Arizona Supreme Court holds that claimant under Arizona Workers’ Compensation Act is not entitled to post-settlement proceeding to determine employer fault to reduce insurance carrier lien on settlement proceeds, despite precedent stating that lien may not exceed employer’s proportionate share of damages where those damages are fixed by verdict.

Arizona law authorizes claimants for workers’ compensation insurance to assert third-party claims and permits the insurance carrier to assert a lien over any recovery.  The Arizona Supreme Court has modified this rule to limit the carrier’s lien to amounts paid in excess of the employer’s proportionate share of total damages after a verdict. 

An employee’s widow and children claimed workers’ compensation benefits, which the employer’s workers’ compensation insurance carrier accepted.  Claimants also asserted negligence claims against third parties, and the carrier asserted a lien against any proceeds from those lawsuits.  Claimants settled, the carrier brought a lawsuit to assert its lien, and claimants argued that the carrier should have reduced the lien by the employer’s comparative fault.  The trial court granted the carrier’s motion for summary judgment, holding, in relevant part, that claimants could not allocate fault to a non-party employer through a post-settlement action.  The Court of Appeals reversed, holding that claimants could obtain a post-settlement of employer’s comparative fault. 

The Supreme Court reversed, holding that claimants were not entitled to a post-settlement procedure to allocate fault.  First, the Court stated that precedent permitting the reduction of the carrier’s lien required that damages be “fixed by verdict,” but did not explicitly authorize a post-settlement trial process to determine equitable apportionment of fault.  Second, the Court reasoned that claimants may settle for reasons other than the employer’s proportionate fault, including the risk of losing at trial.  Finally, the Court noted that a post-settlement proceeding would incentivize a claimant to minimize employer liability during settlement negotiations and then maximize employer fault during the post-settlement proceeding to reduce the carrier’s lien.  The Court stated, without deciding, that a carrier’s obligation to act in good faith may require a carrier to reduce its lien where the employer was clearly at fault.

Justice Pelander authored the opinion; Chief Justice Bales, Vice Chief Justice Brutinel, Justices Timmer, Gould, and Lopez joined.

Justice Bolick concurred in the result, stating that the Arizona Supreme Court rule limiting the insurance carrier’s lien to amounts paid in excess of employer’s proportionate share of damages was not authorized by the Arizona Worker’s Compensation Act.