J. Marshall v. WCAB (Easton Coach Co. & Hartford Fire Ins. Co.) ( 2019 )

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Jerome Marshall, :
Petitioner :
:
v. : No. 541 C.D. 2018
: Argued: March 14, 2019
Workers’ Compensation Appeal :
Board (Easton Coach Company and :
Hartford Fire Insurance Company), :
Respondents :
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge
HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE BONNIE BRIGANCE LEADBETTER, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY
JUDGE COHN JUBELIRER FILED: April 5, 2019
Jerome Marshall (Claimant) petitions for review of the Order of the
Workers’ Compensation Appeal Board (Board) that affirmed the decision of a
Workers’ Compensation Judge (WCJ) approving the calculations set forth by
Easton Coach Company and its insurer, Hartford Fire Insurance Company,
(together, Employer) in a Third-Party Settlement Agreement (Employer’s TPSA)
and granting Employer’s Modification Petition based on those calculations.
Claimant argues it was error to rely on Employer’s calculations because they
included $153,982.45 from the settlement of his uninsured/underinsured motorist
(UIM) claim that he asserts had been set aside exclusively to fund a Medicare Set-
Aside Arrangement (MSA) on his behalf and, therefore, was not subject to
subrogation under Section 319 of the Workers’ Compensation Act (Act), 77 P.S.
§ 671.1 The MSA that Claimant asserts was established was created in
contemplation of the settlement of his WC claim with Employer, as well as the
settlement of the UIM claim. But, because there was no settlement of the WC
claim, Employer remains primarily liable for medical treatment related to
Claimant’s work injury. Therefore, the MSA, which was never completely funded,
was not necessary to protect Medicare’s interest here. The Board, therefore, did
not err in finding that the challenged amounts should be included in the Third-
Party Recovery, and so remained subject to subrogation. However, subsequent to
the Board’s Order, the Supreme Court decided Whitmoyer v. Workers’
Compensation Appeal Board (Mountain Country Meats), 186 A.3d 947, 949 (Pa.
2018), which determined that employers cannot take a credit against a claimant’s
medical benefits. We therefore vacate in part and remand for a determination of
whether any recalculation is necessary.
I. Background
A. Facts
The facts in this matter are not disputed. Claimant, a bus driver, sustained
numerous injuries to his lumbar and cervical spine2 in a September 16, 2005 motor
vehicle accident that occurred while driving Employer’s bus. (WCJ Decision,
Findings of Fact (FOF) ¶¶ 1-3.) He has not returned to work due to those injuries,
for which he continues to receive medical treatment. When Claimant began
receiving Social Security Old Age Benefits, Employer offset his workers’
1
Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 671.
2
The accepted injuries were “[c]ervical sprain and disc herniation injuries” and “C5-6
herniation and L4-5 disc protrusion.” (WCJ Decision, Findings of Fact ¶¶ 2-3.)
2
compensation (WC) wage loss benefits by his Old Age Benefits, thereby reducing
his weekly benefit amount from $324.00 to $69.11. (Id. ¶ 23.)
Claimant filed a third-party action against the driver of the vehicle that
struck the bus, which resulted in a settlement of $35,000. (Id. ¶ 5.) Claimant also
filed an UIM claim against Employer’s UIM carrier, for which he recovered $1.3
million in a July 23, 2015 settlement agreement (UIM settlement agreement). Of
that amount, 33 1/3 percent, or $413,333.33, was paid to Claimant’s wife for loss
of consortium. This left $886,666.67 in UIM settlement proceeds payable to
Claimant, which the parties do not dispute are subject to subrogation under Section
319. In addition to these proceeds, Claimant received from the UIM carrier
“$30,788.45 as seed money and $123,194.00 in the funding of an annuity to fund
Claimant’s portion of a proposed . . . MSA.”3 (Id. ¶ 6.) It is this $153,982.45 (the
Disputed Amount) that is at issue in this appeal.
3
The UIM settlement agreement provided, relevantly, that the UIM carrier would pay
THIRTY THOUSAND SEVEN HUNDRED EIGHTY EIGHT DOLLARS AND
FORTY FIVE CENTS [$30,788.45] TO A MEDICARE S[]ET-ASIDE
ARRANGEMENT (“MSA”) THAT WILL BE ESTABLISHED ON BEHALF
OF JEROME MARSHALL AND [TWELVE] (12) YEARLY PAYMENTS OF
THIRTEEN THOUSAND NINE HUNDRED NINETY-FOUR DOLLARS AND
SEVENTY FIVE CENTS ($13,994.75) EACH (totaling $167,937.00)
(“Subsequent Payments”) TO BE PAID TO THE MSA as further outlined within
the Addendum A below . . . payable to Jerome Marshall in trust to be in
compliance with the Medicare Secondary Payer reimbursement rules and
regulations . . . .
(Reproduced Record (R.R.) at 68a (emphasis omitted, first alteration in the original).)
Addendum A sets forth the terms of the 12 yearly payments of $13,994.75 to Claimant from
Pacific Life Insurance Company based on the annuity the UIM carrier purchased. (Id. at 73a-
74a.)
3
During settlement discussions, inquiries were made about what amount
would be necessary to fund an MSA for Claimant’s future medical needs. On June
24, 2013, the Center for Medicare and Medicaid Services (CMS) issued a letter on
a requested MSA application filed by Employer in anticipation of a potential
settlement of Claimant’s WC claim. (Reproduced Record (R.R.) at 116a-18a.) In
that letter, CMS stated that any MSA for Claimant had to be funded in the amount
of $335,874.00. (FOF ¶ 8.) If the MSA was to be funded by an annuity, CMS
indicated that to reach the required amount, the seed money for the annuity had to
be $68,377.00 and the annuity had to pay $19,106.00 for 14 years. (Id.) The CMS
letter further indicated that “[a]pproval of this []MSA is not effective until a copy
of the final executed workers’ compensation Settlement Agreement, which
must include this approved []MSA amount is received by CMS . . . .” (Id. ¶ 9
(emphasis added); R.R. at 117a.)
Following CMS’s letter, Claimant requested review of the proposed MSA by
Garretson Resolution Group (GRG). On July 1, 2015, GRG responded that it
evaluated the need for an MSA based on the facts presented and concluded that an
MSA was needed based on CMS’s guidelines, Claimant’s injuries, the damages,
and the gross award. (FOF ¶ 12.) As part of its analysis, GRG stated that it
understood that: Claimant’s “WC carrier has paid for injury-related care
expenditures prior to the date of Settlement”; the proposed “MSA is expected to
pay for injury-related care going forward of the date of Settlement”; and “the
parties have resolved both the WC and [t]hird-[p]arty liability components.”
(Id. ¶¶ 13-14 (emphasis added); R.R. at 104a-07a.) GRG explained that, in order
to fund the MSA in accordance with CMS’s requirements based on the settlements
4
of both the WC and third-party claims, the third-party settlement was to pay for 55
percent of the MSA, or $184,730.70, and Claimant’s WC carrier was responsible
for funding 45 percent, or $151,143.30. (FOF ¶ 16.) However, both parties agree
there has been no settlement of Claimant’s WC claim. After receiving GRG’s
analysis, Claimant obtained a quote for an annuity in which the UIM carrier would
pay Pacific Life Insurance Company (Pacific Life) $123,194.00 for an annuity that
would pay $13,994.75 for 12 years, for a total payment of $167,937.00. (Id. ¶ 17.)
The UIM carrier issued a check to Pacific Life for $123,194.00 to purchase the
annuity. (Id. ¶ 18.)
Following the settlement of the UIM claim, Employer requested that
Claimant execute a TPSA, setting forth the information necessary to calculate
Employer’s subrogation interest. Claimant did so (Claimant’s TPSA), setting forth
the following: Total Third-Party Recovery - $881,857.98; Accrued WC Lien -
$504,609.77; Expenses of Recovery - $451,844.44; and Balance of Recovery -
$377,248.21. (R.R. at 140a.) Based on those numbers, Claimant’s TPSA provided
that Employer was liable for 51.24 percent of Claimant’s future benefits until the
Balance of Recovery was exhausted. (Id.) Employer did not execute Claimant’s
TPSA. Instead, Employer filed the Modification Petition asserting the parties were
unable to agree as to the terms of a TPSA.
B. The WCJ’s Decision
The Modification Petition was assigned to a WCJ for disposition. Multiple
hearings were held, at which argument, but no sworn testimony, was presented.
Claimant presented documentary evidence, including Claimant’s TPSA, the CMS
letter, GRG’s analysis, and the quote for the annuity purchased by the UIM carrier.
5
Employer submitted Employer’s TPSA, which included the Disputed Amount for a
total Third-Party Recovery of $1,035,840.40, a Balance of Recovery of
$531,230.63, and a Reimbursement Rate of 43.62 percent. (Id. at 75a-76a.)
Employer also presented copies of checks and the settlement agreements. Both
parties submitted proposed findings of fact and briefs in support of their respective
positions.
The WCJ determined that the only dispute was a legal one, whether the
Disputed Amount should be included in the total of the Third-Party Recovery, and
thus, subject to subrogation, or excluded therefrom “because it was deposited in a
separate interest bearing account by . . . Claimant after the Third[-]Party
Settlement.” (FOF ¶ 28.) The WCJ found that it should be included, addressing,
and rejecting, Claimant’s arguments to the contrary. The WCJ first found that a
“valid” MSA had not been created. The WCJ observed that the CMS letter and
GRG analysis expressly stated that the proposed MSA was “prepared in
contemplation of resolving both the [t]hird[-p]arty claim and the [WC] claim” and
that the proposed MSA had to be funded by both Claimant (via the Third-Party
Settlement) and Employer. (Id. ¶ 32 (emphasis added).) Because the WC
settlement never occurred, the WCJ reasoned that the proposed MSA was not
approved, and never came to fruition because such settlement was required before
the MSA became valid. (Id.) Next, the WCJ held that because no WC settlement
occurred, Employer, not Medicare, remained ultimately liable to pay for the
medical treatment for Claimant’s work injury, subject to Claimant’s paying a
portion of his medical treatment during the “grace period” created by the Third-
6
Party Settlement,4 and there was no preemption issue. (Id. ¶¶ 34, 36-37.) The
WCJ found that the principles of equity do not apply to Section 319 liens. (Id. ¶¶
33-35.) Moreover, the WCJ pointed out that adding these funds in the total Third-
Party Recovery places Claimant in the same position as all other claimants who
settle a third-party claim and have to pay for a portion of his or her own benefits
during the employer’s “grace period.” (Id. ¶ 35.) The WCJ noted that Employer’s
calculation was not unjust because it was not seeking the entire value of the
annuity, only the annuity’s purchase price, and Claimant would realize the
difference between those amounts. (Id. ¶ 33.) Finally, the WCJ held that Cullen v.
Pennsylvania Property and Casualty Insurance Guaranty Association, 760 A.2d
1198 (Pa. Cmwlth. 2000), was distinguishable as it involved a situation where the
employer was statutorily barred from subrogating settlement funds received by a
claimant from the Pennsylvania Property and Casualty Insurance Guaranty
Association (Guaranty Association). (FOF ¶ 38.)
The WCJ therefore determined that Employer met its burden of proof on the
Modification Petition, concluding no valid MSA was established because no WC
settlement had occurred and no such agreement was sent to CMS finalizing the
creation of the MSA referenced in the CMS letter. (WCJ Decision, Conclusion of
Law (COL) ¶ 2.) The WCJ held that Employer “has, at all times, remained
responsible for the payment of reasonable, necessary and causally related medical
expenses in relation to the Claimant’s accepted work . . . injury . . . .” (Id. ¶ 3.)
Thus, the WCJ approved Employer’s TPSA and found that Employer would be
4
Pursuant to Section 319, any third-party recovery that exceeds an employer’s accrued
lien is treated “as an advance payment of the employer’s future compensation obligation, thereby
providing the employer with a ‘grace period’ from making compensation payments.” Suburban
Delivery v. Workers’ Comp. Appeal Bd. (Fitzgerald), 858 A.2d 219, 223 (Pa. Cmwlth. 2004).
7
liable for 43.62 percent of Claimant’s future indemnity and medical benefits until
the Balance of Recovery, $531,230.63, is exhausted. (Id. ¶ 4.) The WCJ reduced
Claimant’s weekly benefit to $30.15 per week and indicated that Claimant would
be responsible to pay 56.38 percent of his future medical expenses. (Id. ¶¶ 5-6.)
Finally, the WCJ concluded:
[t]he seed money and annuity payments being paid by Pacific Life
may be utilized by Claimant in any manner he sees fit, as Medicare’s
interests remain protected by the [Employer’s] ultimate liability to pay
Claimant’s reasonable, necessary and causally related medical
expenses until such time as those benefits are terminated or resolved
by the funding of a valid MSA submitted to and approved by CMS.
(Id. ¶ 8.)
C. The Board’s Opinion
Claimant appealed to the Board, challenging the WCJ’s determinations. The
Board affirmed, “find[ing] no error in the WCJ’s reasoning and . . . [the WCJ]
properly included the MSA funds in the overall amount that [Employer] was
entitled to with its subrogation lien.” (Board Opinion (Op.) at 6.) The Board
agreed that because no formal settlement of Claimant’s WC claim was executed,
no MSA was formally created per the CMS letter. As no MSA was created, the
Board held that the challenged funds remained a part of Claimant’s total Third-
Party Settlement of which Employer had an absolute right to subrogate under
Section 319. (Id. (citing Thompson v. Workers’ Comp. Appeal Bd. (USF & G Co.),
781 A.2d 1146, 1151 (Pa. 2001)).) Claimant now petitions this Court for review.
8
II. Claimant’s Appeal to this Court
A. Claimant’s Arguments
On appeal,5 Claimant reiterates the arguments he made before the WCJ,
which he asserts the WCJ and Board erred in rejecting.6 Claimant argues the
Disputed Amount was used to establish a valid MSA under federal law that was
intended to protect Medicare’s interests by providing Claimant with funds to pay
the future medical bills associated with his ongoing work injury. Claimant
contends there is no requirement for his WC claim to have settled or for CMS to
have approved the MSA for the MSA to be valid. Because a valid MSA was
established, Claimant maintains including these funds in the total Third-Party
Recovery and allowing their subrogation under Section 319 is unjust, unfair, and
contrary to the humanitarian purpose of the Act and federal law, which preempts
state law subrogation under these circumstances.
Further, according to Claimant, he needed the MSA in order to settle his
UIM claim and, because Employer’s WC carrier refused to fund the MSA, the
UIM carrier agreed to do so. The WCJ’s conclusion that Claimant was free to use
that money as he wishes conflicts with the terms of the UIM settlement agreement.
And, by approving subrogation of these funds, Claimant argues the WCJ gave
Employer the full benefit not only of the Third-Party Settlement proceeds, but also
the MSA, and by doing so, relieved Employer from paying for a substantial
5
This Court’s “review is limited to determining whether constitutional rights were
violated, whether the adjudication is in accordance with the law[,] or whether necessary findings
of fact are supported by substantial evidence.” City of Philadelphia v. Workers’ Comp. Appeal
Bd. (Sherlock), 934 A.2d 156, 159 n.5 (Pa. Cmwlth. 2007).
6
Claimant raises eight separate issues in his brief to this Court; however, his arguments
on many of these issues overlap significantly. Accordingly, we have consolidated them into
those discussed herein.
9
amount of Claimant’s future indemnity benefits and medical expenses related to
his work injuries. Claimant also maintains the WCJ erred in including the
Disputed Amount as a lump sum since Claimant would not receive the full benefit
of the annuity for 12 years, which is manifestly unfair and prejudicial because it
treats Employer more favorably than Claimant.
Finally, Claimant asserts the rationale for subrogation under the Act and the
prohibition against allowing employers to take a double offset through subrogation
support his appeal. Citing Dale Manufacturing Company v. Bressi, 421 A.2d 653,
654 (Pa. 1980), Claimant argues that excluding the Disputed Amount from
subrogation: does not allow him to receive a double recovery; Employer is not
being compelled to pay WC benefits due to the negligence of a third party because
the MSA relieves Employer of its liability to pay for Claimant’s future medical
bills for that injury; and the third party, the UIM carrier, is not escaping liability for
the negligence because it is that party that funded the MSA. Claimant also argues,
citing Cullen, that subrogation cannot be used by an employer to obtain a double
offset, as doing so contradicts the Act’s humanitarian purpose. Under the WCJ’s
erroneous interpretation of Cullen, Claimant contends, Employer benefits from the
MSA, “since the total amount of the third[]party settlement agreement is increased,
. . . [its] portion of the lien reimbursement [is] greater . . . .” (Claimant’s Brief
(Br.) at 44.) Claimant argues that Employer also benefits because it now is “only
liable to pay substantially lower percentages of every future indemnity benefit and
every future medical benefit.” (Id. at 45.)
B. Employer’s Arguments
10
Employer argues its entitlement to subrogate Claimant’s recoveries from the
third-party suit (against the driver) and the UIM claim is absolute under Section
319, and not subject to exceptions, equitable or otherwise. (Employer’s Br. at 6
(citing Thompson, 781 A.2d at 1151).) According to Employer, Claimant’s
arguments that a valid MSA was established are incorrect. Because this matter
involves a WC claim that has not been settled, Employer asserts it remains
obligated to pay for the medical treatment that is reasonable, necessary, and
causally related to Claimant’s work injury. This means, Employer argues, that no
liability shifted to Medicare and, therefore, no MSA was needed to protect
Medicare’s interests because those interests are protected by the ongoing medical
coverage Employer provides to Claimant. With no need for an MSA, Employer
contends the funds purportedly designated to create an MSA should be treated
“merely [as] deposits of funds which can be freely used by Claimant for any
purpose . . . ,” which are subject to subrogation under Section 319. (Id. at 8-9.) As
for the particular arguments Claimant reiterates on appeal, Employer adopts the
WCJ’s analysis rejecting each of those arguments as its own. (Id. at 9-16 (quoting
FOF ¶¶ 32-38).)
C. Discussion
When considering issues of subrogation, we are guided by the statutory
language of Section 319 and the mandatory nature of subrogation reflected by that
language. In relevant part, Section 319 provides:
Where the compensable injury is caused in whole or in part by the act
or omission of a third party, the employer shall be subrogated to the
right of the employe, his personal representative, his estate or his
dependents, against such third party to the extent of the compensation
payable under this article by the employer; reasonable attorney’s fees
and other proper disbursements incurred in obtaining a recovery or in
11
effecting a compromise settlement shall be prorated between the
employer and employe, his personal representative, his estate or his
dependents. The employer shall pay that proportion of the attorney’s
fees and other proper disbursements that the amount of compensation
paid or payable at the time of recovery or settlement bears to the total
recovery or settlement. Any recovery against such third person in
excess of the compensation theretofore paid by the employer shall be
paid forthwith to the employe, his personal representative, his estate
or his dependents, and shall be treated as an advance payment by the
employer on account of any future instalments of compensation.
77 P.S. § 671. Our Supreme Court has explained that this language “is clear and
unambiguous” and “written in mandatory terms” that “admit[] no express
exceptions, equitable or otherwise.” Thompson, 781 A.2d at 1151. Those terms do
“more than confer a ‘right’ of subrogation upon the employer; rather, subrogation
is automatic.” Id. The purpose of Section 319 is threefold and is intended to:
prevent a claimant from receiving a double recovery for the same injury; ensure
that an employer is not required to make compensation payments due to the
negligence of a third party; and prevent the third party from escaping liability for
his or her negligence. Poole v. Workers’ Comp. Appeal Bd. (Warehouse Club,
Inc.), 810 A.2d 1182, 1184 (Pa. 2002) (citing Dale Mfg. Co., 421 A.2d at 654).
When determining whether those funds are subject to subrogation under Section
319, the manner in which the parties to a third-party settlement characterize the
settlement funds is not conclusive. Serrano v. Workers’ Comp. Appeal Bd.
(Ametek, Inc.), 154 A.3d 445, 451 n.10 (Pa. Cmwlth. 2017) (“[A] claimant is not
entitled to craft a third-party settlement award in a manner that limits an
employer’s subrogation rights.”); Bumbarger v. Bumbarger, 155 A.2d 216, 218-19
(Pa. Super. 1959) (employee and third party cannot interfere with an employer’s
right to subrogation by designating part of the recovery as damages for pain and
suffering).
12
1. Whitmoyer
After briefing, the Supreme Court decided Whitmoyer, which held that
“when a [claimant] recovers proceeds from a third-party settlement . . . the
employer . . . is limited to drawing down against that recovery only to the extent
that future disability benefits [(and not medical expenses)] are payable to the
claimant.” Whitmoyer, 186 A.3d at 949 (emphasis added). In other words, an
employer cannot take a credit against ongoing medical benefits. The WCJ’s
Decision here, affirmed by the Board, neither of which had the benefit of the
Supreme Court’s decision, allowed Employer to take a credit against Claimant’s
ongoing medical benefits. We, therefore, by order, directed the parties to address
the impact of Whitmoyer on this case. As recognized by Employer at oral
argument, only indemnity benefits are now correctly subrogable, and Employer
remains liable for Claimant’s future reasonable and necessary medical treatment.
We will therefore consider Claimant’s and Employer’s arguments with regard to
whether the MSA removed the Disputed Amount from the Third-Party Settlement
and Employer’s right to subrogation with Whitmoyer in mind. We will also vacate
the Board’s Order affirming the WCJ’s Decision with regard to the subrogation
calculations, and remand the matter for a determination of whether any
recalculation is necessary.
2. Subrogation of the challenged amounts
Claimant’s arguments regarding why Employer cannot subrogate the
Disputed Amount are based on his contentions that a valid MSA was created to
protect Medicare’s interests, and that the monies contained therein are available
13
only for Claimant to use for the future medical treatment of his work injury.
However, after reviewing the purpose of MSAs, as well as the settled legal
principles regarding an employer’s ongoing liability for a work injury absent
settlement of the WC claim, we discern no error in the WCJ’s conclusions.
In WC cases, Medicare payment is secondary to the employer’s payment of
a claimant’s future medical expenses. 42 U.S.C. § 1395y(b)(2)(A)(ii) (Medicare is
“secondary payer;” “[p]ayment [by Medicare] may not be made . . . with respect to
any item or service to the extent that -- . . . (ii) payment has been made or can
reasonably be expected to made under a [WC] law or plan . . . .”); see Miller v.
Workers’ Comp. Appeal Bd. (Electrolux), 940 A.2d 603, 608 (Pa. Cmwlth. 2008);
Weinstein v. Sebelius, No. 12-154, 2013 WL 1187052, at *3 (E.D. Pa. Feb. 13,
2013) (“the Medicare Secondary Payer statute” “makes Medicare a ‘secondary’
source of payment for health care services”). It is not until there is a settlement in
which the employer is released from paying future medical benefits that the parties
are required, or need, to protect Medicare’s interests in remaining the secondary
payer. Id. When Medicare does need to be protected, the recommended method is
an MSA, “a financial agreement that allocates a portion of a [WC] settlement to
pay for future medical services related to the work injury, illness, or disease.”
Sheaffer v. Workers’ Comp. Appeal Bd. (Standard Steel, LLC) (Pa. Cmwlth., No.
783 C.D. 2016, filed Feb. 14, 2017), slip op. at 2 n.27 (citations omitted) (emphasis
added).8 When there is no WC settlement there is no need to submit a WC MSA.
7
Sheaffer, an unreported opinion, is cited for its persuasive authority in accordance with
Section 414(a) of the Commonwealth Court’s Internal Operating Procedures, 210 Pa. Code
§ 69.414(a).
8
See also Workers’ Compensation Medicare Set-Aside Arrangement (WCMSA)
Reference Guide Version, 2.9, available at https://www.cms.gov/Medicare/Coordination-of-
Benefits-and-Recovery/Workers-Compensation-Medicare-Set-Aside-Arrangements/Downloads/
(Footnote continued on next page…)
14
Claimant argues that his receipt of the CMS letter and GRG’s analysis
supports that, even without a settlement of his WC claim, he still had a valid MSA.
However, those documents do not do so because their analyses were predicated on
the assumptions that: (1) Claimant’s WC claim was being settled; and (2) the
MSA would be funded in the amount projected to cover Claimant’s future work-
related medical expenses, $335,874.00, thereby protecting Medicare’s interests in
remaining the secondary payer. (R.R. at 102a-07a,9 116a-17a.10) Because the WC
claim never settled and Employer never paid the amount anticipated to be its
contribution to the MSA, resulting in the asserted MSA never being fully funded,
Claimant’s reliance on these documents is misplaced.
Claimant also argues that subrogating the Disputed Amount is erroneous
because, following the Third-Party Settlement, Employer is no longer liable for his
medical treatment and, therefore, an MSA was required to protect Medicare’s
interests. However, this is not the case. It is well settled WC law that once an
employer becomes liable for a work injury, it remains so “in the absence of a final
receipt, an agreement, a supersedeas[,] or any other order of the WCJ” ending that
liability. McLaughlin v. Workers’ Comp. Appeal Bd. (St. Francis Country House),
808 A.2d 285, 288 (Pa. Cmwlth. 2002). There has been no settlement of
_____________________________
(continued…)
WCMSA-Reference-Guide-Version-2_9.pdf (describing the purpose and manner in which MSAs
should be established and administered) (last visited April 3, 2019).
9
GRG’s analysis referenced the settlement of both claims and provided that both
Employer (through a WC settlement) and Claimant (through the UIM Settlement) would fund
the MSA in the amount of $335,874.00.
10
CMS’s letter explained that any MSA created had to be funded $335,874.00 and
“[a]pproval of this []MSA [was] not effective until a copy of the final executed [WC] settlement
agreement, which must include th[e] approved . . . amount, [was] received by CMS.” (R.R. at
116a-17a.)
15
Claimant’s WC claim and, thus, Employer has not been relieved of its liability for
Claimant’s WC injury. Because Claimant’s WC claim remains open and
Employer remains primarily liable for the medical treatment related to Claimant’s
work injury, Miller, 940 A.2d at 608, Medicare’s interests are adequately protected
without the need for an MSA.11 Moreover, the way the parties to a third-party
action fashion the settlement is not determinative to whether the settlement is
subject to subrogation. Serrano, 154 A.3d at 451 n.10; Bumbarger, 155 A.2d at
218-19. Thus, the fact the UIM settlement agreement designates those monies as
funding an MSA to pay for Claimant’s future medical treatment does not remove
those funds from the Third-Party Settlement amount available for Employer’s
subrogation, in the absence of a valid MSA and WC Settlement.
We recognize Claimant contends the WCJ erred in finding that the Disputed
Amount did not have to be used to pay Claimant’s medical treatment. However,
we believe that the Board and WCJ did not err.
Claimant next asserts the WCJ erred by including the Disputed Amount, as a
lump sum, in the total Third-Party Recovery. However, where a third-party
settlement results in an annuity, it is the cost, or present value, of the annuity that is
subject to subrogation under Section 319. Suburban Delivery v. Workers’ Comp.
Appeal Bd. (Fitzgerald), 858 A.2d 219, 226-27 (Pa. Cmwlth. 2004); A.C. & S. v.
Workmen’s Comp. Appeal Bd. (Dubil), 616 A.2d 1085, 1087-88 (Pa. Cmwlth.
1992). Here, the WCJ included the cost of the annuity, $123,194.00, and the
11
Because there is no need to protect Medicare’s interests as required by federal law
through the creation of an MSA, we will not address Claimant’s contention that subrogation
under Section 319 is preempted by federal law.
16
$30,788.45 seed money, totaling $153,982.45, in Claimant’s total Third-Party
Recovery. There was no error in the WCJ doing so.
Claimant finally argues that the Act’s humanitarian purposes and Cullen
require a different result because, as a result of subrogation, Employer receives a
double offset and is relieved from its full liability to pay Claimant’s WC benefits,
which is unjust and inequitable. Claimant’s arguments are premised on his view
that the MSA remains valid, and that the Disputed Amount, which was designated
for inclusion in the MSA, should therefore not be also subject to subrogation.
However, there is no valid MSA and therefore the Disputed Amount cannot be
removed from the Third-Party Settlement. Because there is no valid MSA, and no
WC Settlement, there is no double offset, and Employer continues to be primarily
liable for Claimant’s medical benefits. Therefore, as the WCJ cogently explained
in his opinion, the inclusion of the Disputed Amount in Claimant’s total recovery
is not unjust because it places Claimant in the same position as other claimants
who settle third-party actions and whose receipt of WC benefits is reduced during
the grace period created by the amount of the settlement that exceeded the accrued
WC lien. (FOF ¶ 35); see Suburban Delivery, 858 A.2d at 223 (explaining that an
employer receives a grace period from paying the full amount of a claimant’s
benefits where a third-party settlement exceeds the employer’s accrued lien).
Cullen is inapplicable because here, unlike in Cullen, the amounts that Claimant
recovered from the Third-Party Settlement have not been reduced. As previously
explained, while Claimant and the UIM carrier here designated certain funds from
that settlement for an MSA, such designation is not dispositive in determining
Employer’s subrogation rights. Serrano, 154 A.3d at 451 n.10; Bumbarger, 155
17
A.2d at 218-19. Accordingly, there is no double offset that would be contrary to
the humanitarian purpose of the Act.
III. Conclusion
For the foregoing reasons, the WCJ did not err in including the Disputed
Amount in Claimant’s Third-Party Recovery making those funds subject to
Employer’s subrogation under Section 319, and the Board’s Order upholding that
determination is affirmed. However, to the extent the Board’s Order affirmed the
WCJ’s Decision allowing Employer to take a credit against Claimant’s ongoing
medical benefits, the Order is vacated in part, and we remand for a determination
of whether any recalculation is necessary.
_____________________________________
RENÉE COHN JUBELIRER, Judge
18
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Jerome Marshall, :
Petitioner :
:
v. : No. 541 C.D. 2018
:
Workers’ Compensation Appeal :
Board (Easton Coach Company and :
Hartford Fire Insurance Company), :
Respondents :
ORDER
NOW, April 5, 2019, the Order of the Workers’ Compensation Appeal
Board (Board), entered in the above-captioned matter, is AFFIRMED to the extent
it affirmed the Workers’ Compensation Judge’s (WCJ) determination that the
funds designated in a third-party settlement agreement to create a Medicare Set-
Aside Arrangement for Jerome Marshall (Claimant) were subject to subrogation.
The Order is VACATED to the extent it affirmed the WCJ’s determination that
Easton Coach Company and Hartford Fire Insurance Company could take a credit
against Claimant’s ongoing medical benefits, and we REMAND the matter to the
Board to remand to the WCJ for a determination of whether any recalculation is
necessary.
Jurisdiction relinquished.
_____________________________________
RENÉE COHN JUBELIRER, Judge