Court of Appeals Rules Subrogation Constitutional

Court of Appeals Rules Subrogation Constitutional

Posted: November, 2006

McKinley v. Ohio Bur. of Workers’ Comp. (9/26/06), Washington App. No. 06CA-7, 2006-Ohio-5271

Issue: Is subrogation (provided for by R.C. §4123.93 and R.C. §4123.931) constitutional?

Background: McKinley suffered an injury in the course of his employment. He settled a third-party lawsuit and also received workers’ compensation benefits.

R.C. §4123.93 and §4123.931 provide for subrogation where there is a third party claim. Subrogation means that the BWC is entitled to reimbursement for its expenses from a recovery that an injured worker makes against a third party, when the third-party lawsuit arose out of the workplace injury. The subrogation statute provides not only for recovery of money spent, but for withholding money from the third party recovery for costs which it is anticipated the BWC will incur.

The current subrogation statute was enacted after the Ohio Supreme Court declared a previous subrogation law unconstitutional in Holeton v. Crouse Cartage Co. (2001), 92 Ohio St.3d 115.

The BWC claimed $885,808.56 of McKinley’s settlement as subrogation against payments and expected payments in the workers’ compensation claim. The BWC has so far paid around $400,000 in compensation and medical benefits in the workers’ compensation claim.

McKinley filed suit against the BWC, seeking to have the subrogation statute declared unconstitutional. In the alternative, he asked the court to fix the amount which he owed in subrogation.

The trial court found the subrogation statute unconstitutional. The BWC appealed.

Decision: Court of Appeals reverses.

First, the Court considers whether subrogation violates Due Process (provided by Ohio Constitution Article I, Section 16) and the inviolability of private property (provided by Ohio Constitution Article I, Section 19).

The Court examines the Supreme Court’s decision declaring the previous subrogation statute unconstitutional in Holeton. Holeton indicated that subrogation was permissible to prevent double recovery, but found the previous subrogation statute unconstitutional because it was not limited to preventing only double recovery. Instead, the previous statute gave a right to subrogate the entire amount of a settlement against expected future payments by the BWC (or self-insurer).

The Court states that the current subrogation statute has solved that problem. The current subrogation statute requires a claimant to place funds for expected future benefits in a trust fund. Reimbursement is made out of this trust fund as the BWC (or self-insurer) makes payments. When the obligation for payments ends, the claimant (or the claimant’s estate) receives the remainder of the trust fund.

The Court finds that this trust fund procedure solves the problem with the previous statute because a claimant is not required to make reimbursements for amounts which are not paid.

Another problem found with the subrogation statute declared unconstitutional in the Holeton decision was a distinction between cases which were tried and cases which were settled. A trial could result in a finding apportioning the award, which meant that some of the award would not be subject to subrogation. All of the proceeds of a settlement were subject to subrogation.

The Court finds that the new statute does not have this problem because it provides a formula for determining how to evaluate payments from a third-party regardless of whether the payment comes from a trial or a settlement. The Court also finds that this formula resolves the problem found in Holeton regarding the failure to limit the amount subrogated to only those situations where there would be a double recovery because it provides methods for determining what amounts of the payment from a third party would be considered a double recovery.

Finally, the Court considers the equal protection argument. (Ohio Constitution Article I, Section 2.) The Court finds that there is no equal protection violation because the current subrogation statute treats third-party cases which are settled the same as third-party cases which go to trial.

Editor’s Comment: How can this subrogation statute not be considered an unlawful taking? The Court finds the “trust fund” concept avoids taking the money from the injured worker.

The trust fund deprives an individual of access to the money they receive as the result of a third-party settlement. The Court approves it because it prevents the money from going to the BWC (or self-insurer) as a windfall, but this does not address the fact that the trust fund prevents the injured worker from being able to access the funds.

The injured worker will not be able to use the money in the trust fund while future payments are expected. In many situations, this means that they will not be able to receive the money from the trust fund until after they die.

What the trust fund mechanism basically does is set aside the money for the injured worker’s estate to receive after the injured worker’s death.

Only the judge who wrote the Court’s opinion adopted that opinion. The Court upheld the subrogation statute because a second judge concurred “in the judgment only.”

The third judge dissented, stating:

Because the statutory scheme for subrogation places the burden of proof on the issue of estimated future payments upon the claimant, I dissent.

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