Kentucky Workers' Compensation Subrogation

KENTUCKY WORKERS' COMPENSATION SUBROGATION

AND EMPLOYER LIABILITY AT A GLANCE

Michael D. Carr Joseph M. Nemo

1. Third-party situations.

Every time a worker is injured at work, there are at least two parties, namely, the worker and the employer, for purposes of workers' compensation litigation. However, when the worker is injured through the fault or negligence of someone who is not an agent of his employer, issues of workers' compensation subrogation and employer liability arises as a result of claims that may be brought against the negligent third party. These situations typically arise in automobile accidents, construction accidents, product liability accidents, premises accidents, and medical malpractice claims. AIK Selective Self-Ins. Fund v. Bush., 74 S.W.2d 251 (Ky. 2002)(allowing subrogation in a medical malpractice case).

2. Workers' compensation subrogation.

The employer by statute has an unconditional right to intervene in the injured worker’s suit pursue reimbursement of workers’ compensation benefits paid and payable. K.R.S. §342.700. The employer may be precluded from recovery if they fail to intervene pursuant to Kentucky Civil Rule 24 in the injured worker’s action or assert a lien before judgment or settlement. See, Zurich Am. Ins. Co. v. Haile, 882 S.W.2d 681 (Ky. 1994). The injured worker is required to give notice of suit by certified mail and file a certified list of those notified to the court pursuant to K.R.S. §411.188. In general, Kentucky has a lot of issues that limit workers’ compensation subrogation including a modified “made whole” doctrine, reduction from both the verdict and the lien for employer liability, court allocation between workers’ compensation and non-workers’ compensation damages, the inability to prosecute the subrogation claim except by intervention, failing to intervene may preclude subrogation, reduction for proportionate share of attorney fees and costs, and the possibility that plaintiff’s attorney fee may exceed the workers’ compensation lien and thus preclude recovery. See, K.R.S. §342.700(1)(“…the employer…may recover…not to exceed the indemnity paid and payable…less the employee’s legal fees and expense.”); AIK Selective Self-Ins. Fund v. Minton., 192 S.W.2d 415 (Ky. 2006).

3. Workers' compensation as an exclusive remedy.

Under K.R.S. §342.690, if an injured worker accepts workers’ compensation the worker cannot sue the employer, a coworker, or anyone who may be liable for workers’ compensation by contract for anything other than workers' compensation benefits. See, Bright v. Reynolds Metal, 490 S.W.2d 474 (Ky. 1973). However, an injured worker can sue his employer or a co-worker if they were unprovoked and recklessly or intentionally inflicted the injury under Russell v. Able, 931 S.W.2d 460 (Ky.App. 1996); Shamrock Coal Co., Inc. v. Maricle, 5 S.W.3d 257 (Ky. 1999). A third party may also be able to avoid liability to a worker if acting in a "loaned servant” type situation where a worker is leased to the employer under K.R.S. §342.615. See also, AIK Selective Self-Ins. Fund v. May., 957 S.W.2d 257 (Ky.App. 1997).

4. “Made whole” doctrine and employer liability may be offset from the workers’ compensation lien.

AIK Selective Self-Ins. Fund v. Bush., 74 S.W.2d 251 (Ky. 2002) is a nice example of how the employer liability is offset from employer’s workers’ compensation lien. Specifically, in a medical malpractice action where the injured worker had no fault, the employer had 75% fault, and the treating doctor had 25% fault, the Kentucky Supreme Court allowed the employer to recover 25% of its workers’ compensation lien from the verdict including applying a 25% credit against the amount the jury awarded for future medical expenses for future medical payments. It is interesting to note that if the injured worker were 75% at fault, there would have been no recovery, however, because the employer is standing in the shoes of the innocent worker, they received a recovery from the defendant despite being three times more at fault than the defendant. Further, since the over $2 million verdict including $1 million awarded for pain and suffering was reduced to a judgment of $500,234.17 because the 75% employer fault reduction, the “made whole” doctrine appears to have been modified to allow for subrogation. Specifically, under the “made whole” doctrine, an employer is precluded from any recovery of workers’ compensation damages if the injured worker has not been made whole with respect to non-workers’ compensation damages such as pain and suffering. See, Great Am. Ins. Co. v. Witt, 964 S.W.2d 428 (Ky.App. 1998).

6. Court allocation of proceeds.

When the parties cannot agree the parties can request an administrative law judge to resolve the question allocation of the proceeds of the settlement between the amounts recoverable and not recoverable under the Workers' Compensation Act or the injured worker may a jury allocation in accordance with Whittaker v. Hardin, 32 S.W.3d 497 (Ky. 2000).

7. Uninsured and underinsured motor vehicle.

The employer has no right to recover workers= compensation paid and payable from an underinsured or uninsured motor vehicle policy. K.R.S. §342.700; Kentucky School Bd. Ass’n, 957 S.W.2d 257 (Ky.App. 1997).

9. Statutes of Limitations and Repose (Generally).

TYPE OF CLAIM / APPLICABLE LAW / TIME PERIOD
Personal injury / K.R.S. §413.140 / One year
Wrongful death / K.R.S. §413.245 / One year
Contract / K.R.S. §413.090 and 120 / Five years (oral) or fifteen years (written)
Medical malpractice / K.R.S. §413.245 / One year
Product liability / K.R.S. §411.310 / Statute of repose: Product presumed not defective if more than five years from sale or eight years from manufacture.
Construction / K.R.S. §413.135 / Statute of Repose: Ten years from date of substantial completion.

10. Helpful Internet Links:

NAME/SUBJECT / WEB ADDRESS TO LINKS / NOTE
Kentucky Legislature / http://www.lrc.ky.gov / Subrogation: § 342.700
Kentucky Department of Insurance / http://insurance.ky.gov
Kentucky Court of Justice / http://courts.ky.gov / Cases and Materials
Kentucky Office of Workers’ Claims / http://www.labor.ky.gov/workersclaims
Kentucky Bar Association / http://www.labor.ky.gov/workersclaims / Click on Helpful Links for Courts, Cases, and News
Kentucky Legislature / http://www.lrc.ky.gov / Subrogation: § 342.700

DISCLAIMER: This summary is intended as an educational resource and is not intended to provide definitive answers. Consultation with the applicable laws and/or competent counsel should always be obtained.

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500 Young Quinlan Building, 81 South Ninth Street, Minneapolis, MN 55402-3214, (612) 339-3500 FAX (612) 339-7655

– www.arthurchapman.com –