July 21, 2009

TO THE COMPANIES IN INTEREST:

Re: WORKMEN’S COMPENSATION SUBROGATION RECOVERY IN PENNSYLVANIA -- RECOVERY AGAINST RETURNED ATTORNEY’S FEE

You should be aware of a recent Pennsylvania Commonwealth Court decision which recognizes a carrier’s subrogation rights against a portion of attorney’s fees an attorney was contractually entitled to receive for handling a settlement, but returned instead to his personal injury client. Good Tire Service v. Worker’s Compensation Appeal Board (Wolfe), 2009 Pa. Cmwlth. (7/15/09).

In the Wolfe case the Claimant broke his leg in an April 2004 motor vehicle accident which occurred in the course of his employment. The Claimant received worker’s compensation benefits totaling over $48,000 from his employer. In the meantime Claimant filed a third party personal injury action against the operator of the adverse vehicle and obtained a $75,000.00 settlement. Claimant had agreed that his attorney would receive a forty (40%) percent contingency fee out of the recovery. When Claimant’s counsel calculated the disbursement of the settlement, he included the forty (40%) percent contingency fee in the calculation of the employer’s pro rated recovery for its worker’s compensation lien. However, Claimant’s counsel did not charge Claimant a full forty (40%) percent contingency fee of $30,000.00 from the settlement. Rather he charged Claimant a reduced contingency fee of $20,794.00, which resulted in Claimant receiving an additional $9,205.00. The employer/carrier contended that it was entitled to the portion of the attorney’s fee that was remitted to the Claimant.

The worker’s compensation judge found in favor of the employer/insurer on the claim for additional recovery. However, the Workmen’s Compensation Appeal Board ruled that the waived portion of the attorney’s fee was a “gift”, and that the employer/carrier’s share of the fee should be calculated on the forty (40%) percent contracted amount of attorney’s fee.

On appeal to the Superior Court, the Court reversed the WCAB and found in favor of the employer/insurer, ruling that the statutory right of subrogation supersedes any right for the Claimant to receive a “gift” from his attorney. As stated in the Commonwealth Court’s Opinion:

While we respect and commend counsel’s professionalism in reducing his fee, neither his motives nor the humanitarian purposes of the Act allow us to ignore the fact that the fee actually paid was $20,794.00, not $30,000.00. This is the amount upon which the employer’s pro rata share of costs must be calculated under the Act.

Should you have any questions about the above, please do not hesitate to contact me. For other “Companies In Interest Letters”, on the subject of subrogation, please feel free to contact me at prewitt@bbs-law.com.

Very truly yours,

David E. Prewitt

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