PA High Court Says No Subrogation Allowed Regarding Heart and Lung Benefits

Strong Subrogation Rights Exist Only as to Payments Made under WCA

Acknowledging that an employer/carrier’s outlay of workers’ compensation benefits entitles it to a subrogation lien on any recovery the injured worker enjoys against a third-party tortfeasor — including payments the injured worker receives pursuant to the state’s Motor Vehicle Financial Responsibility Act (“MVFRL”) — the Supreme Court of Pennsylvania recently held the employer/carrier had no such subrogation interest based on payments it made to a state trooper under Pennsylvania’s Heart and Lung Act (53 Pa. Stat. § 637) [Pennsylvania St. Police v. Workers’ Comp. Appeal Bd. (Bushta), 2018 Pa. LEXIS 2583 (May 29, 2018).

Background

Claimant, a state trooper, sustained severe injuries when his police vehicle was hit by a tractor-trailer. The Pennsylvania State Police, a self-insured public employer, issued a notice of compensation payable (“NCP”) indicating a weekly compensation rate of $858.08 under the WCA. The NCP also contained the following notation under the heading “Remarks”: “Paid Salary continuation. Heart & Lung Benefits by the employer.”

Claimant and his spouse entered into a settlement agreement with the tractor-trailer driver, the driver’s employer, and the other responsible parties for $1,070.000. The settlement agreement provided, inter alia, that Claimant would “reimburse any lien holder, known or unknown, for any liens as a result of the … incident.”

Stermel v. WCAB

Approximately one week prior to the execution of the settlement agreement, the Commonwealth Court issued its decision in in Stermel v. WCAB (City of Philadelphia), 103 A.3d 876 (Pa. Cmwlth. 2014), holding, in relevant part, that the employer was not entitled to subrogation of its payment of medical bills and wage loss paid under the Heart and Lung Act.

Counsel for Claimant, in the instant case, acknowledged that he was unaware of the Stermel decision at the time the settlement agreement was executed.

Board Says Stermel Controls: No Lien Favoring State Police

The Board determined that, because Stermel was decided prior to the date the State Police and Claimant signed the settlement agreement, Stermel was controlling and Claimant was not bound by his lien-related concessions in the agreement, since they were based on an erroneous reading of the law by his counsel.

Commonwealth Court: Not Only Wages, but Medical Expenses Protected From Lien

The Commonwealth Court affirmed, holding that, pursuant to Stermel, the employer was not entitled to subrogation of the lost wages paid to Claimant under the Heart and Lung Act from the proceeds of Claimant’s settlement with the third-party tortfeasors. Additionally, the Commonwealth Court recognized that, while the court in Stermel appeared to limit its holding to lost wages, because the Heart and Lung Act requires payment of all medical expenses in addition to full salary, PSP could not recover from the proceeds of Claimant’s settlement with the third-party tortfeasors any portion of the medical benefits paid to Claimant under the Heart and Lung Act.

Important Differences Between PA’s Workers’ Compensation Act and its Heart and Lung Act

The Supreme Court affirmed. It noted important differences between the WCA and the Heart and Lung Act. For example, In contrast to the WCA’s provision of partial wages to employees who sustain certain work-related injuries, the Heart and Lung Act provides certain designated public employees, primarily police and fire personnel, who are injured in the course of their duties, with their full salary until their return to duty. Further, unlike the WCA, the Heart and Lung Act does not apply to work-related injuries that are permanent, and, while the WCA is to be liberally construed in favor of the injured employee, the Heart and Lung Act must be strictly construed.

MVFRL Has Special Subrogation Provisions

The Court noted that the state’s MVFRL has special subrogation provisions and that following a 1993 amendment to the MVFRL, employer/carriers are allowed a subrogation interest in payments made in covered vehicular accidents in spite of a broad exclusion provision contained in Section 1722 of the Heart and Lung Act. The Court added that the 1993 amendment did not apply to payments made pursuant to the Heart and Lung Act.

WCA Benefits Subsumed

The high court agreed with the Stermel court that, for purposes of the MVFRL, Heart and Lung benefits subsume WCA benefits, and thus subrogation of such benefits is barred.

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