What's Hot in Workers' Comp
Employer’s refusal to compromise it’s subrogation lien during pendency of a tort action does not constitute bad faith resulting in forfeiture of employer’s right to subrogation under Section 319 of the Act.
Martha Garduno Mondragon v. Jo Jo Pizza (WCAB); No. 174 C.D. 2024; filed Jan. 6, 2025
February 1, 2025
This case involved a claimant who sustained work injuries as a result of a slip and fall on ice in the employer’s parking lot. A Claim Petition was filed in connection with those injuries, as was a lawsuit against the owner of the property, where the employer was located.
After the Claim Petition was granted, the worker’s compensation case settled by Compromise and Release Agreement (C&R). The C&R recognized the employer’s right to subrogation against the property owner to the extent of the employer’s lien, which was roughly $138,000 for wage loss and $19,000 for medical costs. Subsequently, claimant’s counsel began negotiations with the employer to voluntarily release its lien, which the employer declined.
The claimant and her counsel signed a new fee agreement, increasing counsel’s fee to 50% of any recovery in tort.
Ultimately, the lawsuit settled for $80,000. A distribution sheet sent by claimant’s counsel to the employer showed that counsel would receive $40,000 in attorney’s fees, and the remaining $40,000 would be paid to the employer in partial satisfaction of its lien.
The employer then filed a petition seeking to recover its full lien. In connection with that petition, the employer issued a subpoena signed by the judge, asking claimant’s counsel to produce copies of all fee agreements between himself and the claimant, releases, distribution sheets and copies of any checks. Claimant’s counsel refused to respond to the subpoena or participate in any proceedings on the employer’s petitions. Eventually, the employer sought enforcement of the subpoena by filing a Petition for Civil Contempt against claimant’s counsel.
At a trial court contempt hearing, claimant’s counsel maintained the judge did not have jurisdiction to address the employer’s petition or to issue the subpoena. Counsel acknowledged the claimant did, in fact, receive something from the settlement. The employer argued the amount was improper and should have been subject to the employer’s lien. The trial court held claimant’s counsel in civil contempt for willful non-compliance with the subpoena.
The Commonwealth Court affirmed and remanded the matter to the workers’ compensation judge. On remand, the judge granted the employer’s petitions, and the Appeal Board affirmed.
The claimant then appealed to the Commonwealth Court, arguing the judge erred in determining that no circumstances exist where an employer/insurer’s conduct can negatively impact its right to subrogation under Section 319 of the Act, and that the employer’s refusal to compromise its subrogation lien was a bad faith waiver of its right to subrogation. The court rejected these arguments and claimant’s appeal. According to the court, the employer’s mere refusal to reduce or negotiate its subrogation lien does not constitute deliberate bad faith, even if the entirety of the claimant’s third-party recovery, minus litigation costs, is needed to satisfy the lien.
The court further held that Section 319 subrogation is automatic and absolute and that the assertion of that right does not constitute deliberate “bad faith,” per se. The court emphasized the claimant expressly agreed in the C&R that the entirety of the employer’s subrogation lien remained intact and was not, in whole or in part, waived. This was not in any way contrary to Pennsylvania public policy.
What’s Hot in Workers’ Comp, Vol. 29, No. 2, February 2025, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We would be pleased to provide such legal assistance as you require on these and other subjects when called upon. ATTORNEY ADVERTISING pursuant to New York RPC 7.1 Copyright © 2025 Marshall Dennehey, all rights reserved. No part of this publication may be reprinted without the express written permission of our firm. For reprints or inquiries, or if you wish to be removed from this mailing list, contact tamontemuro@mdwcg.com.
