Texas Insurer Barred from Going After Third-Party Settlement Proceeds

Where a worker’s compensation insurance policy contained a clause in which the carrier waived its right to recover from any third party sued by the injured employee, that clause also prevents the carrier from recovering from the injured employee, once he or she has settled the third-party tort action, held a divided Supreme Court of Texas recently in Wausau Underwriters Ins. Co. v. Wedel, 2018 Tex. LEXIS 519 (June 8, 2018). The majority of the Court stressed that the carrier sought “the same money through the back door that it could not get through the front” [Opinion, p. 1].

20 Years of Unanimous Case Law and DOI Rulings Say No Recovery

Here, the carrier conceded that it could not recover directly from the third party. It insisted, however, that it should be allowed to recover indirectly from any settlement the third party paid to the employee. Speaking for the majority, Justice Brown relied upon what the justice called “twenty years of unanimous case law to the contrary, as well as Texas Department of Insurance rulings consistent with that case law” [Opinion, p. 1] disagreed. Justice Brown added that the carrier signed away its right to recover benefits it paid to the employee and received a higher premium in exchange for assuming that risk. It could not later seek to recover indirectly the same proceeds it agreed not to pursue directly.

Dissent: Subrogation and Reimbursement are Separate Rights

Justice Johnson, joined by Justice Boyd dissented. Justice Johnson said the state’s Workers’ Compensation Act expressly distinguished between a carrier’s right of subrogation and its right of reimbursement, as as demonstrated in part by their being addressed in separate sections of the statute. Both concepts are integral to the operation of the workers’ compensation system, argued the justice. Where the carrier had subrogation rights, it is entitled to directly bring and directly participate in the suit against the third party. When the carrier only had reimbursement rights, it was neither in charge of its own destiny vis-a-vis prosecuting a third-party claim nor statutorily entitled to recover its costs in addition to the amount it paid, or will pay, to the employee from the amount received from the third party.

Justice Johnson argued that insurance policies were to be construed by their plain language. Here, the justice stressed, the endorsement did just what the carrier and employer contracted for. The carrier waived its’ right to sue or make a claim against a third party. It was not for the majority to construe an unambiguous insurance policy endorsement to say something that it didn’t say.