In calculating the amount of an employer's subrogation reimbursement from the proceeds of a third-party action, the employer's credit against future workers' compensation benefits is reduced by the costs of collection on the amount of workers' compensation benefits actually paid.
The opinion of the court was delivered by: Anderson, Russell A., Justice.
Considered and decided by the court en banc without oral argument.
This workers' compensation matter comes before us by certiorari upon the relation of Yellow Freight System, self-insured employer, to review a decision of the Workers' Compensation Court of Appeals (WCCA) reversing the compensation judge's calculation of the self-insured employer's future credit in the distribution of the proceeds from the employee's third-party action. We affirm.
Richard R. Snyder, the employee, sustained a compensable cervical spine injury on August 3, 1998 while working for Yellow Freight System. The injury resulted in permanent total disability; the employee at some point started receiving Social Security disability benefits; and the $25,000 threshold in weekly permanent total benefits, for purposes of taking the government benefits offset, has been paid.*fn1
The employee also brought a third-party action, in the nature of a medical malpractice claim, that resulted in a settlement in the amount of $900,000. The settlement agreement contemplated that the proceeds of the tort recovery would be run through the statutory formula, reducing the damages by the costs of collection, giving the employee $199,528.48, reimbursing the employer $60,000 for past benefits paid, and giving the employer a credit of $399,056.97 against future benefits.*fn2 A dispute arose over the method or rate by which the employer could take its credit. The employer took the position that it should have the benefit of the full credit before paying future benefits, and the employee took the position that the employer should be obligated to pay 33.5 percent of the benefits otherwise due until the entire credit remaining was exhausted. The compensation judge concluded that after reducing the credit by the percentage for the costs of collection, the employer was entitled to its full credit from the third-party action on a dollar-for-dollar basis and that the employee was not entitled to any compensation until the credit was exhausted. On appeal, the WCCA reversed, concluding that under Kealy v. St. Paul Housing & Redev. Auth., 303 N.W.2d 468, 475 (Minn. 1981), the credit should be reduced by the percentage for the costs of collection as the benefits are paid and not on the amount available for reimbursement. Snyder v. Yellow Freight System, 2004 WL 692079, at *5 (Minn. WCCA Mar. 1, 2004).
While this court does not disturb a WCCA decision "unless it is manifestly contrary to the evidence, a decision which rests upon the application of a statute to basically undisputed facts involves a conclusion of law which is not binding on this court." Bradley v. Vic's Welding, 405 N.W.2d 243, 245 (Minn. 1987) (citation omitted).
Damages recovered in third-party actions are distributed according to a statutory formula that allocates roughly one-third of a plaintiff-employee's tort recovery to the employee after deduction of the expenses of collection, the remainder to reimburse the employer for compensation paid, and any balance remaining thereafter to the employee with a credit to the employer against future compensation payable. Hodder v. Goodyear Tire & Rubber Co., 426 N.W.2d 826, 837 (Minn. 1988) (citing Minn. Stat. § 176.061, subd. 6 (1981)).*fn3 The employer's credit is also reduced by the costs of collection. Kealy, 303 N.W.2d at 475 (citing Cronen v. Wegdahl Coop. Elevator Ass'n, 278 N.W.2d 102, 105 (Minn. 1979)).
Under Kealy/Cronen, "for every dollar of benefits paid in the future, the subdivision 6(d) credit should be reduced by * * * the percentage derived in the subdivision 6(c) computation [percentage for the costs of collection]." Kealy, 303 N.W.2d at 475. The employer is "liable for 100 [percent] of all workers' compensation benefits payable thereafter." Id. This is done so that the employer does "not avoid its obligation to share the costs of litigation while benefiting from that litigation." Id. Accordingly, pursuant to Kealy/Cronen, "for every dollar of future compensation liability incurred, the employer would actually pay the employee approximately 33 cents, and reduce its credit by one dollar." Minnesota Workers' Compensation Deskbook § 16.14, at 16-22 (Jay T. Hartman & Thomas D. Mottaz eds., 2d. ed. 1997); Wilber W. Fluegel, et al., The Fundamentals of Third-Party Practice at 29 (Minn. CLE Sept. 1995) (same). In calculating the subrogation reimbursement, the balance remaining under subdivision 6(c) "is not to be reduced by the factor of the costs incurred in making the recovery. The amount of the subrogation reimbursement under the formula turns on the amount of workers compensation benefits paid and not on the amount available of reimbursement." Fluegel, supra at 30.
Here, the parties initially agreed that the employer was entitled to a future credit of $339,056.97 by application of the statutory distribution formula:
$900,000.00 Third party settlement
- $300,000.00 Attorney fees
- $1,414.55 Costs
- $199,528.48 Employee's statutory one-third portion
$399,056.97 Remainder available
- $60,000.00 To be paid to the employer for partial reimbursement of benefits paid to date
$339,056.97 Stipulated future credit
The parties also had no dispute that for the $85,007.77 in past benefits paid, and which the employer chose to recover from future benefits, the employer could have a dollar-for-dollar offset for those benefits. Snyder, 2004 WL 692079, at *3. As to the remaining credit due, $254,049.20, the compensation judge determined that the employer was to reduce that amount by the percentage of the costs of collection (33.5 percent), resulting in a future credit of $168,942.72; that this future credit could be taken on a ...