Twin City v. Leija (amended 11/8/17) (8/31/2017)

November 20, 2017

Arizona Court of Appeals Division One holds that when a worker who has collected worker’s compensation from his employer settles a claim against a third party for less than the limits of the third party’s insurance, the worker may obtain a judicial determination of whether a lien placed on the settlement funds by his employer’s insurance carrier should be reduced to account for the employer’s comparative fault.

Under A.R.S. § 23-123, an employee may sue a third party whose wrongful conduct contributed to the worker’s injury.  However, when an employer’s insurance carrier pays out worker’s compensation benefits to the employee, the carrier may assert a lien on any amount collected from the third party up to the amount that the carrier paid out in benefits.

An employee who washed windows fell three stories after the scaffolding he was standing on collapsed and fell.  His employer’s insurance carrier accepted the claim and paid out benefits to the surviving family.  The family filed suit against third parties whom they alleged were also at fault.  The third parties identified the employer as a nonparty at fault.  Eventually, the employee’s family settled with the third parties, but not to the limit of the third parties’ insurance coverage.  The employer’s carrier filed a separate complaint to enforce its lien on the settlement funds to the extent that it had paid out benefits to the employee’s family.  The employee’s family argued that the amount of the lien should be reduced in proportion to the employer’s comparative fault, and that the trial court should conduct a hearing to determine the extent of the employer’s and the third parties’ fault.  The trial court granted the employer’s carrier’s motion for summary judgment, holding that the complaint to enforce the lien was not the proper vehicle to litigate comparative fault of the parties.

The Court of Appeals reversed, holding that the trial court must hold a hearing to determine the extent of the employer’s comparative fault.  The Court reasoned that, after Arizona had moved away from joint and several liability, the lien statute could cause injustice on injured workers because it would reduce the amount recoverable from third parties while also permitting the employer’s insurance carrier to be reimbursed from that reduced award despite the employer’s comparative fault having caused the reduced award amount.  The Court held that such an outcome would unfairly penalize the worker, and that the lien statute should be interpreted to achieve the legislative objective of fully compensating injured workers.  The Court remanded the case back to the trial court, with instructions to hold a hearing to determine comparative fault.

Judge Johnsen delivered the unanimous opinion, in which Judges Norris and Polk joined