Subrogation Statute Unconstitutional

Subrogation Statute Unconstitutional

Posted: July, 2001

Holeton v. Crouse Cartage Co. (2001), 92 Ohio St.3d 115.

Note: Sometimes a worker suffers an injury in the course of their employment which gives them a right to workers’ compensation and also gives them a lawsuit against another individual or entity referred to as a “third-party action.”

R.C. 4123.931 provided for the BWC, or self-insured employer, to recover money they paid or were expected to pay in the workers’ compensation claim from money the injured worker received as a result of the third-party action. This recovery of money is called “subrogation.”

Under the statute, the BWC or self-insurer could recover amounts based on expected future payments of compensation, even though the amount the BWC or self-insurer recovered might greatly exceed the amount they ultimately paid. The statute also provided that if the injured worker settled the third-party action, all of the settlement was presumed to be subject to subrogation. However, if the injured worker tried the case in court, the jury could indicate what portions of the award duplicated the workers’ compensation award. This means that some of an award resulting from a jury trial would not be subject to subrogation, while all of a settlement would be subject to subrogation.

Issue: Is the subrogation statute constitutional?

Background: The injured worker in this case, Mr. Holeton, was injured while working as part of a construction crew on the Ohio Turnpike. He suffered injuries when a truck hit the manlift bucket he was working in.

As a result of his work injury Mr. Holeton received workers’ compensation benefits. He also filed a third-party action in federal court against the company which owned the truck.

The BWC sought to subrogate any recovery Mr. Holeton might receive as a result of the tort action. Mr. Holeton claimed that the subrogation statute was unconstitutional. The federal district court certified the question to the Ohio Supreme Court.

Decision: Ohio Supreme Court rules the subrogation statute unconstitutional.

The Court states that, although subrogation might be appropriate in certain circumstances,

these kinds of statutes are not rationally related to their purpose where they operate to reduce a plaintiff’s tort recovery irrespective of whether a double recovery has actually occurred.

The present statute does not take into account whether a double recovery is being prevented and, therefore, is unconstitutional.

The Court finds that the statute violates Ohio Constitution Article I, Section 16 and Section 19 because the statute was too broad. The provision authorizing the BWC or self-insurer to subrogate anticipated future payments, could provide a windfall to the BWC or self-insurer because they could receive subrogation for benefits they would never pay. The Court held:

the statute operates not to prevent the claimant from keeping a double recovery but to provide the statutory subrogee with a windfall at the expense of the claimant’s tort recovery.

The Court finds that the statute violates Ohio Constitution Article I, Section 16 and Section 19 because of the provision which makes the entire amount of a settlement subject to subrogation. Since workers’ compensation does not provide for full recovery (and is not intended to), no double recovery occurs when the injured worker receives a settlement which includes compensation which does not duplicate the workers’ compensation award. The Court finds providing subrogation of amounts which do not result in double recovery unconstitutional.

The Court also finds the different treatment given to settlements (which were entirely subject to subrogation, as compared to a jury verdict which could have parts excluded from subrogation) violates Equal Protection (Ohio Constitution Art. I, Sec. 2). The Court said the distinction was “irrational and arbitrary.”

Editor’s Comment: The Court rejected some of the constitutional arguments made by Holeton. The Court decided that subrogation did not violate Ohio Constitution Article II, Sections 15, 28 and 35 because subrogation did not reduce the workers’ compensation benefits. However the Court indicates that subrogation is appropriate only where subrogation applies to eliminate a double recovery.

Information courtesy of the Ohio Workers’ Compensation Bulletin. Subscribe to the Ohio Workers’ Compensation Bulletin to keep informed about the Ohio workers’ compensation system.