TEXAS SUPREME COURT CONFIRMS COMPENSATION CARRIER’S RIGHT TO “FIRST DOLLAR” RECOVERY

In a unanimous decision, the Texas Supreme Court recently confirmed that injured workers cannot structure settlements to avoid their legal obligation to pay a worker’s compensation carrier the first money recovered from a tortfeasor. In Texas Mutual Ins. Co. v. Ledbetter, et al., No. 06-0814 (Tex. April 4, 2008), Charles Ledbetter was electrocuted while working on the job for his employer. After Mr. Ledbetter’s death, his worker’s compensation carrier, Texas Mutual Insurance Company, paid $6,000 in funeral expenses and agreed to pay his widow and minor son $1,258 in monthly death benefits. The widow (individually, as administrator of his estate, and as next friend of his minor son) and two adult daughters later filed suit against third party tortfeasors alleged to be responsible for Mr. Ledbetter’s death. The parties eventually settled the case for $4.5 million.

Prior to a hearing scheduled to approve the settlement, Texas Mutual filed a petition in intervention seeking subrogation for past and future benefit payments. At the start of the hearing, plaintiffs’ attorney nonsuited all claims, except those of Ledbetter’s estate, despite objections by Texas Mutual. Plaintiffs then announced that the $4.5 million settlement would be allocated entirely to Ledbetter’s estate, plaintiffs’ attorney and the ad litem, and nothing would be allocated to the widow, the minor or adult children, or the compensation carrier. The trial court approved the settlement and struck the carrier’s intervention, but it ordered the carrier to remain a party and to keep paying Ledbetter’s widow and son future benefits. The court of appeals held that the trial court erred in striking the carrier’s intervention and in approving the allocation of the settlement proceeds, but it declined to set aside the trial court’s nonsuit or reinstate Ledbetter’s wife and son as parties.

The Texas Supreme Court ruled that “the law governing this settlement is simple: the compensation carrier gets the first money a worker receives from a tortfeasor.” The Court reasoned that “first money” reimbursement is crucial to the administration of the state’s worker’s compensation system because it reduces costs and prevents double recovery by workers. The Court went on to state that “[t]here is nothing discretionary about this statute; a carrier’s right to reimbursement is mandatory.” As a result, the Supreme Court affirmed the court of appeals’ judgment reinstating Texas Mutual’s subrogation claim and reversing and remanding the trial court judgments which had dismissed the plaintiffs from the litigation and approved a distribution of funds that did not account for reimbursement to the carrier for past and future benefit payments.

As an aside, the Court clarified certain procedural issues pertaining to intervention and a party’s right to nonsuit claims. With regard to intervention, the unanimous Court held that Texas Mutual had the right to intervene, even after judgment had been entered, due to the fact that its interests would not have adequately been represented after plaintiffs nonsuited their case and requested that the carrier receive no money from the settlement. At that point the carrier’s interests diverged from the plaintiffs, and its intervention would not have further delayed or prejudiced the settlement if the plaintiffs had properly admitted to the benefits they were receiving and acknowledged the carrier’s right to first money. With regard to a party’s right to nonsuit claims, eight of the nine justices (Justice Johnson abstained) held that Rule 162 gives parties an absolute right to nonsuit their own claims, but not to avoid someone else’s claims. Consequently, the Court determined that plaintiffs had a right to nonsuit their affirmative claims, but they were not entitled to dismissal from the action because it would have prejudiced Texas Mutual’s claim for reimbursement.