Workers’ Compensation Act Section 319 (employer/insurer’s right of subrogation where compensable injury caused by third-party); statutory interpretation of “installments of compensation”; waiver.

Whitmoyer v. WCAB (Mountain Country Meats), 150 A.3d 1003, 1018 (Pa. Cmwlth. 2016) allocatur granted September 15, 2017, 52 MAP 2017

Background: 

Workers’ Compensation Appeal Board granted the employer’s petition to modify its third-party settlement agreement with claimant to reflect past medical bills employer paid, and Commonwealth Court, in a 4-3 decision, affirmed. In 1993 claimant sustained a work-related amputation of his right arm at the distal forearm in an accident while working for Mountain Country Meats (employer), entitling him to a specific loss benefit of 370 weeks of compensation. In 1994, the parties commuted claimant’s specific loss benefits for a lump-sum payment of approximately $70,000, which left employer responsible only for medical expenses. Claimant subsequently received a tort claim recovery for his work injury in the amount of $300,000 from the machine manufacturer.  In 1999, claimant’s counsel paid insurer $81,627 to satisfy employer’s net subrogation lien along with a letter that stated: “Enclosed please find our check in the amount of $81,627, representing full payment of the workers’ compensation lien in this matter. Please be advised that it is the claimant’s position that no credit can be applied to future medical bills. Instead, under Section 319 such credit only applies to ‘future installments of compensation.’ Future medical expenses does not constitute ‘installments of compensation.’”  Because claimant was no longer entitled to disability benefits and had commuted his specific loss benefits, claimant believed that he was entitled to retain the entire remaining balance of the $300,000 third-party recovery. Employer did not respond to claimant’s letter. For the next 13 years, employer paid claimant’s medical expenses, primarily for repair and replacement of his prosthetics.  At no point did employer assert a right of reimbursement from the balance of claimant’s third-party recovery for these medical expenses until 2012.  In 2012, employer filed a modification petition. Claimant responded that the modification should be denied for two reasons: Employer was not entitled to any credit against future medical expenses under Section 319 of the Act and, alternatively, employer had waived its right to subrogate its payment of future medical expenses.  The WCAB rejected claimant’ arguments, agreed with employer, and Commonwealth Court affirmed.

The majority ruled that the term “compensation” in Section 319 of the Workers’ Compensation Act, relating to subrogation of employer to rights of employee against third persons, encompasses medical expenses in addition to indemnity benefits. In interpreting Section 319 to include medical expenses, the majority relied on the policy that an employer’s right of subrogation against any third-party civil action recovery or settlement proceeds “is generally absolute, unless the employer engages in deliberate, bad faith conduct.” Whitmoyer, 150 A.3d at 1019 (discussing Thompson v. WCAB (USF&G Company), 781 A.2d 1146 (Pa. 2001)). The majority further explained,

the legislature’s use of the word “instalments” can reasonably be explained and harmonized with the fact that future medical expenses, which generally may occur periodically over time, are typically not costs payable in a lump sum. Rather, it is more likely that an employer or insurer will have to make discrete payments on an ongoing basis.

Id. at 1015.

The Commonwealth Court majority also found that the insurer’s failure to dispute claimant’s counsel’s 1999 letter asserting that the repayment to the insurer represented “full payment of the workers’ compensation lien” did not constitute an agreement to waive its subrogation rights, or modify the third-party settlement agreement. Acknowledging that an employer “may waive such [subrogation] rights,” the Commonwealth Court did not find that Employer’s purported waiver here “was clear and supported by consideration.” Id. at 1018.

Finally, the majority addressed claimant’s equitable estoppel argument, noting first that claimant failed to “provide a sufficiently developed argument on this point for this Court to address this issue; therefore, it is waived.”  Id. at 1019. In addition, the majority found claimant’s estoppel argument was defeated by his failed claim related to the employer’s purported agreement to waive its subrogation rights and claimant’s inability to show deliberate, bad faith conduct.

President Judge Leavitt, joined by Judges McCullough and Cosgrove, filed a vigorous dissent, arguing:

The Act makes the employer responsible for all medical expenses related to the work injury, and a provider cannot hold the claimant responsible for any medical costs. Section 306(f.1)(7) of the Act, 77 P.S. § 531(7). Giving the employer the right to recover medical expenses, after the accrued subrogation lien is resolved, effectively makes the claimant liable for future treatment of his work injury. This shift of responsibility from the employer to the claimant turns the statutory scheme on its head.

This is a case of first impression. Our courts have never interpreted the specific phrase “future instalments of compensation.” The word “installment” is defined as “one of the parts into which a debt is divided when payment is made at intervals.” Merriam–Webster’s Collegiate Dictionary 605 (10th ed. 2001). Payment of disability benefits are “made at intervals,” and medical expenses are not. With respect to “compensation” in Section 319, the *1023 legislature used different terminology. Section 319 refers to “compensation paid or payable at the time of recovery or settlement” and then to “future instalments of compensation.” (emphasis added). Instead of “payments,” which would be symmetrical with “paid or payable,” the legislature chose a different word, “instalments.” I believe the choice was deliberate and intended to limit “compensation” to disability, which is paid at regular intervals.

In the alternative, Claimant argues that Employer waived its Section 319 rights. In support, Claimant relies on Bayush v. Workmen’s Compensation Appeal Board (Conemaugh Township), 111 Pa.Cmwlth. 617, 534 A.2d 853 (1987), which established that an employer can waive its right to a credit for future compensation. In Bayush, we held that the employer had not done so because the insurance adjuster credibly testified that the issue had not been discussed. Claimant argues that unlike Bayush, the issue of responsibility for future medical expenses was discussed at the time of settlement. For the next 13 years, Employer acted in accordance with Claimant’s view that the “future compensation” reference in the settlement agreement (LIBC–380) did not encompass medical expenses. R.R. 64a. Nor did Employer require the balance of the recovery be placed in escrow so that it could be drawn upon “as and when needed” to pay Claimant’s medical expenses. The course of Employer’s conduct expresses an implicit waiver of its right to claim a credit against Claimant’s recovery.

In Section 319, the legislature used the phrase “compensation paid or payable at the time of recovery” to effect the proration of the settlement at the time the “compromise settlement” is entered into by the claimant and the employer. The amount “in excess” thereof is an advance on “future instalments of compensation.” The legislature did not say “future payments of compensation,” which is how the majority construes the phraseology. I believe the legislature’s choice of the phrase “instalments of compensation” was deliberate, and it was intended to limit an employer’s future credits to disability compensation only.

For these reasons, I would reverse the Board’s modification.

150 A.3d at 1021-1023.

 

Judge Cosgrove filed his own brief dissent, in which Judge Leavitt and McCullough joined, arguing that the majority’s interpretation of “installments” in Section 319 was inconsistent with the dictionary definition and that employer’s belated challenge to the longstanding arrangement outlined in claimant’s ‘s 1999 letter “mocks the certainty which the resolution of the subrogation lien intended.” 150 A.3d at 1023-1024.

The Supreme Court’s grant of allocatur extends to both issues:

1.  Did the Commonwealth Court err in concluding that the term “instalments of compensation” in Section 319 of the Workers’ Compensation Act, 77 P.S. § 671, encompasses both medical and disability compensation?

2.  Did the Commonwealth Court err in finding that the defendant-employer did not waive its rights under Section 319 of the Workers’ Compensation Act, 77 P.S. § 671?