Authored by T. Jeffrey Beausay and Curtis M. Fifner1
It can be next to impossible to get a straight answer from the Ohio BWC regarding the lien amount prior to concluding settlement negotiations in third-party actions. R.C. § 4123.931 (Ohio's workers' compensation subrogation statute) is riddled with flaws. We will here discuss some of them, but the statute should be re-written in its entirety. Until it is, we offer the following interpretation of the statute and means of protecting your client's rights if a dispute develops with the BWC.2
Statutory History of R.C. § 4123.931
The current version of R.C. § 4123.931 (enacted in 2003) is the third iteration of the BWC subrogation statute. The first two versions were held unconstitutional in Holeton v. Crouse Cartage 3 and Modzelewski v. Yellow Freight Systems, Inc.4 respectively.
The first (1993) version of 4123.931 is worth reading for its entertainment value; it contains a 220-word sentence, and is virtually incomprehensible. It was replaced in 1995. The 1995 version was declared unconstitutional in Holeton for two reasons: 1) it permitted the BWC to take money from claimants without proving a double recovery; and 2) it favored litigants who tried their case over those who settle, a violation of equal protection. The court held (majority opinion per J. Resnick) that the BWC can only recover that part of a settlement that represents a double recovery of workers' compensation benefits.
When the 1995 statute was declared unconstitutional in Holeton, the 1993 version was restored under an old common law rule that reinstates a statute if a subsequent statute (later declared unconstitutional) repeals and replaces it in the same act. But the 1993 version was then nullified in Modzelewski for essentially the same reasons the 1995 statute was nullified in Holeton. Modzelewski emphasized the disparate treatment given to trial verdicts versus settlements. Since settlements are preferred to trials, the statutory disincentive to settle (and incentive to proceed to trial) rendered the statute unconstitutional as offensive to equal protection.
Then in 2003, the General Assembly enacted the current version of 4123.931.
The Ohio Supreme Court upheld the constitutionality of the 2003 version of 4123.931 in Groch v. GMC.,5 It is important to note that Groch did not overrule Holeton or Modzelewski. The majority in Groch discussed the Holeton and Modzelewski cases, but did not criticize the rulings or overrule them. Despite this, the court upheld the 2003 version of 4123.931 even though it violates the key principle established in Holeton (that the BWC can only attach double recoveries from a claimant).
Understanding the Formula and Using it to your Advantage
The language of the statute seems cumbersome at first, but the formula becomes familiar with repetition and the use of an equation rather than verbiage. In the formula's most simple form, the key fraction (what we refer to as the multiplier) is the BWC's subrogation interest divided by the "demonstrated or proven damages." The multiplier is applied to the net recovery (net after attorney fees and expenses) to yield the BWC's subrogation lien.
That said, the concept of "demonstrated or proven damages"6 is ambiguous, especially in the context of a settlement. In a settlement, the claimant may not have demonstrated or proven anything. Many (probably most) settlements do not apportion the settlement into specific loss categories. What is covered in a settlement is simply not discussed. In this situation, "demonstrated or proven damages" is senseless. And even in a trial, the economic damages do not necessarily correlate with the workers' compensation benefits.
The BWC has taken the position that "demonstrated or proven damages" means the settlement amount. This is why the BWC often will not provide a "final lien amount" until the case is settled. The BWC's position on "demonstrated or proven damages" seems farfetched because, if the General Assembly had intended the settlement amount to be used as the denominator, it would have just said so. It is also illogical. In a settlement, nothing has been proven or demonstrated. Even when there is adequate insurance coverage, a settlement will often represent a compromise of liability, proximate cause, and damages.
Don't forget, however, the admonition of R.C. § 4123.95: "Sections 4123.01 to 4123.94, inclusive, of the Revised Code shall be liberally construed in favor of employees and the dependents of deceased employees." In our cases, when forced to implement the formula, we have taken the position that "demonstrated or proven damages" equals zero (i.e., we had not demonstrated or proven any damages). A zero for the denominator wreaks havoc with the formula because any number divided by zero is zero, which would mean that the BWC would be entitled to nothing. Alternatively, the "demonstrated or proven damages" may represent the total damages (economic + noneconomic).
When using the formula, the higher the denominator ("demonstrated or proven damages"), the lower the BWC's recovery. For example, if the BWC's subrogation interest is $1,000, and the demonstrated or proven damages are $100,000, the multiplier is 1/100, meaning the BWC would only receive 1% of the net amount recovered. Therefore, the client's recovery is maximized while they continue to receive their workers' compensation benefits.
When the Formula Fails
It is as if the legislature assumed that we would always recover at least three times the economic damages in every case. In that situation, the formula is arguably fair. For example, if the BWC's subrogation interest is $1,000, the demonstrated or proven damages are $3,000, and the net amount recovered after a 1/3 attorney fee with no expenses is $2,000, the BWC's recovery would only be $666.67 (1/3 of $2,000), and the client would net $1,333.33. The BWC has taken a 1/3 reduction in the subrogation lien under this scenario.
The problems begin when the demonstrated or proven damages are less than twice the BWC's subrogation interest, and get worse as the damages approach or equal the subrogation interest. When the demonstrated or proven damages are less than twice the subrogation interest, the BWC recovers more than half the net amount recovered under the formula devised by the legislature. This means the BWC has obtained greater recovery rights than the claimant. For example, if the demonstrated or proven damages are $3,000, and the BWC's subrogation interest is $2,000, the multiplier would be 2/3. If after a 1/3 attorney fee and costs the net amount recovered is $1,500, the BWC would get 2/3 or $1,000, while the claimant would only get $500. This would seem to run afoul of the previous statutes that were struck down under Holeton and Modzelewski.
The worst-case scenarios for claimants involve a substantially smaller recovery than the BWC's subrogation interest. This is usually due to contested liability or proximate cause, or cases involving minimal insurance coverage. Using the settlement amount as the "demonstrated or proven damages" shows the absurdity of the BWC's position. Assume for example a claimant loses a leg as the result of a negligent third party who carries a $100,000 insurance policy, but the BWC has a $1 million subrogation interest. If the $100,000 settlement amount is used as the denominator for purposes of demonstrated or proven damages, the multiplier would actually be 10 (1,000,000 ÷ 100,000 = 10). In that situation, applying the formula, the BWC could actually recover $666,666.70 (10 multiplied by $66,666.67) if the attorney takes a 1/3 fee of the $100,000 recovery with no expenses.
In the event of a minimal recovery and a significant BWC subrogation interest, the BWC will likely offer to accept half the net amount recovered to satisfy its lien. The BWC will do this to prevent the unconstitutional result(s) highlighted above. This is where it is imperative to use the formula to the benefit of your client. Remember, the higher the demonstrated or proven damages, the lower the BWC recovery. The trial lawyer should therefore declare the highest reasonable value of the case in this situation.
Section D (the trial option)
Section D addresses the situation where a case goes to trial. At trial, under section D(2), the jury is required to separate economic and noneconomic damages. What is peculiar about this is that the statutory formula for determining the BWC's subrogation rights (set forth in section D(1)) is not dependent in any way on whether the damages are economic or noneconomic; the formula is unaffected by the nature of the damages. The formula in section D(1) is identical to the formula in section B (the settlement option). So why does the statute require the jury to separate the types of damages? We can only surmise that this section is an awkward attempt to identify a double recovery (at a time when the General Assembly and Supreme Court were cognizant of the double recovery requirement).
Staying out of Trouble
Section G sets forth the notification requirements of 4123.931. If the notification requirements are not followed, the BWC has a statutory right to pursue the full amount of the client's workers' compensation benefits, including anticipated future benefits. Therefore, it is imperative to take the following steps when handling a third-party claim on behalf of an injured worker.7
A. To whom must notice be given? If the employer is a "state fund" employer, the notice must be given to the BWC and the Attorney General. If the employer is self-insured, the notice need only be given to the employer.
B. What information must be included in the notice? The claimant need only "identify" the tortfeasor(s). When a workers' compensation claim is opened, the injured employee must prepare a First Report of Injury (FROI). We have argued that if the tortfeasor is "identified" in the FROI, this satisfies the notice requirement of section G. To be safe, we recommend sending a separate notice to the employer/BWC (and AG in state fund cases).
C. When must notice be given? The statute requires "prior notice and a reasonable opportunity to assert its subrogation rights." Prior to what? On the one hand, oral settlements are usually enforceable; on the other hand, a settlement is customarily not consummated until a release is signed and the action (if one was required) is dismissed.
Further, the statute is silent as to what constitutes "a reasonable opportunity to assert its subrogation rights." It seems that the BWC could assert its rights with a phone call, letter, email, fax, etc. To be safe, the notice should be given before agreeing to a settlement. How much notice is required is an unanswered question.
In 2011, the Ohio Supreme Court decided Ohio Bur. of Workers' Comp. v. McKinley.8 There, the Ohio Supreme Court held that the BWC has a six year statute of limitations for bringing a complaint pursuant to R.C. § 4123.931(G) for failing to give the appropriate notice, or for excluding the BWC from settlement.9 The Court, however, refused to hold when the statute of limitations began to run.10
Since the McKinley decision, more opinions have been published, demonstrating that the threat of a lawsuit from the BWC is very real, and courts have continued to sanction violations of R.C. § 4123.931(G) and award the full subrogation interest to the BWC.11 This is troubling because the subsection does not require that the BWC prove the reasonableness or causal relationship of any past, present, or future benefits, and does not reduce for present value. The BWC simply introduces evidence from its computer program indicating that it anticipates paying out a sum of money, and if the statute is violated, the court awards that amount against the injured worker and third party, who have joint and several liability.
The final issue with respect to R.C. § 4123.931(G) is whether it is mandatory to alert the BWC of settlement or that settlement negotiations are occurring. According to Justice Pfeiffer's concurrence in McKinley, "R.C. § 4123.931(G) makes the statutory subrogee a mandatory player in settlement discussions between the claimant and the third-party."12 This language is nowhere to be found in the statute, and it is not supported in any other case interpreting R.C. § 4123.931 to date. In fact, other court decisions have either explicitly or implicitly recognized that the BWC is not a mandatory participant in settlement negotiations.13
What to do when the BWC Refuses to Negotiate
If you cannot work out your differences with the BWC, an option is to file a declaratory judgment action. While the statute also permits the utilization of a "conference to be conducted by a designee appointed by the administrator,"14 we have found this process utterly useless as those appointed by the BWC to attend are hardly neutral. Through a declaratory judgment action, the constitutionality of the statute can be challenged "as applied," rather than the facial challenge argued in Groch. A declaratory judgment action has been cited with approval by multiple courts as a way to prove that the injured worker did not receive a double recovery.15 Thought might also be given to forcing the BWC to file the declaratory judgment action so as to put the burden of proof on it.
The 2003 version of R.C. § 4123.931 was upheld in Groch. Since the double recovery principle was established in Holeton, confirmed in Modzelewski, then utterly ignored in Groch, the decision must be attributable to lethargy or the proverb "third time's a charm." It is thus our opinion that the Supreme Court or the General Assembly should reconsider the statute based on the following arguments:
A. R.C. § 4123.931 violates the "double recovery" principle established in Holeton. In Groch, the court referred to 4123.931 as a "statutory response" to Holeton. "The manifest objective of the General Assembly in enacting S.B. 227 was to comply with our holding in Holeton."16 That is difficult to accept. If the General Assembly intended to follow Holeton, it surely would have incorporated language focusing on the double recovery aspect of a settlement or verdict. But the formula does not care whether the claimant has obtained a double recovery or not. Indeed, the phrase "double recovery" is never used in 4123.931.
The decision in Groch reads, "In light of the formula, further concerns about a claimant's ability to retain any nonduplicative damages have lost their force.",17 Since Groch was a unanimous decision, it is doubtful that we can prevail with the "double recovery" argument on a facial challenge. This does not preclude an "as applied" challenge.
A. The phrase "demonstrated or proven damages" is vague and should render the entire statute void. In our view, this is the strongest argument against 4123.931, but it was not argued in Groch.
B.A statute is void for vagueness if it "is so unclear or ambiguous that a reasonable person of average intelligence could not determine its meaning or application." "The critical question in all cases is whether the law affords a reasonable individual of ordinary intelligence fair notice and sufficient definition and guidance to enable him to conform his conduct to the law; those laws that do not are void for vagueness."18
The workers' compensation subrogation statute, R.C. § 4123.931, should be re-written. Until then, we hope some of these observations are helpful to you and your clients.
1. T. Jeffrey Beausay and Curtis M. Fifner are attorneys at The Donahey Law Firm in Columbus. Mr. Fifner's practice involves handling workers' compensation claims, whereas Mr. Beausay represents clients in personal injury and medical negligence cases. Mr. Beausay also represents Jeff McKinley, whose case - involving some of the issues discussed in this article - has travelled twice to the Ohio Supreme Court, and may be headed there a third time.
2. We do not here offer a comprehensive review of R.C. § 4123.93; for a more comprehensive review, see Kathleen J. St. John, "SB 227, Workers' Compensation Subrogation Rights," Ohio Trial (Spring 2004) and Kathleen J. St. John, "What Lies Beneath: Workers' Compensation Subrogation in the Wake of Holeton v. Crouse Cartage," Ohio Trial Vol. 12 Issue 1.
3. 92 Ohio St. 3d 115, 2001-Ohio-109, 748 N.E.2d 1111.
4. 102 Ohio St. 3d 192, 2004-Ohio-2365, 808 N.E.2d 381.
5. 117 Ohio St. 3d 192, 2008-Ohio-546, 883 N.E.2d 377.
6. The words demonstrate and prove are synonymous: to show the existence or correctness of something. We think the use of both, separated by an "or", is likely attributable to imprecise draftsmanship. One might guess that "demonstrated" refers to the support provided for settlement demands, whereas "prove" refers to evidence presented in a trial or formal proceeding.
7. R.C. § 4123.931(G) states, "A claimant shall notify a statutory subrogee and the attorney general of the identity of all third parties against whom the claimant has or may have a right of recovery, except that when the statutory subrogee is a self-insuring employer, the claimant need not notify the attorney general. No settlement, compromise, judgment, award, or other recovery in any action or claim by a claimant shall be final unless the claimant provides the statutory subrogee and, when required, the attorney general, with prior notice and a reasonable opportunity to assert its subrogation rights. If a statutory subrogee and, when required, the attorney general are not given that notice, or if a settlement or compromise excludes any amount paid by the statutory subrogee, the third party and the claimant shall be jointly and severally liable to pay the statutory subrogee the full amount of the subrogation interest."
8. 130 Ohio St. 3d 156, 2011-Ohio-4432, 956 N.E.2d 814.
9. Id. at ¶ 34.
10. Id. at ¶ 37.
11. See, e.g., State v. Williams, 180 Ohio App. 3d 239, 2008-Ohio-6685, 905 N.E.2d 201 (10th Dist. Franklin Cty.); Ohio Bur. of Workers' Comp v. Miller, 2013-Ohio-2072 (10th Dist. Franklin Cty.); Rivers v. Otis Elevator, 2013-Ohio-3917 (8th Dist. Cuyahoga Cty.).
12. McKinley at ¶ 46.
13. Bush v. Senter, 141 Ohio Misc. 2d 1, 2006-Ohio-7155, ¶ 30, 866 N.E.2d 1152 (Montgomery Cty.); McKinley v. Ohio Bur. of Workers' Comp., 170 Ohio App. 3d 161, 2006-Ohio-5271, ¶ 27, 866 N.E.2d 527 (4th Dist. Washington Cty.)
14. R.C. § 4123.931(B).
15. Bush v. Senter, supra, at ¶ 30; McKinley v. Ohio Bur. of Workers' Comp.,, supra, at ¶ 27; Jones v. Greyhound Lines, Inc., 2012-Ohio-4409, ¶¶ 23-24, 981 N.E.2d 294 (10th Dist. Franklin Cty.)
16. Groch, 117 Ohio St. 3d at ¶ 88.
17. Id. Since the formula applies whether a double recovery occurred or not, the statement is disingenuous at best, and more likely is just oblivious.
18. Norwood v. Horney, 110 Ohio St. 3d 353, 2006-Ohio-3799, 853 N.E.2d 1115.