Moranz v. Harbor Mall, LLC.

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Electronically Filed
Supreme Court
SCWC-XX-XXXXXXX
11-JAN-2022
08:12 AM
Dkt. 13 OP
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---o0o---
________________________________________________________________
PATRICIA MORANZ,
Petitioner/Plaintiff-Appellant,
vs.
HARBOR MALL, LLC,
Respondent/Defendant-Appellee,
and
DTRIC INSURANCE COMPANY, LTD.,
Respondent/Intervenor-Appellee.
________________________________________________________________
SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-XX-XXXXXXX; CIVIL NO. 14-1-0172)
JANUARY 11, 2022
RECKTENWALD, C.J., NAKAYAMA, McKENNA, WILSON, AND EDDINS, JJ.
OPINION OF THE COURT BY WILSON, J.
Petitioner/Plaintiff-Appellant Patricia Moranz
(“Moranz”) was injured near her place of employment on August
28, 2012 and received workers’ compensation (“WC”) benefits from
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her employer’s WC insurance carrier, Respondent/Intervenor-
Appellee DTRIC Insurance Company, Ltd. (“DTRIC”) shortly
thereafter. In 2014, Moranz brought suit in the Circuit Court
of the Fifth Circuit (“circuit court”) against Harbor Mall, LLC,
(“Harbor Mall”) the owner of the building in which she was
injured, and in 2016, reached a settlement with Harbor Mall for
$200,000.00 (“Harbor Mall settlement”). Around the time of the
Harbor Mall settlement, DTRIC sought reimbursement of those WC
benefits it had paid to Moranz after her accident under Hawaiʻi
Revised Statutes (“HRS”) § 386-8 (2015)1 and Alvarado v. Kiewit
Pacific, Co., 92 Hawaiʻi 515, 520, 993 P.2d 549, 554 (2000).2
1 HRS § 386-8 provides in relevant part:
(d) No release or settlement of any claim or action under
this section is valid without the written consent of both
employer and employee. The entire amount of the settlement
after deductions for attorney’s fees and costs as provided
in this section is subject to the employer’s right of
reimbursement for the employer’s compensation payments
under this chapter and the employer’s expenses and costs of
action.
. . . .
(f) If the action is prosecuted by the employee alone, the
employee shall be entitled to apply out of the amount of
the judgment for damages, or settlement in case the action
is compromised before judgment, the reasonable litigation
expenses incurred in preparation and prosecution of the
action, together with a reasonable attorney’s fee, which
shall be based solely upon the services rendered by the
employee's attorney in effecting recovery both for the
benefit of the employee and the employer. After the
payment of the expenses and attorney’s fee, there shall be
applied out of the amount of the judgment or settlement
proceeds, the amount of the employer’s expenditure for
compensation, less the employer’s share of the expenses and
attorney's fee. On application of the employer, the court
(continued . . .)
2
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Under HRS § 386-8 and Alvarado, when an injured
employee recovers a third-party settlement, an insurer3 is
(. . . continued)
shall allow as a first lien against the amount of the
judgment for damages or settlement proceeds, the amount of
the employer’s expenditure for compensation, less the
employer’s share of the expenses and attorney’s fee.
HRS § 386-8. Under chapter 386, “[t]he insurer of an employer is subject to
the employer’s liabilities[.]” HRS § 386-1 (2015). However, the insurer is
also “entitled to rights and remedies under [chapter 386] as far as
applicable.” Id. DTRIC is the WC insurance carrier for Moranz’s employer.
Thus, DTRIC is entitled to the “rights and remedies” afforded to Moranz’s
employer under chapter 386 in the course of Moranz’s WC action and
settlement.
2 The formula established by the supreme court in Alvarado is as
follows:
[U]nder HRS § 386–8, the starting point to determine an
employer’s “share” is to be calculated as (1) the fraction
equal to the amount of workers’ compensation expended, plus
calculable future benefits, divided by the total amount of
the settlement. This fraction will then be (2) multiplied
by the total amount of reasonable attorney’s fees and costs
incurred by the employee in the course of pursuing the
recovery action. This “share” (computed in steps 1 and 2)
should then be (3) subtracted from the total compensation
already expended to date, by the employer. This results in
a first lien that the employer may assert against the
settlement amount. However, prior to the execution of the
lien, the remainder of the attorney’s fees and costs should
be (4) deducted from the settlement corpus. Then, (5) the
amount of the employer’s first lien (already calculated as
compensation expended minus share of the attorney’s fees
and costs) may be asserted against the settlement. If a
portion of the settlement corpus remains after the
employer’s execution of the lien (6), the employee is
entitled to that remainder, subject to the requirement that
the employee first exhaust all necessary future workers’
compensation payments from that remainder prior to
requesting future compensatory payments from the employer
or its insurance carrier for the compensable injuries
arising out of the same incident.
Alvarado, 92 Hawaiʻi at 518–19, 993 P.2d 552–53.
3 DTRIC is referred to as the “employer” in the lower court
proceedings. Although DTRIC is “subject to the employer’s liabilities” and
(continued . . .)
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entitled to reimbursement of all WC benefits it has paid the
employee, less its “share” of reasonable attorney’s fees and
costs incurred by the employee in pursuing the third-party
action. Per HRS § 386-8 and Alvarado, we now clarify (1) the
proper timing of Alvarado calculations, which determines the
reimbursement due the insurer from the third-party settlement
and (2) the reimbursement process for an insurer when the amount
of WC benefits the insurer has already dispensed to the employee
(“paid compensation”) is less than the amount it owes the
employee for its “share” of attorney’s costs and fees for the
third-party action. Here, the parties disagreed over whether
certain WC benefits that DTRIC owed Moranz (“DTRIC settlement”)
were properly classified as “paid compensation” or benefits that
DTRIC owed Moranz in the future (“calculable future benefits”)
under the Alvarado formula. The parties also disagreed over the
process of DTRIC’s reimbursement of WC benefits because DTRIC’s
“share” of attorney’s fees and costs exceeded the amount it had
previously contributed to Moranz as “paid compensation.”
We now clarify that Alvarado calculations shall be
performed based on the date on which the employee receives the
(. . . continued)
“entitled to rights and remedies” of the employer under chapter 386, DTRIC is
not Moranz’s employer and, thus, will be referred to as the “insurer” in this
opinion. HRS § 386-1; see supra note 1.
4
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third-party recovery. In this case, at the time Moranz received
the third-party recovery (i.e., the Harbor Mall settlement) on
or about September 20, 2016, DTRIC had not yet paid its
settlement; thus, the DTRIC settlement should have been
categorized as a “calculable future benefit” rather than “paid
compensation” under the Alvarado formula.
We also emphasize that an insurer’s “share” of the
attorney’s fees and costs the employee incurs while pursuing
third-party recovery is based on the insurer’s total WC
liability. Thus, we now clarify that the insurer must pay its
full pro rata “share” regardless of the amount the insurer has
contributed in “paid compensation” versus the amount it still
owes in “calculable future benefits” at the time the employee
receives the third-party recovery. In this case, DTRIC owes its
full “share” of Moranz’s attorney’s fees and costs in the amount
of $89,140.17, based on its total WC liability of $189,062.13
($63,245.41 in “paid compensation” plus $125,816.72 in “future
calculable benefits”). Under HRS § 386-8(d), DTRIC is entitled
to reimbursement of the $63,245.41 it has expended in “paid
compensation.” Further, under HRS § 386-8(i), DTRIC is
“relieved from the obligation to make further compensation
payments to [Moranz] . . . up to the entire amount of the
balance of the settlement or the judgment,” meaning that Moranz
must exhaust $125,816.72 in “calculable future benefits” from
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the remainder of the Harbor Mall settlement. After paying her
attorney’s fees and costs ($94,298.29), reimbursing DTRIC its
“paid compensation” ($63,245.41), and exhausting “calculable
future benefits” ($125,816.72) from the $200,000.00 Harbor Mall
settlement, Moranz retains the remainder: $5,779.75 in excess
of her WC benefits.
I. BACKGROUND
A. Factual Background & Circuit Court Proceedings
Moranz was injured while working on August 28, 2012
after she fell in a stairway near her place of employment in
Lihue, Kauaʻi. Moranz filed a claim for WC benefits, and
received “WC medical, indemnity[,] and vocational rehabilitation
benefits” from DTRIC pursuant to chapter 386 of the HRS.
1. Harbor Mall Lawsuit and Settlement
On August 25, 2014, Moranz filed a civil lawsuit
against Harbor Mall, alleging negligence in maintaining the
stairway. Before trial was set to begin in July 2016, Moranz
and Harbor Mall reached a settlement agreement, in which Harbor
Mall agreed to pay $200,000.00 in general damages and maintained
its denial of liability. A check for the $200,000.00 settlement
was transmitted from Harbor Mall to Moranz on September 16,
2016. On September 22, 2016, the circuit court granted a Motion
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to Intervene filed by DTRIC.4 On September 28, 2016, with the
consent of all parties, Harbor Mall was dismissed from the
lawsuit.
2. DTRIC’s WC Lien
On May 24, 2016, Moranz filed a “Motion for
Determination of Validity of Claim of Lien of DTRIC” and argued
that DTRIC was not entitled to reimbursement under HRS § 386-8
for the WC benefits it had previously paid Moranz because:
(1) DTRIC could not prove “duplication” within the settlement of
the WC benefits it had paid, (2) DTRIC was entitled only to
reimbursement of special damages for “medical and rehabilitative
expenses and lost income” and the settlement was for “general
damages only,” and (3) considering equitable principles, Moranz
would not be “made whole by receiving only a portion” of the
settlement. Moranz also alleged that DTRIC had failed to
provide her with WC documentation, which “necessitated” bringing
the lawsuit against Harbor Mall, and that DTRIC continued to
refuse to cooperate and provide her with necessary WC
documentation.
DTRIC maintained that it was entitled to reimbursement
of WC benefits it had paid Moranz, initially claiming a lien in
4 The Honorable Randal G.B. Valenciano presided.
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the amount of $66,177.35.5 DTRIC asserted that, under HRS § 386-
8 and Alvarado, it was entitled to the entire amount of its lien
less “reasonable attorney fees and its proportional share of
cost of litigation.” DTRIC contended that HRS § 386-8 and case
law did not support Moranz’s argument that only special or
duplicated damages were eligible for reimbursement. DTRIC
5 DTRIC claimed in its Memorandum in Opposition it paid $63,518.41
in WC benefits ($30,747.48 in medical benefits, $20,276.43 in indemnity
benefits, and $12,494.50 in vocational rehabilitation benefits) to Moranz.
However, based on a declaration from DTRIC Claims Examiner Aurelia C.
Gamponia, it appeared DTRIC had paid only $63,245.41 in benefits ($30,474.48
in medical benefits, $20,276.43 in indemnity benefits, and $12,494.50 in
vocational rehabilitation benefits). This discrepancy appears to stem from a
clerical error in a figure Gamponia used in her declaration: $30,474.48 in
medical benefits as opposed to the correct $30,747.48 figure. The error
discussed above does not explain the $2,658.94 difference between the WC
benefits paid and the total lien amount claimed by DTRIC in its Opposition.
In a later filing, DTRIC changed its requested lien figure to
$63,518.41, which represents the amount of WC benefits DTRIC claimed it had
paid Moranz.
DTRIC filed a separate memorandum under seal containing its
Alvarado calculations. In its memorandum, DTRIC categorized $125,816.72 in
permanent partial disability benefits as “calculable future benefits,” which
led to a negative lien figure in step 3, as its share exceeded its WC
expenditures. However, DTRIC represented its figure for “paid compensation”
as the appropriate lien figure in step 5. DTRIC also noted it would be
entitled to exhaust $125,816.72 in future benefits against Moranz’s remaining
recovery:
(1) $63,518.41 [paid comp.] + $125,816.72 [future benefits]
$200,000.00 [Harbor Mall settlement] = 95%
(2) 95% x $93,000.00 [costs and fees] = $88,350.00
[DTRIC’s share]
(3) $63,518.41 [paid comp.] - $88,350.00
[share] = -$23,831.55 [lien]
(4) $200,000.00 [Harbor Mall settlement] - $4650.00
[remainder of costs and fees] = $195,350.00
(5) $195,350.00 - $63,518.41 [lien] = $131,831.59
(6) $131,831.59 - $125,816.72 [future benefits] =
$6014.87 [remainder]
8
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argued that it was also entitled to a credit on future benefits,
that is, relief from the obligation to make further compensation
payments, up to Moranz’s net recovery from the Harbor Mall
settlement.
At oral argument on the Motion, Moranz asked the
circuit court to resolve three issues: (1) the amount, if any,
of the Harbor Mall settlement that should be eligible for
reimbursement to DTRIC; (2) the amount of DTRIC’s lien; and
(3) DTRIC’s entitlement to a credit against future benefits.
Moranz emphasized that this court regarded the Alvarado formula
as a “starting point” for reimbursement, and argued that the
circuit court’s discretion was not limited to determining an
insurer’s “share” of attorney’s fees and costs. Moranz also
asked the circuit court to apply the “make-whole” doctrine,
which would prioritize the Moranz’s right to recovery over
DTRIC’s right to reimbursement. DTRIC argued that Moranz sought
to “avoid the lien issue” by claiming DTRIC could not recover
from a settlement designated as “general damages only.” DTRIC
emphasized that HRS § 386-8 limited the circuit court’s power to
setting reasonable attorney’s fees and costs. DTRIC objected to
the reliance on equitable remedies such as the “make-whole”
doctrine where, as here, there was an established method (i.e.,
the Alvarado formula) to determine its lien and “share” of costs
and fees. DTRIC also represented to the circuit court that a WC
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settlement of $125,816.726 (“DTRIC settlement”) based on
permanent partial disability liability was currently pending
approval by the Department of Labor and Industrial Relations
(“DLIR”).
The circuit court noted that a ruling that settlements
designated “general damages only” cut off an insurer’s right to
reimbursement would create “a tidal wave of general damages
claims to avoid these liens[.]” The circuit court upheld
DTRIC’s right to reimbursement from the Harbor Mall settlement,
and found that while DTRIC had generally consented to the
settlement, it had not agreed to reducing its lien.7 Thus, the
circuit court held that DTRIC was “entitled to assert its lien.”
The circuit court clarified that the “only reduction” needed was
for “reasonable litigation expenses and the amount of attorney’s
fees,” pursuant to HRS § 386-8 and Alvarado. The circuit court
6 DTRIC and Moranz signed a Stipulation and Settlement Agreement
and Order on September 1, 2016, which included: $19,671.43 for temporary
total disability, $605.00 for lost wages, $125,316.72 for permanent partial
disability, and $500.00 for disfigurement. To avoid confusion, see infra
note 12, for the purposes of this opinion, “DTRIC settlement” refers to the
$125,316.72 for permanent partial disability plus the $500.00 for
disfigurement, for a total amount of $125,816.72.
7 DTRIC communicated its consent to the Harbor Mall settlement in a
letter sent to Moranz on March 12, 2016, and filed its formal consent to the
settlement on September 12, 2016. In its March 12 letter to Moranz, DTRIC
stated that it would consent to a settlement with Harbor Mall “provided the
settlement is $200,000.00 or more[,]” but noted that “the issues regarding
the lien repayment to DTRIC and applicability of the [future] credit
[available to DTRIC] have yet to be determined.”
10
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directed the parties to calculate the appropriate deductions in
accordance with Alvarado.
3. DTRIC Settlement8
On September 1, 2016, DTRIC and Moranz signed a
Stipulation and Settlement Agreement and Order for the DTRIC
settlement. The $125,816.72 DTRIC settlement was transmitted to
the DLIR for approval on September 12, 2016, and approved on
September 28, 2016. Following this approval, on October 18,
2016, DTRIC “made payment” of $19,732.89 to Moranz, which
reflected: a settlement in the amount of $125,316.72,9 minus
$5,927.13 of attorney’s fees and costs and a $99,656.70
“subrogation credit” for its lien.
4. Disputes Over Alvarado Calculations
There was lengthy correspondence between the parties
to resolve the form of the circuit court’s order and to
determine the correct Alvarado calculations.
8 Due to what appears to be a mistake on DTRIC’s part, the DTRIC
settlement was not pending approval at the time of the August 23 hearing, as
DTRIC had represented to the circuit court. The DTRIC settlement was
transmitted to the Director of the DLIR for approval on September 12, 2016.
9 Although the correct amount of the DTRIC settlement is
$125,816.72, DTRIC based its October 18, 2016 payment to Moranz on an amount
of $125,316.72. See supra note 6; infra note 12.
11
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On September 15, 2016, Moranz submitted a proposed
order and Alvarado calculations to the circuit court.10 Moranz
used the below numbers in her calculations:
DTRIC’s paid compensation:11 $63,245.41
(WC benefits paid to Moranz)
DTRIC’s calculable future benefits: $125,816.72
(DTRIC settlement)
DTRIC’s share of fees and costs: $89,140.17
Based on the above calculations, Moranz concluded that because
DTRIC’s “share” of fees and costs ($89,140.17) exceeded its
“paid compensation” ($63,245.41), DTRIC was due no reimbursement
from the $200,000.00 Harbor Mall settlement. Moranz contended
that if she received the Harbor Mall settlement before the DTRIC
settlement, DTRIC would not be entitled to a lien. However,
10 On September 27, 2016, Moranz submitted a proposed order to the
circuit court that was identical to her September 15 submission except that
the caption had been updated to reflect that DTRIC had been accepted as a
plaintiff-intervenor.
11 “Paid compensation” refers to both “amount of [WC] expended” and
“total compensation already expended to date.” Alvarado, 92 Hawaiʻi at 518–
19, 993 P.2d 552–53. Our example in Alvarado confirms these terms are
synonymous:
Assume a settlement in the amount of $200,000, attorney’s
fees and costs totaling $60,000, [WC] expenditures to date
equaling $100,000, and it is agreed that the injured
employee will require $25,000 in future [WC] benefit
payments. The fraction would be (1) $100,000 plus $25,000
divided by $200,000 or .625. This fraction should then be
(2) multiplied by $60,000, or $37,500. This share should
then be (3) subtracted from the $100,000 compensation paid,
resulting in a lien of $62,500.
Id. at 520, 993 P.2d at 554 (emphasis added).
12
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Moranz conceded that if DTRIC paid the DTRIC settlement before
she received the Harbor Mall settlement, DTRIC would have a lien
in the amount of $99,921.96.
On September 19, 2016, DTRIC submitted a proposed
order and Alvarado calculations. DTRIC included two versions of
Alvarado calculations: one in which the DTRIC settlement was
treated as “paid compensation” and one in which it was treated
as a “calculable future benefit.” Like Moranz, DTRIC concluded
that if it paid Moranz the DTRIC settlement before she received
the Harbor Mall settlement--i.e., if the DTRIC settlement was
categorized as “paid compensation”--DTRIC would have a
$99,656.70 lien.12 DTRIC also conceded that if Moranz received
the Harbor Mall settlement before it paid the DTRIC settlement--
i.e., if the DTRIC settlement was categorized as a “calculable
future benefit”--Moranz would be entitled to the entirety of the
Harbor Mall settlement, provided that DTRIC would be entitled to
a $99,656.70 credit against the DTRIC settlement.
12 The circuit court sought clarification from the parties as to why
their Alvarado calculations resulted in different lien amounts: $99,921.96
(Moranz) versus $99,656.70 (DTRIC). The discrepancy was due to different
figures used to calculate future benefits: Moranz used an amount of
$125,816.72, while DTRIC used $125,316.72. The discrepancy was explained by
a $500.00 disfigurement payment, which Moranz had factored into future
benefits, but which DTRIC had not. DTRIC admitted its mistake and confirmed
that it believed $99,921.96 to be the correct lien amount.
13
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On October 27, 2016, DTRIC filed a proposed order
reflecting an updated lien amount of $99,921.96.13 Moranz
objected to DTRIC’s October 27 proposed order, arguing that
because “the Alvarado formula is applied at the time of the
third party settlement[,]” there was no basis to include the
DTRIC settlement as “paid compensation” because it was still
pending at the time the Harbor Mall settlement was paid.14
Moranz proposed the below Alvarado calculations:
Step 1: The fraction equal to the amount of workers’
compensation expended ($63,245.41), plus calculable future
benefits ($125,816.72), divided by the total amount of the
settlement ($200,000) equals 94.53% ($63,245.41 +
$125,816.72 = $189,062.13 / $200,000 = 94.53%).
Step 2: The fraction, 94.53%, is then multiplied by the
total amount of attorney’s fees and costs incurred by
the employee in the course of pursuing the recovery action,
$94,298.29, to determine DTRIC's “share” of Plaintiff’s
attorneys[sic] fees and costs. Thus, DTRIC’s “share of the
fees/costs is $89,140.17 (94.53% x $94,298.29
attorneys[sic] fees and costs = $89,140.17).
Step 3: This “share” (computed in steps 1 and 2) is then
subtracted from the total compensation already expended to
date, by the employer, in order to determine the first lien
that the employer may assert against the settlement. The
Paid Compensation ($63,245.41) less DTRIC’s share of the
fees and costs ($89,140.17) equals $ -25,894.76 ($89,140.17
- $63,245.41 = $-25,894.76), a negative number.
Because DTRIC’s share of the fees and costs
($89,140.17) exceeds the amount of compensation benefits
paid to date ($63,245.41), there is no reimbursement due
out of the third party settlement[.] . .
Step 4: Prior to the execution of the lien, the
remainder of the attorney’s fees and costs should be
13 See supra note 12.
14 As stated above, DTRIC “made payment” on the DTRIC settlement to
Moranz on October 18, 2016, about a month after Moranz received payment on
the Harbor Mall settlement on or about September 20, 2016.
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deducted from the settlement corpus. The remainder of the
attorney’s fees and costs to be deducted is $5,158.12
($94,298.29 attorneys[sic] fees and costs - $89,140.17
DTRIC’s share of the fees and costs = $5,158.12). The
settlement corpus is the full $200,000. The net settlement
is therefore $105,701.71 ($200,000 - $94,298.29 =
$105,701.71). . .
Step 5: Then, the amount of the employer’s first lien
(already calculated as compensation expended minus share of
the attorney’s fees and costs), $-25,894.76 (a negative
number), would be asserted against the settlement.
However, a negative number indicates there is no lien due
out of the settlement proceeds.
On December 5, 2016, the circuit court entered an
order (“December 5 Order”) denying Moranz’s Motion for
Determination of Validity of Claim of Lien of DTRIC, and finding
that DTRIC was entitled to a lien in the amount of $99,921.96
against the Harbor Mall settlement.15 The circuit court entered
its Judgment on December 27, 2016. The circuit court’s December
5 Order did not include any Alvarado calculations.
B. Appellate Proceedings
1. ICA Appeal
On appeal to the Intermediate Court of Appeals
(“ICA”), Moranz presented three points of error, claiming the
circuit court erred when it: (1) declined to consider common
law and equitable principles to limit DTRIC’s subrogation and
reimbursement rights; (2) awarded a lien based on unpaid
15 The circuit court did not include in its Order a copy of the
Alvarado calculations it used. It appears the court used the latest
calculations and order proposed by DTRIC, which calculated a lien of
$99,921.96: $63,245.41 [past WC benefits] + $125,816.72 [DTRIC settlement] =
$189,062.13 [total paid compensation] - $89,140.17 [DTRIC’s share of
attorney’s fees and costs] = $99,921.96 [first lien].
15
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benefits; and (3) relied on unpaid future compensation when
calculating the lien reduction for attorney’s fees and costs.
The ICA affirmed the circuit court’s December 5 Order and
December 27 Judgment. First, the ICA held that the circuit
court correctly interpreted HRS § 386-8 and found that the
statute’s “plain and unambiguous terms do not provide or allow
for the [application of] equitable considerations[.]” Next, the
ICA concluded that the circuit court did not err in calculating
the amount of DTRIC’s lien. The ICA reasoned that because
Moranz had “executed a stipulated [WC] settlement” before the
circuit court entered its December 5 Order, the circuit court
did not err in including the $125,816.72 DTRIC settlement as
“paid compensation” in calculating DTRIC’s lien. The ICA
calculated the same lien amount--$99,921.96--as the circuit
court and included the following Alvarado calculations:16
Step 1: The fraction equal to the amount of workers’
compensation expended, plus calculable future
benefits, divided by the total amount of the
settlement equals .9453 ($189,062.13 ÷ $200,000).
Step 2: The fraction is multiplied by the total amount
of reasonable attorney’s fees and costs incurred by
16 Like DTRIC and the circuit court, the ICA used the $189,062.13
figure for DTRIC’s paid compensation, comprised of:
$30,474.48 medical expenses
$20,276.43 indemnity payments
$12,494.50 vocational rehab
$125,316.72 DLIR Settlement (permanent partial disability)
$500.000 disfigurement
——————————————————————————————————————————————————————————
$189,062.13 Paid Compensation
16
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Moranz in the recovery action, which results in
DTRIC's “share” of $89,140.17 (.9453 x $94,298.29).
Step 3: This “share” is subtracted from the total
compensation already expended to date, by the
employer, which is the first lien in the amount of
$99,921.96 ($189,062.13-$89,140.17) that DTRIC may
assert against the settlement amount.
Step 4: Prior to the execution of the lien, the
remainder of the attorney’s fees and costs should be
deducted from the settlement corpus, resulting in
$194,841.88 ($200,000-$5,158.12).
Step 5: The amount of the employer’s first lien may be
asserted against the settlement, $194,841.88-
$99,921.96.
Step 6: If a portion of the settlement corpus remains
after the employer’s execution of the lien, the
employee is entitled to that remainder, which is
$94,919.92.
2. Application for Writ of Certiorari
Moranz filed a timely Application for Writ of
Certiorari with this court on March 18, 2021. In her
application, Moranz presents two questions: (1) whether the ICA
gravely erred in interpreting HRS § 386-8 without considering
equitable subrogation principles when determining the insurer’s
right of reimbursement; and (2) whether the ICA gravely erred in
interpreting HRS § 386-8 “to allow an insurer to claim
unexpended future benefits in its right of reimbursement.”
Moranz’s Application was granted.
III. STANDARDS OF REVIEW
A. Statutory Interpretation
“Statutory interpretation is a question of law
reviewable de novo.” State v. Wheeler, 121 Hawaiʻi 383, 390, 219
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P.3d 1170, 1177 (2009) (internal quotation marks omitted). This
court’s construction of statutes is guided by the following:
First, the fundamental starting point for statutory
interpretation is the language of the statute itself.
Second, where the statutory language is plain and
unambiguous, our sole duty is to give effect to its plain
and obvious meaning. Third, implicit in the task of
statutory construction is our foremost obligation to
ascertain and give effect to the intention of the
legislature, which is to be obtained primarily from the
language contained in the statute itself. Fourth, when
there is doubt, doubleness of meaning, or indistinctiveness
or uncertainty of an expression used in a statute, an
ambiguity exists.
Id. (quoting Citizens Against Reckless Dev. v. Zoning Bd. of
Appeals of Honolulu, 114 Hawaiʻi 184, 193–94, 159 P.3d 143, 152–
53 (2007)). When there is ambiguity in a statute, “the meaning
of the ambiguous words may be sought by examining the context,
with which the ambiguous words, phrases, and sentences may be
compared, in order to ascertain their true meaning.” Id. A
court may also resort to extrinsic aids in determining
legislative intent, such as legislative history or the reason
and spirit of the law. Id.IV. DISCUSSION
A. The ICA Did Not Err by Declining to Consider Equitable
Subrogation Principles When Determining DTRIC’s Right of
Reimbursement Under HRS § 386-8
Moranz argues that common law equitable subrogation
principles should apply to limit DTRIC’s right of reimbursement
under HRS § 386-8. The ICA rejected this argument, finding that
HRS § 386-8’s “plain and unambiguous terms do not provide or
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allow for” the application of equitable principles. The ICA is
correct: the language of HRS § 386-8 is plain and unambiguous,
such that it would be inappropriate to use equitable principles
in its interpretation.
When interpreting a statute, “the fundamental starting
point . . . is the language of the statute itself” and “where
the statutory language is plain and unambiguous, [this court’s]
sole duty is to give effect to its plain and obvious meaning.”
Wheeler, 121 Hawaiʻi at 390, 219 P.3d at 1177 (quoting Citizens
Against Reckless Dev., 114 Hawaiʻi at 193–94, 159 P.3d at 152–
53). Thus, we turn to the language of HRS § 386-8, which
provides that when an injured employee reaches a settlement with
a third party, the employee’s WC insurer is entitled to
reimbursement out of that settlement:
(f) If the action is prosecuted by the employee alone, the
employee shall be entitled to apply out of the amount of
the judgment for damages, or settlement in case the action
is compromised before judgment, the reasonable litigation
expenses incurred in preparation and prosecution of the
action, together with a reasonable attorney’s fee, which
shall be based solely upon the services rendered by the
employee's attorney in effecting recovery both for the
benefit of the employee and the [insurer]. After the
payment of the expenses and attorney’s fee, there shall be
applied out of the amount of the judgment or settlement
proceeds, the amount of the [insurer]’s expenditure for
compensation, less the [insurer]’s share of the expenses
and attorney's fee. On application of the [insurer], the
court shall allow as a first lien against the amount of the
judgment for damages or settlement proceeds, the amount of
the [insurer]’s expenditure for compensation, less the
[insurer]’s share of the expenses and attorney's fee.
HRS § 386-8(f) (emphasis added). The statute requires such
settlements to be approved in writing by both the employee and
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the insurer in order to be valid, and clarifies that “[t]he
entire amount of the settlement after deductions for attorney’s
fees and costs as provided in this section is subject to the
[insurer]’s right of reimbursement for the [insurer]’s
compensation payments under this chapter and the [insurer]’s
expenses and costs of action.” HRS § 386-8(d) (emphasis added).
The language of HRS § 386-8 is plain and unambiguous:
an insurer is entitled to the “amount of the [insurer]’s
expenditure for compensation” less its “share” of costs and
fees, deducted from the “entire amount of the settlement.” HRS
§ 386-8(d), (f). HRS § 386-8(f) states plainly that the insurer
is entitled to reimbursement of its “expenditure for
compensation”; there is no additional language limiting
reimbursement to “special damages” or those benefits the insurer
can prove are “duplicated” by the settlement. HRS § 386-8(d)
also states plainly that the “entire amount of the
settlement . . . is subject to the [insurer]’s right of
reimbursement.” (emphasis added). The statute’s use of the
word “entire” is logically opposed to any argument that DTRIC is
entitled only to reimbursement from a portion of the settlement.
Had the legislature intended to limit an insurer’s reimbursement
to a portion of the employee’s third-party settlement, it could
have done so by expressly limiting reimbursement in HRS § 386-8
to duplicated benefits or special damages, or to only a portion
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of the employee’s recovery.17 The legislature did no such thing.
The language of HRS § 386-8 unambiguously indicates that an
insurer is entitled to reimbursement from the entire settlement
amount, and we decline to use equitable principles to alter this
interpretation.
Likewise, nothing in Alvarado constitutes an
endorsement of using equitable principles to adjust the amount
of an insurer’s reimbursement or an employee’s recovery under
HRS § 386-8, beyond adjusting the insurer’s “share” of costs and
fees. While we stated in Alvarado that the formula is a
“starting point[] in determining an employer’s share of
reasonable attorney’s fees and costs[,]” we also explained that
“the circuit court retains the discretion to consider each case
on its merits” if the court finds that the insurer’s “share” is
“not reasonable in light of the particular circumstances of a
17 See, e.g., HRS § 392-46 (stating that “the insurer . . .
providing disability benefits shall be subrogated to, and have a lien upon,
the rights of the individual against the third party to the extent that the
damages include wage loss during the period of disability for which temporary
disability benefits were received in the amount of such benefits” (emphasis
added)); HRS § 431:10C-307 (“Whenever any person effects a tort liability
recovery for accidental harm, whether by suit or settlement, which duplicates
personal injury protection benefits already paid under the provisions of this
article, the motor vehicle insurer shall be reimbursed fifty per cent of the
personal injury protection benefits paid to or on behalf of the person
receiving the duplicate benefits up to the maximum limit.” (emphasis added));
HRS § 663-10(a) (“The judgment entered . . . shall include a statement of the
amounts, if any, due and owing to [a valid lienholder] and to be paid to the
lienholder out of the amount of the corresponding special damages recovered
by the judgment or settlement.” (emphasis added)); HRS § 346-37 (“The lien
shall be satisfied from that portion of the settlement, award, or judgment
allocated or allocable to payments by the department for medical assistance
and burial payments.” (emphasis added)).
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case[.]” 92 Hawaiʻi at 520, 993 P.2d at 554 (emphasis added).
For example, if an insurer “does not cooperate and/or hinders an
employee’s attempt to pursue recovery,” id., the circuit court
might order the insurer to pay a larger “share” because the
insurer’s bad faith actions directly increased costs and fees
and it would be unfair to force the employee to shoulder these
higher costs and fees proportionally. However, discretion
extends only to a court’s ability to “determin[e] an [insurer]’s
share of reasonable attorney’s fees and costs.” Id. Our
emphasis in Alvarado on exacting a “share” from the insurer that
reflects reasonable costs and fees parallels the language of HRS
§ 386-8, which entitles an employee
to apply out of the amount of the judgment . . . or
settlement . . . the reasonable litigation expenses
incurred in preparation and prosecution of the action,
together with a reasonable attorney’s fee, which shall be
based solely upon the services rendered by the employee’s
attorney in effecting recovery both for the benefit of the
employee and the [insurer].
HRS § 386-8(f) (emphasis added). Thus, while the circuit court
retains discretion to adjust what “share” of costs and fees it
deems reasonable to impose on an insurer, there is no basis in
the language of HRS § 386-8 to conclude that the circuit court
also has discretion to (1) decrease the reimbursement due an
insurer or (2) increase the remainder of the settlement
ultimately awarded to an injured employee who the court feels is
not “made whole” by her recovery.
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In the present case, the circuit court could have
determined that DTRIC’s “share” of attorney’s fees and costs of
$89,140.17, calculated under the Alvarado formula, was not
reasonable, especially given Moranz’s allegations that DTRIC
failed to cooperate in and hindered her attempt to pursue
recovery from Harbor Mall. The circuit court could have
increased DTRIC’s “share” of attorney’s fees and costs, thereby
increasing Moranz’s recovery. However, the circuit court did
not make this determination and chose not to adjust DTRIC’s
“share.” The ICA was correct in rejecting Moranz’s argument
that equitable or common law subrogation principles apply to HRS
§ 386-8.
B. The ICA Erred by Including the DTRIC Settlement as Paid
Compensation Under the Alvarado Formula
Moranz argues that the $125,816.72 DTRIC settlement
should have been treated as a “calculable future benefit” rather
than “paid compensation” in DTRIC’s lien calculation because she
received the DTRIC settlement payment after she received the
Harbor Mall settlement payment. The ICA rejected this argument,
finding that the DTRIC settlement was properly regarded as “paid
compensation” at the time of the circuit court’s December 5
Order, resulting in a lien calculation of $99,921.96. The ICA
was incorrect; the DTRIC settlement should have been included as
a “calculable future benefit” under the Alvarado formula.
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The issue here, then, is: at what point in time is an
item previously categorized as a “calculable future benefit”
properly regarded as “paid compensation”? The resolution of
this issue turns on when the Alvarado calculation is performed.
Under Moranz’s approach, the key date (i.e., the date on which
Alvarado calculations should occur) is the day on which the
third-party recovery is received by the employee; any WC
benefits or settlement paid after receipt of the third-party
recovery is not “paid compensation,” but rather, a “calculable
future benefit” under the Alvarado formula. Under the approach
used by the ICA, the key date is the day on which the circuit
court enters its order; any WC benefits or settlement paid
before the circuit court’s order is “paid compensation,” and
anything paid after the circuit court’s order is a “calculable
future benefit.” Under the ICA approach, the date on which the
third-party recovery is received by the employee is irrelevant.
In the present case, Harbor Mall transmitted its
settlement check on September 16, 2016 and Moranz received the
payment on or about September 20, 2016. DTRIC did not transmit
its settlement check until October 18, 2016, though Moranz and
DTRIC had previously signed a “Stipulation and Settlement
Agreement and Order” for the DTRIC settlement on September 1,
2016.
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The most sensible date on which to perform Alvarado
calculations is the date on which the employee receives the
third-party recovery. As we stated in Alvarado, “this court is
bound to construe statutes so as to avoid absurd results.” 92
Hawaiʻi at 517, 993 P.2d at 551. Therefore, a statutory
interpretation that is “rational, sensible[,] and
practicable . . . is preferred to one which is unreasonable[,]
impracticable . . . inconsisten[t], contradict[ory], and
illogical[ ].” Id. (quoting Keliipuleole v. Wilson, 85 Hawaiʻi
217, 221–22, 941 P.2d 300, 304–05 (1997)). It is practicable to
direct circuit courts to categorize benefits based on the date
of the third-party recovery: any WC benefits paid before the
employee receives the third-party recovery is “paid
compensation,” any WC benefits paid after is a “calculable
future benefit.”
This approach is consistent with HRS § 386-8, titled
“Liability of third person,” as the language therein focuses on
the pursuit of third-party recovery. The legislative history of
HRS § 386-8 recognizes that a third-party action can result in
“recovery from a third person which benefits both the employee
and the [insurer,]” even when the action is prosecuted by the
insurer or employee alone. H. Stand. Comm. Rep. No. 375, in
1973 House Journal, at 912 (emphasis added); see also S. Stand.
Comm. Rep. No. 864, in 1973 Senate Journal, at 974 (stating
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similar). Thus, HRS § 386-8’s provisions ensure that an
employee and insurer share proportionally: (1) liability for
the costs and fees associated in bringing the third-party action
and (2) recovery from any judgment or settlement. Given this
focus on the third-party action, the relevant timeline is the
duration of such third-party action, and the date on which the
insurer’s Alvarado “share” (i.e., its liability for costs and
fees) should be calculated is the date on which the third-party
action is brought to an end, by way of either judgment or
settlement.
This approach is also consistent with our opinion in
Alvarado, which uses an illustrative example to clarify that an
employer’s “share” is subtracted from “compensation paid,” and
not from “compensation paid” plus “future [WC] benefit
payments.” Alvarado at 520, 993 P.2d at 554.
Because Moranz received the Harbor Mall settlement on
or about September 20, 2016, before DTRIC paid the DTRIC
settlement for future WC benefits on October 18, 2016, the DTRIC
settlement is properly regarded as a “future calculable benefit”
under the Alvarado formula. Defining the DTRIC settlement as
“future benefits” rather than “paid compensation” results in
DTRIC’s “share” of costs and fees exceeding its “paid
compensation.” Thus, DTRIC is not, as the ICA held, entitled to
a lien in the amount of $99,921.96; Moranz is correct that DTRIC
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is not entitled to any lien. However, where an employee obtains
a third-party settlement, under HRS § 386-8, DTRIC is entitled
to reimbursement out of the settlement for its “paid
compensation” and is relieved from further compensation payments
up to the balance of the settlement after deduction of fees and
costs.18 HRS § 386-8(d), (i).
Given that the parties agree that DTRIC has paid
$63,245.41 in past WC benefits, the proper Alvarado calculations
are as follows:
Step 1: Calculate the fraction equal to “paid
compensation” ($63,245.41, past WC benefits) plus
“calculable future benefits” ($125,816.72, DTRIC
settlement), divided by the total amount of the
Harbor Mall settlement ($200,000.00)
$63,245.41 + $125,816.72 = $189,062.13 /
$200,000.00 = 0.9453
Step 2: The fraction (0.9453) is then multiplied
by the attorney’s fees and costs incurred by
Moranz in pursuing the action against Harbor Mall
($94,298.29) to determine DTRIC's “share” of the
attorney’s fees and costs
0.9453 x $94,298.29 = $89,140.17
Step 3: This “share” ($89,140.17) is then
subtracted from “paid compensation” ($63,245.41)
18 See HRS § 386-8(d) (“The entire amount of the settlement after
deductions for attorney’s fees and costs . . . is subject to the [insurer]’s
right of reimbursement for the [insurer]’s compensation payments . . .”); id.
§ 386-8(i) (“After reimbursement for the [insurer]’s compensation payments,
the [insurer] shall be relieved from the obligation to make further
compensation payments to the employee under this chapter up to the entire
amount of the balance of the settlement or the judgment, if satisfied, as the
case may be, after deducting the cost and expenses, including attorneys’
fees.”).
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to determine the first lien that DTRIC may assert
against the Harbor Mall settlement
$63,245.41 - $89,140.17 = -$25,894.76
Step 3, above, shows that DTRIC’s “share” of attorney’s fees and
costs ($89,140.17) exceeds its “paid compensation” ($63,245.41)
by $25,894.76. Because Step 3 of the Alvarado formula yields a
negative number due to DTRIC’s “share” exceeding its “paid
compensation,” DTRIC has no lien, but must still contribute its
full pro rata “share” of attorney’s fees and costs. DTRIC owes
its full “share,” regardless of the amount it has contributed in
“paid compensation” versus “calculable future benefits” in
recognition of the fact that “the [employee’s] attorney guarded
[DTRIC]’s interests . . . when [DTRIC]’s attorney had not been
active in litigation.” Alvarado at 519, 993 P.2d at 553; see
also Takahashi v. Loomis Armored Car Serv., 625 F.2d 314, 316
(9th Cir. 1980) (“[T]he assessment against the employer for its
pro rata share of the attorney’s fee in the third party tort
recovery [is] . . . measured by his total compensation liability
under the act, however much the obligation may remain
unfulfilled at the time of the third party recovery, rather than
the compensation payments then actually made to the work[er].”)
(quoting Teller v. Major Sales, Inc., 313 A.2d 205, 207 (N.J.
1974)). Thus, DTRIC owes its full original “share” of Moranz’s
attorney’s fees and costs:
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Step 3a: DTRIC owes its full original “share”
($89,140.17) toward Moranz’s attorney’s fees and
costs ($94,298.29)
$94,298.29 (full amount of Moranz’s attorney’s
fees and costs) - $89,140.17 (DTRIC’s “share” of
attorney’s fees and costs) = $5,158.12 (Moranz’s
“share” of attorney’s fees and costs)
Moranz owes her “share” of attorney’s fees and costs, taken out
of the Harbor Mall settlement:
Step 4a: Moranz’s “share” of attorney’s fees and
costs ($5,158.12) is deducted from the
$200,000.00 Harbor Mall settlement
$200,000.00 - $5,158.12 = $194,841.88
However, under HRS § 386-8(d), DTRIC is still entitled to
reimbursement of its “paid compensation”:
Step 5a: DTRIC is entitled to reimbursement of
its “paid compensation” ($63,245.41)
$194,841.88 (remainder of Harbor Mall settlement
after deduction of Moranz’s “share” of attorney’s
fees and costs) - $63,245.41 (DTRIC’s “paid
compensation”)= $131,596.47
Further, under HRS § 386-8(i) and Alvarado, 92 Hawaiʻi at 520
nn.4–5, 993 P.2d at 554 nn.4–5, Moranz must draw “future
benefits,” including the $125,816.72 DTRIC settlement, from her
$131,596.47 recovery. DTRIC, in turn, is “relieved from the
obligation to make further compensation payments to the
employee . . . up to the entire amount of the balance of the
settlement or the judgment[.]” HRS § 386-8(i). Moranz is then
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entitled to the $5,779.75 remainder of the $200,000.00 Harbor
Mall settlement:
Step 6: Moranz must collect “calculable future
benefits” (e.g., the $125,816.72 DTRIC
settlement) from the remainder of the Harbor Mall
settlement
$131,596.47 (remainder of Harbor Mall settlement)
- $125,816.72 (DTRIC settlement) = $5,779.75 net
recovery to Moranz from the $200,000.00 Harbor
Mall settlement
Under these calculations, DTRIC pays approximately 95% of
attorney’s fees and costs ($89,140.17 “share” of $94,298.29),
and, therefore, has a gross recovery of approximately 95% of the
Harbor Mall settlement, not taking into account its obligation
regarding attorney’s fees and costs: DTRIC recovers a
$63,245.41 reimbursement for its “paid compensation” and is
relieved from paying $125,816.72 in “calculable future benefits”
($189,062.13 of $200,000.00 settlement). Likewise, Moranz pays
approximately 5% of attorney’s fees and costs ($5,158.12 “share”
of $94,298.29) and her gross recovery is approximately 5% of the
settlement ($10,937.87 of $200,000.00 settlement), not taking
into account her obligation regarding attorney’s fees and costs.
This outcome is also consistent with the general
principle that the employee should not receive double recovery,
that is, both WC benefits and a third party settlement. See
First Ins. Co. v. A&B Properties, 126 Hawaiʻi 406, 418, 271 P.3d
1165, 1177 (2012) (“Under [HRS § 386-8’s] framework, and
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consistent with the general notion of avoiding double recovery
for an employee, the employer recovers any money that it
advanced as compensation, with the excess going to the
employee.”); 82 Am. Jur. 2d Workers’ Compensation § 13 (2021)
(“A substantial part of the legislative purpose and intent of a
[WC] statute is to provide for subrogation and prevent double
recovery.”). Here, it cannot be said that Moranz receives
unfair double recovery because she recovers only $5,779.75 (paid
by Harbor Mall) in excess of her WC benefits (paid by DTRIC).
Indeed, the above calculations--wherein DTRIC recoups its total
WC liability of $189,062.13, Harbor Mall pays $200,000.00 in
damages, and Moranz receives a net recovery of $5,779.75--is
fair to all of the parties to the Harbor Mall action: DTRIC,
“the [insurer], who, in a fault sense, is neutral, comes out
even;” Harbor Mall, “the third [party,] pays exactly the damages
[it] would ordinarily pay[;]” and Moranz, “the employee[,] gets
a fuller reimbursement for actual damages sustained than is
possible under the compensation system alone.” 1 Lex K. Larson,
Larson’s Workers’ Compensation Law § 110.02 (Matthew Bender,
Rev. Ed. 2021).
The above method of computation most clearly reflects
the language of HRS § 386-8 where an insurer’s “share” of
attorney’s fees and costs exceeds the amount of its “paid
compensation.”
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V. CONCLUSION
For the foregoing reasons, the ICA’s December 15, 2020
Memorandum Opinion and January 22, 2021 Judgment on Appeal
affirming the circuit court’s December 5, 2016 Order and
December 27, 2016 Judgment are vacated, and the case is remanded
to the circuit court for further proceedings consistent with
this opinion.
Susan L. Marshall, /s/ Mark E. Recktenwald
for petitioner/plaintiff-
appellant /s/ Paula A. Nakayama
Ronald M. Shigekane, /s/ Sabrina S. McKenna
for respondent/intervenor-
appellee /s/ Michael D. Wilson
/s/ Todd W. Eddins
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