What is Workers Compensation Subrogation Statutory Construction Act?

A workers’ compensation insurance company has a right called subrogation, entitling them to recover the money they paid as “compensation” to an injured worker, from any money that injured worker recovers in a claim for personal injuries against a Third Party, whose negligence was responsible for causing the injury. Section 319 of the Act, 77 PS § 671. The purpose is to

(a) prevent the Third Party from escaping liability for the injuries caused by their negligence;

(b) prevent a worker’s compensation carrier from incurring the burden of payment due to the fault of a Third Party; and

(c) prevent a windfall to the injured worker by a “double recovery” for one injury or incident.

The issue is fairly easy to address where the recovery from the Third Party claim or lawsuit is small, and insufficient to cover the amount of compensation paid as of the date of settlement. The issue arises where the money recovered from the negligence lawsuit exceeds the amount of compensation paid by workers compensation insurance, AND the claimant is entitled to ongoing payment of workers’ compensation benefits into the future. Section 319 of the Act requires the money recovered from the Negligence lawsuit in excess of the compensation paid to date, be paid “forthwith to the employee” as an advance payment of workers’ compensation benefits. So – How does the WC insurance company recover their subrogation rights regarding these future, yet unpaid benefits?

The court separated the two periods of time to which subrogation applies:

(1) all benefits, both wage loss and medical bills, paid as of the date the Third Party case was resolved; and

(2) future “compensation” benefits payable after the settlement of the Third Party claim.

A mathematical formula was then developed by the court, to calculate a credit against the payment of ongoing, future compensation benefits. Rollins Outdoor Advertising v. W.C.A.B., 487 A.2d 794, 796 (Pa. 1985).

In 2018 – after 100+ years of case law interpreting the Workers’ Compensation Act, and more than three decades after the detailed analysis in Rollins, The Supreme Court re-defined the proper method to apply subrogation against future compensation benefits, in Whitmoyer v. WCAB (Mountain Country Meats), 186 A.3d 947 (Pa. 2018).

In brief summary, case law has used the word “compensation” to define both wage loss benefits, and payment for medical treatment. See Giant Eagle, Inc. v. W.C.A.B. (Givner), 39 A.3d 287, 294 (Pa. 2012). Before Whitmoyer, it was generally accepted that the insurer’s right to subrogation therefore encompasses all past and future “compensation”, including both types of benefits. In differentiating past and future compensation, the Whitmoyer court provided a detailed analysis of the Statutory Construction Act, specifically, 1 PS. § 1903 and 1921, identifying the following principles:

The interpretation of a statute is a question of law, subject to the court’s plenary review.
The object of all statutory interpretation is to determine the intent of the General Assembly.
All words and phrases are intended to have meaning and effect.
Where the words of a statute are clear and unambiguous, the plain meaning of the words must be applied.

Applying these concepts, the Whitmoyer Court determined that the last phrase of Section 319 refers to “installments of compensation” – when defining the insurer’s right to subrogation against future benefits. Relying on the Merriam Webster Dictionary for interpretation of the word “installment”, the court held that disability benefits (ie wage loss) are required to be paid in this manner, namely, in periodical intervals, as the wages of the employee were payable before the injury.” See 77 P.S. § 601. Medical expenses are not. See 77 P.S. § 531. Medical benefits are paid as and when needed – not in “installments”. Therefore, the WC insurance company’s right to subrogation to the proceeds from the Third Party claim or lawsuit which exceed the compensation paid as of the date that Fund was created, applies only to future installments of wage loss benefits, and may NOT be asserted against future medical benefits.

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