the general rule is that an employer has a subrogation right regardless of the underlying benefit available to a claimant. Id. at 421 (observing that the doctrine of subrogation is designed to place the burden of debt on the responsible party and is rooted in considerations of equity, good conscience, and the promotion of justice). Stated otherwise, irrespective of whether the claimant is the recipient of WC or HLA benefits, an employer is entitled to recoup benefit payments from any third-party recovery that the injured employee has secured. Stermel, 103 A.3d at 878.
There are recognized exceptions to this rule. For example, there is a critical distinction between the WC Act and the HLA in the subrogation context where the underlying injury is caused by the “use or maintenance” of a motor vehicle, invoking the Motor Vehicle Financial Responsibility Law. See 75 Pa. C.S. §§ 1701-1799. In such matters, an employer paying HLA benefits has no right to subrogation of a claimant’s third-party recovery. Pa. State Police v. Workers’ Comp. Appeal Bd. (Bushta),184 A.3d 958, 962 (Pa. 2018). Although frequently involved in subrogation cases before this Court, the motor vehicle exception is not implicated here, and therefore, irrelevant to the present case.
Accordingly, the general rule is applicable. As such, Employer is entitled to recover paid HLA benefits from Claimant’s third-party recovery. See Zampogna; Stermel; Topelski.
Despite the clear legal support for Employer’s subrogation right, Claimant argues that Employer asserts an unauthorized subrogation right by manipulating its self-insured status to reclassify its payments of HLA benefits as WC benefits. Claimant’s Br. at 17-18. We disagree. It is true that a self-insured employer paying HLA benefits does not also tender payment of WC benefits. Annunziata, 838 A.2d at 605 n.7. Additionally, there appears to be some evidence of record of Employer’s attempt to recharacterize its payment of HLA benefits as WC benefits. See WCJ Dec., 6/9/21, Findings of Fact (F.F.) at 16. However, this distinction is only critical to matters involving the Motor Vehicle Financial Responsibility Law, which precludes an employer’s subrogation of paid HLA benefits. Stermel, 103 A.3d at 885 n.15. Outside of claims involving motor vehicle incidents, this Court recognizes an employer’s subrogation right against third-party recovery for payments of either benefit. Id. at 878. Because Employer retains a subrogation right under both Acts in non-motor vehicle cases, the categorization is a distinction without difference in the present matter. Therefore, although Employer tendered payments to Claimant in the form of HLA benefits, it holds a subrogation right regardless of how benefits are classified because this underlying injury did not involve a motor vehicle. See Stermel; Zampogna.
In further effort to distinguish HLA and WC benefits to prevent Employer’s subrogation, Claimant contends that the Legislature intended to treat HLA benefits differently, and to hold otherwise would have a chilling effect on employing first responders. Claimant’s Br. at 20-21. We reject this assertion. Claimant’s argument fails to consider that the Legislature already affords preferential treatment to public safety personnel by paying their full salaries through the HLA, as opposed to 662/3% of weekly wages under the WC Act. Compare Section 1 of the HLA, 53 P.S. § 637, with Section 306(a) of the WC Act, 77 P.S. § 511(1). Moreover, subrogation represents other important public policy interests. See Stermel, 103 A.3d at 878. Therefore, we reject Claimant’s arguments and conclude that because this case does not arise out of the “use or maintenance” of a motor vehicle, Employer is entitled to a subrogation right of paid benefits against Claimant’s third-party recovery. See Stermel; Zampogna.
Slip op. at 6-10. Commonwealth Court further concluded that Employer’s recovery was not barred by sovereign immunity because the tortfeasor is a private non-government entity, reasoning that:
Section 23 of Act 44 codifies a sovereign immunity doctrine, which protects government officials and employees acting within the scope of their duties from subrogation claims against a claimant’s tort recovery in workers’ compensation matters. See 77 P.S. § 501 (historical and statutory notes).
However, Section 23 of Act 44 does not protect Claimant’s government employee status as the injured party. It protects government tortfeasors, not injured government parties, and does not preclude an employer’s subrogation right against its own employee’s third-party recovery. See Oliver v. City of Pittsburgh, 977 A.2d 1232, 1242 (Pa. Cmwlth. 2009) (Oliver I), rev’d on other grounds, 11 A.3d 960 (Pa. 2011) (Oliver II). See also Stermel, 103 A.3d at 886 n.16 (resolved matter without reaching immunity issue but acknowledged that the claimant’s government employee status was irrelevant because he was the injured party, not the tortfeasor). Further, it does not bar Employer’s subrogation right to recoup benefits paid to Claimant from settlement proceeds received by Claimant from a private, third-party tortfeasor. See Frazier v. Workers’ Comp. Appeal Bd. (Bayada Nurses, Inc), 52 A.3d 241, 247 (Pa. 2012) (recognizing that Section 23 bars subrogating against a third-party recovery where the third party is a government entity). Here, PECO Energy Co. is a private, non-government entity. Thus, Section 23 of Act 44 is inapplicable.
Slip op. at 10-11.
The Pennsylvania Supreme Court granted allocatur to consider:
Whether the Commonwealth Court’s decision conflicts with this Court’s decisions, such as City of Erie v. WCAB (Annunziata), [575 Pa. 594,] 838 A.2d 598, 602-03 (Pa. 2003), Oliver v. City of Pittsburgh, [608 Pa. 386,] 11 A.3d 960 (Pa. 2011), Stermel v. Workers’ Compensation Appeal Board (City of Philadelphia), 103 A.3d 876 (Pa. Cmwlth. 2014), and Pennsylvania State Police v. Workers’ Comp. Appeal Bd. (Bushta), [646 Pa. 299,] 184 A.3d 958, 969 (Pa. 2018), because a self-insured, government entity, is prohibited from subrogating Heart and Lung Benefits Act Benefits from a third-party settlement received by [Petitioner], an employee, who was injured in the line of duty as a Philadelphia Police officer in a non-motor vehicle case[.]
For more information, contact Kevin McKeon or Dennis Whitaker.