St. Paul Fire & Marine Ins. Co. v. Wood Et Al

J. Fred Jones, Justice, dissenting. I cannot agree with what I consider to be the majority’s misinterpretation or misapplication of the workmen’s compensation law in this case.

Arkansas was the 47th state to adopt a workmen’s compensation law and the legislation in this field, as well as the philosophy upon which it is based, both in England and in this country, has a long and interesting history.

All Workmen’s Compensation Acts are in derogation of the common law and all of them provide for benefits to an injured employee during disability caused by industrial injury regardless of any negligence, and in spite of contributory negligence involved in causing the injury.

The laws vary to some degree in the various states. In some states the employer pays into a state fund out of which an employee is paid benefits during disability caused by injury sustained during the course of his employment. In other states, including Arkansas, an employer is required to carry insurance protecting the employee against compensable injuries, or the employer may, if he so desires, bear his own losses by qualifying-under the law as a self insured.

In some states when an employee is injured while in the course of his employment, but by the common law negligence of some third party, the employee must elect whether he will accept compensation benefits from his employer or the employer’s compensation insurance carrier, or whether he will pursue his claim against the third party tort-feasor. In Arkansas the injured employee may do both. He may claim his compensation benefits from liis employer or the employer’s insurance carrier and at the same time he, or his employer, or both of them together, may pursue the claim against the third partv- tort-feasor under Ark. iStat. Ann. § 81-1340 (Repl. I960).

It is the text and intent of § 81-1340, that the employer, or his insurance carrier, shall be liable in any event to the injured employee for injury growing out of, and occurring within the course of the employment. It is also the text and intent of $ 81-1340, that the employer, or his insurance carrier, recoup all or a part of the losses they pay in compensation benefits, out of damages recovered from the third party tort-feasor whose negligence caused the employer, or his insurance carrier, to be liable for the compensation benefits and whose negligence caused the employee to suffer injuries and damages. In such a case both the employer and the employee have been damaged by the same tort-feasor and in the same accident, and by the same negligent act, and they share in the same recovery by action, settlement, or otherwise.

It should be remembered that the very same act that gives the employee his right of recovery against his employer regardless of fault, and at the same time preserves his common law right of recovery from a third party causing his injury, also gives to the employer a right to share in the recovery from the third party causing the injury, to the extent and only to the extent, of what the employer has been forced to pay and will be forced to pay, because the injury caused by the third party and through no fault of the employer.

It is my view that when appellant joined in.the action in this case, it perfected its lien on two-thirds of the net proceeds recovered, or that will be recovered, from the third party tort-feasor (or its insurance carrier) in this case under the plain wording-of paragraph (a) (1) of Ark. Stat. Ann. § 81-1340 (Repl. 1960), and I am of the view that except for the majority opinion in this case, it would require an act of the Arkansas Legislature to remove that lien. It is my further opinion that even an act of the legislature could not remove the lien that has already attached in ¿Ms case.

The employee’s right of action against a third party and the employer’s share therein are carefully and clearly'set out in Ark. Stat. Ann.' § 81-1340 (Repl. 1960). This statute is sound in logic; it is sound in principle, and the plain wording of the statute has been fully administered in Arkansas and its plain meaning never questioned until now. But now, by what I consider a strained interpretation of the word “recovered” the majority destroys not- only the subrogation rights of' an employer, or his insurance carrier, in the first $78,000'.00 of a recovery from a third party tort-feasor, but destroys and repeals a statutory lien fixed by law on that amount.

Ark. Stat'. Ann. § 81-1340 fa)' (1) is as follows:

“The making of a claim for compensation against any employer or carrier*for the injury or death of an employee shall not affect the right of the employee, or his dependents, to make claim or maintain an action in court against any third party for such injury, but the employer or his carrier shall be entitled to reasonable notice and opportunity to join in such action. If they, or either of them, join in such action they shall he entitled to a first lien upon two-thirds [%] of the net proceeds recovered in such action that remain after the payment of the reasonable costs of collection, for the payment to them of the amount paid and to be paid by them as compensation to the injured employee or his dependents.” (Emphasis supplied.)

All of the recovery against a third party tort-feasor in a compensation case, simply does not belong to the injured employee. That part of the recovery for injury which the employer has already paid, belongs to the employer, or his insurance carrier, and by joining in a cause of action against the third party the employer perfects his statutory lien.

The legislature carefully preserved the employee’s right to compensation benefits from his employer under the act, regardless of the action or its results against the third party, and the legislature carefully and definitely set out how the amount recovered from the third party, either in an action for damages- or the adjustment of a claim, shall be divided between the employee and the employer, or its insurance carrier. Ark. Stat. Ann. § 81-1340 (2), is as follows:

“The commencement of an action by an employee or his dependents against a third party for damages by reason of an injury, to which this act [§§ 81-1301— 81-1349] is applicable, or the adjustment of any such claim shall not affect the rights of the injured employee or his dependents to recover compensation, but any amount recovered by the injured employee or his dependents from a third party shall be applied as follows: Reasonable costs of collection shall be deducted; then one-third [Vs,] of the remainder shall, in every case, belong to the injured employee or his dependents, as the case may be; the remainder, or so much thereof as is necessary to discharge the actual amount of the liability of the employer and the carrier; and any excess shall belong to the injured employee of his dependents.” (Emphasis supplied.)

Thus it is seen that the rights of the employer, or his insurance carrier, and the rights of the employee are merged into a single cause of action against the third party tort-feasor causing the injury and loss. These two subsections (a) (1) and (2) not only place the employer and injured employee in common interest with a single cause of action against the third party, these subsections specifically spell out how the recovery from the' tort-feasor is to be divided between the employer and employee where the employee brings the action or compromises the claim. Where the employer, or his carrier, joins in the action, a lien is perfected under (a) (1) and where they do not join in the action or where there is no action brought for them to join in, the employer, or his insurance carrier, is still entitled to the same amount under (a) (2), but no lien can be perfected.

If for any reason the employee is satisfied with compensation benefits and does not see fit to pursue his claim against the third party tort-feasor, the ‘ employer, or his insurance carrier, may do so. But in that event, the employee must be notified, so that he may employ his own counsel if he desires to do so. The injured employee is not required to intervene at all in the cause of action brought by the employer or insurance carrier. The employee may simply continue to receive his compensation payments and do nothing in the third party action and still be entitled to exactly the same division of any recovery as he would be entitled to had he brought the action and the employer had intervened under (a) (1), or had sued or settled without joinder of action under (a) (2). Ark. Stat. Ann. § 81-1340 (b) (Repl. 1960) is clear and unambiguous as to the rights of the parties where the employer, or carrier, brings the action, and this section is as follows:

“An employer or carrier liable for compensation under this act [$§ 81-1301 — 81-1349] for the injury or death of an employee shall have the right to maintain an action in tort against any third party responsible for such injury or death. After reasonable notice and opportunity to be represented in such action has been given to the compensation beneficiary, the liability of the third party to the compensation beneficiary shall be determined in such action as well as the third party’s liability to the employer and carrier. After recovery shall be had against third party, by suit or otherwise, the compensation beneficiary shall be entitled to any amount recovered over and above the amount that the employer and carrier have paid or are liable for in compensation, after deducting reasonable costs of collection, and in no event shall the compensation beneficiary be entitled to less than one-third [%] of the amount recovered from the third party, after deducting the reasonable cost of collection.”

Thus we see that there are three methods of procedure in third party compensation cases: (a) (1) — The employee may commence the action and the employer, or his carrier, join and perfect its lien, (a) (2) — The employee may bring an action or compromise with or without action and the employer, or carrier, do nothing, (b) —The employer, or carrier, may bring an action and the employee do nothing.

Under the provisions of § 81-1340, the division of the proceeds between the employee and his employer, or carrier, recovered from the third party is exactly the same whether the employer joins in an action brought by the employee under (a) (1), or doesn’t join in action brought or adjustments made by the employee under (a) (2), or is brought by the employer or his insurance carrier alone under (b). The only difference being that the employer has a lien when he intervenes or joins the employee in a cause of action under (a) (1).

When the compensation carrier joined in the action in the case at bar, it fixed its statutory “first lien upon two-thirds [%] of the net proceeds recovered in such action that remain after the payment of the reasonable costs of collections, for the payment to them of the amount paid and to be paid by them as compensation to the injured employee or his dependents.”

The injured employee in this case has a right to. adjust his claim against the tort-feasor for $78,000.00 and such adjustment “shall not affect the rights of the injured employee .or his dependents to recover compensation, but any amount recovered by the injured employee * * should be (the statute says ‘shall be’) applied as follows: Reasonable costs of collection shall be deducted; then one-third [%] of the remainder shall in every case belong to .the employee * * * ; the remainder, or so much thereof as is necessary to discharge the actual amount of the employer and the carrier; and any excess shall belong to the injured employee * * * .”

Winfrey So Carlisle v. Nickles cited by the majority is anemic precedent for their holding in this case. In the Nickles case the compensation carrier was paid its two-thirds of the recovery as has always been done until now, and no question arose as to that being the proper distribution under the law. The argument in the Nickles case was whether the court or the commission would approve the attorney’s fees on that portion of. the settlement representing compensation. Section (c) of Ark. Stat. Ann. § 81-1340 is not involved in the case at bar.

I. am unable to follow the reasoning of the majority on their construction of this court’s holding in Barth v. Liberty Mutual. In the Barth case the claimant drew all he was entitled to draw under the Compensation Act. He then attempted to defeat the employer, or compensation insurance carrier’s, rights in two-thirds of the recovery against a third party by simply bringing an action for pain and suffering (not compensable under the act). He settled his claim by consent judgment and this court simply affirmed the trial court in holding that the compensation carrier was entitled to the enforcement of its lien on two-thirds of the net recovery.

All the Arkansas cases cited by the majority recognize the lien right of the employer, or his compensation carrier, to two-thirds of the net proceeds recovered from the third party tort-feasor. Maxcy v. Beasley cited in the majority opinion is as good as any Arkansas case on the point. In the Maxcy case, in distributing the proceeds of a third party settlement under section (c), the commission approved a fifty per cent fee to be first deducted as a part of the cost of collection from the proceeds of the recovery. One-third of. the remainder was then distributed to the injured employee and the remaining two-thirds to the compensation insurance carrier. The claimant’s attorney claimed an additional fee from the compensation carrier’s two-thirds of the recovery. This was denied by the commission, the Circuit Court, and this court, and in connection with the compensation carrier’s rights under (a)(1) and (2) of the act, this court set out these two sections of the act and then said:

“It seems clear to us that the above section, after giving an injured employee the right to sue a third party for his injury and providing that the employer may join in such action and thereby be entitled to a first lien on two-thirds of the net proceeds recovered, and providing that the commencement of such action should not affect the employee’s right to recover compensation, there is the further provision that any amount recovered by the employee from a third party shall be applied after deducting reasonable costs of collection: ‘ — One-third of the remainder shall in every case belong to the injured employee or Ms dependents as the case may be; and the remainder or so .much thereof as is necessary to discharge the actual amount of the liability of the employer and the carrier; and any excess shall belong to the injured employee or his dependents.

“It is our view that the order of the commission directing distribution, after allowing reasonable costs of collection, in the circumstances here is strictly in accordance with the above statutory authority and is correct.

“As indicated, the settlement here was effected without the suit being contested in federal court. It was a voluntary compromise settlement and we think the commission, under the authority of Section 81-1340 (c) had the right to approve the allowance of attorney’s fee and other reasonable costs of collection where, as here, a voluntary settlement was made. The commission, after allowing Whetstone $142.40 expenses, itemized as follows:

$ 16.50 Court Costs

100.10 Court Reporter

15.00 Clerk Costs

2.00 Marshal’s Fee

8.80 Pictures

allowed Maxcy one-third of the balance of $4,851.60, or $1,617.20, and allowed the insurance carrier, Liberty Mutual, $3,234.40 which was $495.96 less than it had paid Maxcy in compensation benefits.”

The injured employee in the case at bar filed a suit in tort against the third party defendant, and the employer’s compensation carrier joined in the action. The employee and the defendant are attempting to adjust (by declaratory judgment) tire third party claim by payment of $78,000.00 rather than hazard the verdict of a jury. The defendant has agreed to pay $78,000.00 and the employee has agreed to accept $78,000.00 net to himself and unencumbered by the first lien of the employer’s compensation carrier. In other words, the injured employee and the third party defendant are reasonably close to a settlement in this case. Only the amount due the compensation carrier stands between the employee and the third party in reaching a settlement figure.

The employee in this case sustained horrible injuries and the amount of medical expenses the employer’s compensation carrier has paid, and will continue to pay, is eloquent enough testimony as to extent of injuries. The compensation carrier has refused to relinquish its first lien on the proceeds of the proposed compromise settlement, and perhaps has not gone as far as it should toward sharing in a loss by compromise. But, we are confronted with a matter of law in this case, and the law was not designed to fit this case alone.

I would continue to follow the procedure laid down in § 81-1340, supra, as I interpret it, and as has been followed without question in all cases to date where a division of a third party recovery is involved. I would continue to follow the procedure that was followed in Winfrey & Carlile v. Nickles, 223 Ark. 894 , 270 S. W. 2d 923 ; Barth v. Liberty Mutual Insurance Co., 212 Ark. 942 , 208 S. W. 2d 455 ; Maxcy v. John F. Beasley Construction Co., 228 Ark. 253 , 306 S. W. 2d 849 ; Gilbert v. Missouri Pacific Railroad Co., 208 Ark. 1 , 185 S. W. 2d 558 ; McGeorge Contracting Co. v. Mizell, 216 Ark. 509 , 226 S. W. 2d 566 .

I would reverse.

Harris, C. J., and Brown, J., join in dissent.