Employer recoups benefits, less pro rata share of costs, attorney's fees

The 8th U.S. Circuit Court of Appeals upheld the District Court's decision to apply Indiana law to resolve the employer's workers' compensation lien, but ruled that the District Court erred in applying Indiana's lien reduction statute.

Case name: Lane v. Celadon Trucking, Inc., Nos. 07-3319/3321 (8th Cir. 10/09/08).

What it means: Under Indiana law, if the claimant's recovery of damages in a personal injury suit is diminished by comparative fault or because the full value of the claim can't be collected, a subrogation claim or lien is diminished in the same proportion as the claimant's recovery is diminished. If comparative fault is not an issue when the claimant settles his personal injury case, and there is no evidence indicating that he did not collect the full amount of the settlement, the lien reduction statute does not apply.

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Summary: A truck driver was injured in a head-on collision with another tractor-trailer in Arkansas. The employer, which was principally located in Indiana, paid more than $183,000 in workers' compensation benefits as a result of the accident. The driver also filed a personal injury suit against the owner of the other tractor-trailer and the at-fault driver in an Arkansas court. He settled the suit without obtaining his employer's consent for an amount in excess of the benefits the employer paid. After the case settled, the employer joined the lawsuit in order to resolve its lien. The District Court determined that Indiana law applied and reduced the employer's lien because the third-party settlement did not make the driver whole. The 8th Circuit agreed that Indiana law applied but concluded that the court erred in applying the lien reduction statute.

The 8th Circuit first addressed whether Arkansas or Indiana law should apply to the employer's subrogation rights. Citing several factors, including which state had the most significant relationship to the parties and the issues, it concluded that Indiana law governed the employer's recovery of its lien. However, it also found that Indiana's lien reduction statute did not apply to the claimant's circumstances because he failed to establish that the personal injury settlement was diminished by either comparative fault or uncollectability.

Because the employer did not consent to the settlement, the 8th Circuit determined that the claimant had to repay the employer the sum it expended for workers' compensation benefits, less the employer's pro rata share of litigation expenses and a one-third contingency attorney's fee.

December 1, 2008

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