Worker’s Compensation Liens for Future Medical Bills

The recent decision  of the Tennessee Court of Appeals in Joshua Cooper, et al. v. Logistics Insight Corp., et al., No.  CV (Tenn Ct. App. May 16, 2011) potentially upsets the apple cart for workers’ compensation liens on third-party tort recoveries. The prevailing view for a decade has been that the employer gets no lien or credit for future medical expenses. That isn’t entirely clear any more after this one.

Employee filed suit against Defendants, and Employer who paid Employee’s workers’ compensation benefits intervened. Employee settled with Defendants and filed a notice and order of voluntary dismissal. Employer moved to set the case for trial, contending Employer was not part of the settlement and was actively engaged in obtaining expert medical proof as to Employee’s future medical expenses. The trial court set the case for trial, but then granted Defendants’ motion to dismiss Employer’s suit for failure to state a claim upon which relief could be granted under Tenn. R. Civ. P. 12.02(6). Employer appealed.

On appeal, Defendants contended that Employer was not entitled to a credit on Employee’s recovery “for medical expenses that have not been incurred and are speculative.” The Court of Appeals looked to the workers’ compensation lien statute at Tenn. Code Ann. § 50-6-112(c)(1) and (2):

(1) In the event of a recovery against the third person by the worker, or by those to whom the worker’s right of action survives, by judgment, settlement or otherwise, and the employer’s maximum liability for workers’ compensation under this chapter has been fully or partially paid and discharged, the employer shall have a subrogation lien against the recovery, and the employer may intervene in any action to protect and enforce the lien.

(2) In the event the net recovery by the worker, or by those to whom the worker’s right of action survives, exceeds the amount paid by the employer, and the employer has not, at the time, paid and discharged the employer’s full maximum liability for workers’ compensation under this chapter, the employer shall be entitled to a credit on the employer’s future liability, as it accrues, to the extent the net recovery collected exceeds the amount paid by the employer.

The Court of Appeals held that “[i]ntervention in the tort suit was proper under Tenn. R. Civ. P. 24 to assert [Employer’s] rights under Tenn. Code Ann. § 50-6-112, and [Employer was] entitled to present proof as to the likelihood and amount of future medical expenses it would incur on behalf of [Employee] to protect [Employer’s] rights to a credit under § 50-6-112(c)(2).” The court distinguished Graves v. Cocke County, 24 S.W.3d 285 (Tenn. 2000) and Hickman v. Continental Baking Company, 143 S.W.3d 72 (Tenn. 2004).

In Graves, the Supreme Court held that an employer who settled a workers’ compensation case for a lump sum was entitled to subrogation on the employee’s third-party claim based upon the lump sum workers’ compensation settlement amount, but was not also entitled to a credit towards any future medical payments the employer made for the employee. The Supreme Court stated in Graves:

Accordingly, we hold that the “credit on the employer’s future liability” as used in Tenn. Code Ann. § 50-6-112(c)(2), (3) does not encompass future medical payments when the parties have settled the case for a lump sum award. This construction of the statute recognizes the importance of finality in lump sum cases and avoids the other problems noted above.

In Hickman, the employee settled a third-party tort claim first, then notified the employer two months after disbursing the third-party settlement proceeds. The employee’s workers’ compensation trial came later. The Supreme Court held that, while the employer was entitled to the credit against future liability for workers’ compensation benefits, the credit did not apply to future medical expenses.

In this case, the Court of Appeals held that “the language in Hickman that an employer ‘is not entitled to a credit against future liability for medical expenses that are unknown or incalculable at the time of the trial’ indicates that such a determination is a factual inquiry, not a question of law.” Citing Hickman, 143 S.W.3d at 78. Thus, Employer was entitled to present a claim and proof of the likelihood and amount of future medical expenses for the purpose of “protecting [Employer’s] rights to a credit under § 50-6-112(c)(2).

I respectfully disagree with the Court of Appeals. In Graves and Hickman, the Supreme Court held that an employer is not entitled to a credit on future medical expenses. A credit on future medical expenses is different from a lien on the employee’s recovery from the third-party. The nature of a credit means that the employer will not have to pay those medical expenses when they are actually incurred, as opposed to allowing the employer a present value lien to take from the employee’s third-party claim. Why, then, would the employer be allowed to prove the amount of a future, speculative “credit” in the third-party case? If the employer proves that the employee is likely to incur $25,000 in future medical expenses, and the employee actually incurs $70,000, does that mean the employer gets a credit on the first $25,000 but has to pay the remaining $45,000 in medical benefits? 

The result in this opinion undermines the policy considerations that guided the results in both Graves and Hickman:

And even accepting the employer’s argument that it is seeking a credit against future medical payments and not reimbursement from benefits already paid, it is certainly foreseeable that some workers will not seek medical treatment or will be denied medical treatment because they will have to pay for it themselves. Such a result is inconsistent with the policy underlying the workers’ compensation system of providing injured workers with needed medical treatment.

Furthermore, we believe that the trial court’s concern about finality of judgments is a compelling one. This Court has repeatedly expressed concern that reopening workers’ compensation agreements frustrates the legitimate goals of judicial economy and finality of settlements. See, e.g., Cox v. Martin Marietta Energy Sys., 832 S.W.2d 534, 538 (Tenn.1992); Hale v. CNA Ins. Co., 799 S.W.2d 659, 661 (Tenn.1990); but see Brewer v. Lincoln Brass Works, Inc., 991 S.W.2d 226 (Tenn.1999). Many subrogation cases like the one at bar would be in and out of court for years-in some instances every time the employee needed medical treatment—if the employer’s interpretation of Tenn.Code Ann. § 50–6–112(c) was adopted. The employer’s position is inconsistent with the goals of judicial economy and finality of settlements.

Graves v. Cocke County, 24 S.W.3d 285, 288 (Tenn. 2000)

The present workers’ compensation case was not settled for a lump sum as was the case in Graves. However, our construction of Tennessee Code Annotated sections 50–6–112(c)(2) and (3) in Graves is not affected by the manner in which the benefits are paid. Employees will be placed in the difficult position of not being able to spend their third-party recoveries even if periodic payments are credited against the third-party recovery. Holding these funds hostage for an indefinite period of time is just as unacceptable under these circumstances as it was in Graves. As such, the logic underlying Graves compels us to reach a similar result in this case. We therefore apply the holding of Graves to the present case and conclude that Continental is not entitled to a credit against future liability for medical expenses that are unknown or incalculable at the time of the trial of the workers’ compensation case.

Hickman v. Cont’l Baking Co., 143 S.W.3d 72, 78 (Tenn. 2004)

Expect the Tennessee Supreme Court to weigh in on this one.