Izaguirre v. R & L Carriers Shared Services, LLC

IN THE SUPREME COURT OF THE STATE OF IDAHO
Docket No. 39750
RUBIO IZAGUIRRE, )
)
Claimant-Appellant, )
Boise, June 2013 Term
)
v. )
2013 Opinion No. 97
)
R&L CARRIERS SHARED SERVICES, )
Filed: August 30, 2013
LLC, Employer ZURICH AMERICAN )
INSURANCE CO., Surety, )
Stephen W. Kenyon, Clerk
)
Defendants-Respondents. )
_______________________________________ )
Appeal from the Industrial Commission, State of Idaho.
The decision of the Industrial Commission is affirmed.
Richard S. Owen, Nampa, argued for appellant.
Elam & Burke, Boise, for respondents. Jon Bauman argued.
_____________________
J. JONES, Justice.
This Industrial Commission appeal deals with the extent of subrogation rights of an
employer or its surety. The claimant, Rubio Izaguirre, settled with a third-party tortfeasor
following a work-related automobile accident. His employer and surety asserted a right of
subrogation against the entirety of that settlement, minus only a deduction for attorney fees and
costs. Izaguirre argued that subrogation rights should extend only to damages that workers’
compensation typically insures and not to pain and suffering. The Commission found in favor of
the employer and surety, holding that “[t]he entire proceeds of the settlement” were subject to
subrogation. Izaguirre timely appealed and we affirm.
I.
FACTUAL AND PROCEDURAL HISTORY
Izaguirre was a truck driver for R&L Carriers Shared Services, LLC (Employer). On
February 28, 2008, while on the job, Izaguirre was involved in a motor vehicle collision. His
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resulting knee injuries caused him to miss work, led to a surgery, and persisted until he was
eventually terminated by his employer.
In June of 2008, Izaguirre and his wife retained an attorney to bring an action against the
driver who caused the accident. This action sought recovery for Izaguirre’s damages and
included a claim by Izaguirre’s wife for loss of consortium. The Izaguirres settled their claims
for $200,000 and entered into a Release of All Claims and Indemnity Agreement (Release
Agreement) with the third party and his insurance carrier. Izaguirre’s attorney subsequently
drafted a letter that “[broke] down the total settlement, attributing $100,000 to Mrs. Izaguirre’s
claim for loss of consortium and $100,000 to Claimant’s personal injury claim.” At this time,
Zurich American Insurance (Surety) “had a subrogated interest of $43,518.65.” The Surety and
the Izaguirres “agreed to the payment of a 25% attorney fee on the recovery of the subrogated
amount,” so the Izaguirres’ attorney “reimbursed $32,623.99 to Surety, and retained $10,879.66
payable as attorney fees.”
Izaguirre filed a Workers’ Compensation Complaint on July 9, 2010, seeking
“[a]dditional medical benefits, TTD benefits, PPI benefits and attorney fees for unreasonable
denial and/or delay in benefits due.” The Surety and Employer (the Respondents) filed their
Answer on July 23, 2010. Izaguirre filed a request for calendaring on December 17, 2010, asking
that the matter be set for hearing on the merits after January 1, 2011. On March 21, 2011, the
Respondents filed a motion to bifurcate the proceedings and stay consideration of the merits until
after the subrogation issues were decided. In that motion, the Respondents argued:
The potential limitation on R&L Carriers’ right of subrogation raised by
Claimant’s contention requires that the Commission interpret Idaho law to
determine issues including: (1) the threshold question of whether the [Release
Agreement] permits or effects a limitation on R&L Carriers’ right of subrogation
guaranteed by Idaho Code § 72-223; (2) whether the characterization of the
recovery as among Claimant, his wife, and the third parties is binding on R&L
Carriers; and (3) whether workers’ compensation benefits are community
property and, if so, whether a recovery for loss of consortium is also community
property.
Izaguirre opposed the motion, arguing that the Commission had no jurisdiction to consider
whether the Surety’s subrogation rights extended to any of the settlement funds attributed to Mrs.
Izaguirre’s claim for loss of consortium. The Commission found it appropriate to bifurcate the
proceeding to address the threshold legal issues pertaining to subrogation rights and set a hearing
before the full Commission for that purpose. The Commission’s order provided that the issues on
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the merits of Izaguirre’s compensation claim “shall be reserved and held in abeyance for a future
hearing.” The Commission issued a subsequent Order Amending Hearing Issues on June 23,
2011, specifying the issues to be determined at the hearing.
Following the bifurcated hearing, the Commission entered its Findings of Fact,
Conclusions of Law, and Order (Decision) on January 31, 2012. In it, the Commission made four
main findings: (1) that it had jurisdiction to evaluate the claims in the Release Agreement and
“determine which claims will be subject to [Respondents’] right of subrogation under Idaho
Code § 72-223”; (2) that the “entire proceeds of the settlement of [Izaguirre’s] claim” are subject
to subrogation, whereas Mrs. Izaguirre’s loss of consortium claim was not; (3) that the
consortium claim was valued at $9,000; and (4) that the Release Agreement would be enforced
as agreed upon by the parties, but that “on the balance of the settlement proceeds subject to
Surety’s right of subrogation ($147,481.35), Surety is obligated to pay the sum of $51,845.25 as
its proportionate share of attorney fees and costs incurred by Claimant in pursuit of the third
party recovery.” The Commission further held that “this decision is final and conclusive as to all
issues adjudicated.” Izaguirre timely appealed, claiming the Commission erred in ruling that the
“entire proceeds of the settlement” were subject to subrogation. 1
II.
ISSUES ON APPEAL
I. Was the Decision a final and appealable order?
II. Do the terms of the Release Agreement provide an independent basis for requiring
Izaguirre to reimburse the Respondents?
III. Does a surety’s right to subrogation under I.C. § 72-223 extend to the entire proceeds of
a third-party recovery?
III.
DISCUSSION
A. Standard of Review.
The facts pertinent to this appeal are not in dispute. The issues presented on appeal are
issues of law. When reviewing Industrial Commission decisions, this Court “exercises free
review over questions of law.” Curtis v. M.H. King Co., 142 Idaho 383, 385, 128 P.3d 920, 922
(2005).
B. The Commission’s Decision was an appealable order.
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Neither party contests on appeal the Commission’s conclusions or reasoning with respect to Mrs. Izaguirre’s
consortium claim.
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The Respondents argue that the Decision is not appealable under Idaho Appellate Rule
(I.A.R.) 11(d) because it is “clearly not a final determination of all of Izaguirre’s claims in this
case.” Because the Commission bifurcated the case and specifically “reserved and held in
abeyance for a future hearing” Izaguirre’s claim for workers’ compensation benefits, they claim
his appeal is “premature and should be dismissed.” Respondents assert the Court “must address
finality even if the parties fail to raise it because the issue is jurisdictional.” Izaguirre counters
that in many cases this Court has accepted appeals from bifurcated decisions, so long as the
decisions “contained full and final decisions and findings as to those issues actually adjudicated.”
He argues that this is one of those cases, and that “this appeal is appropriate and should
proceed.”
Idaho Appellate Rule 11(d) states that an appeal may be taken to this Court as a matter of
right “[f]rom any final decision or order of the Industrial Commission or from any final decision
or order upon rehearing or reconsideration by the administrative agency.” Rule 11(d), like the
other appellate rules, is a court made rule governing appellate proceedings. I.A.R. 1. It has no
bearing on the jurisdiction of the Supreme Court, which is established under the Idaho
Constitution. Article V, section 9 of the Idaho Constitution provides that “[t]he Supreme Court
shall have jurisdiction to review . . . any order of the industrial accident board,” which is now the
Industrial Commission. While I.A.R. 11(d) specifies the decisions and orders that may be
appealed as a matter of right from the Industrial Commission, that rule does not limit the Court’s
constitutional grant of plenary jurisdiction to review any order of the Commission. This Court
can always exercise its discretion to consider additional matters under its plenary jurisdiction. ID.CONST. art. V, § 9. See State v. Leavitt, 153 Idaho 142, 145, 280 P.3d 169, 172 (2012); State v.
Bicknell, 140 Idaho 201, 203, 91 P.3d 1105, 1107 (2004).
The Court sparingly exercises its prerogative to entertain appeals that are within its
plenary jurisdiction but which may not fully meet the criteria in the appellate rules. Where a case
presents an important issue that will provide helpful guidance to the affected legal community,
there is some value in resorting to our plenary jurisdiction to consider and decide it. This is such
a case. As indicated by the fact that the Idaho Trial Lawyers Association Foundation filed an
amicus curiae brief in this case on behalf of Izaguirre, there is a good deal of interest in the
outcome of the dispute. Indeed, during oral argument Respondents’ counsel conceded that a
decision of the subrogation issues by the Court would be helpful. Decision of those issues will
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resolve a significant part of the case, perhaps facilitating a resolution of the remaining issues in
dispute.
C. Respondents’ argument that the Release Agreement gives them third-party
beneficiary status was not properly raised below or on appeal and will not be
considered.
Respondents argue that the Release Agreement itself requires Izaguirre to satisfy its
subrogation interest from the entirety of the settlement proceeds. They assert that the language of
the Release Agreement “could not be clearer in regards to Izaguirre’s obligation to repay
Respondents out of the settlement proceeds”—in effect, by making the Respondents third-party
beneficiaries. Thus, they contend that Izaguirre’s obligations under the Release Agreement
provide an alternative basis for affirming the ruling of the Commission. The Respondents have
not favored the Court with an explanation of why any party to the Release Agreement might
have been motivated to place an affirmative requirement on Izaguirre to pay or repay any
obligation to them, rather than just agreeing to a garden variety hold harmless.
Izaguirre counters by contending that: (1) this argument was not raised before the
Commission below and (2) interpretation of contracts is outside of the jurisdiction of the
Commission. Because we find Izaguirre correct as to his first contention, we need not delve into
his second.
This Court has often stated that “[i]ssues not raised below and presented for the first time
on appeal will not be considered for review.” Higgins v. Larry Miller Subaru-Mitsubishi, 145
Idaho 1, 6, 175 P.3d 163, 168 (2007). Further, “[i]t is well established that in order for an issue to
be raised on appeal, the record must reveal an adverse ruling which forms the basis for an
assignment of error.” Krempasky v. Nez Perce Cnty. Planning & Zoning, 150 Idaho 231, 236,
245 P.3d 983, 988 (2010).
The Commission gave the parties at least two opportunities to request the issues they
wished to be considered in conjunction with the bifurcated hearing on subrogation. The
Respondents did not on either occasion request consideration of their third-party beneficiary
theory. That theory was not argued to the Commission, nor was the issue decided by the
Commission. There is absolutely no basis to consider the issue on appeal.
D. Based on the language of I.C. § 72-223, the subrogation rights of an employer or
its surety extend to the entire proceeds of a third-party recovery.
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The lone substantive issue facing this Court on appeal is the extent to which the proceeds
of a third-party recovery are subject to subrogation rights under I.C. § 72-223. Izaguirre
advanced two arguments before the Commission on this issue. First, he argued that the plain
language of I.C. § 72-223(3) demonstrates a legislative intention to limit a surety’s right of
subrogation from a third-party recovery to the specific elements of damages for which workers’
compensation benefits are payable. That is, since workers’ compensation benefits do not
compensate for pain and suffering, the right of subrogation does not extend to that portion of a
third-party settlement or judgment. Second, Izaguirre cites to Struhs v. Protection Technologies,
Inc., 133 Idaho 715, 992 P.2d 164 (1999), asserting that the holding therein does not prohibit a
claimant from seeking protection of certain elements of a third-party recovery from a
subrogation claim by a surety when the allocation is determined at a contested hearing.
The Commission disagreed on both points. With regard to Izaguirre’s interpretation of
Struhs, the Commission stated:
In the context of the question of whether or not a portion of the proceeds of a third
party settlement are not subject to the I.C. § 72-223 right of subrogation, Struhs is
just as important for what it does not say, as what it says. Having specifically
found that the claimant in Struhs could not affect the surety’s right of subrogation
by incorporating certain language into the third party settlement to which surety
was not a party, the Court concluded that the language of the agreement must be
ignored, and that surety’s right of subrogation was deemed to extend to the entire
third party recovery. Had the Court been of the view that I.C. § 72-223 limited
surety’s right of subrogation to that portion of the proceeds of a third party
recovery which corresponded to workers’ compensation benefits paid, it would,
presumably, have found it necessary to remand the matter to the Commission for
further proceedings along the lines of the inquiries which are before the
Commission in the instant matter. That the Court did not do this in Struhs, is
telling . . . .
The Commission found that the Struhs case, and its implications, reinforced the plain meaning of
I.C. § 72-223―that there was no “intention on the part of the legislature to limit a surety’s
subrogated interest in a third-party recovery to that portion of the third-party recovery which
corresponds to a benefit payable under the workers’ compensation laws of this state.”
On appeal, Izaguirre contends that the Commission interprets the Struhs holding much
too broadly. His reading is that Struhs stands only for “the proposition that a Claimant cannot
unilaterally characterize his third party settlement in such a way as to affect the employer’s
statutory right of subrogation.” Izaguirre argues that this holding is inapposite here, that “[t]he
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posture of this case is much different than the posture of the Struhs case, and [that] the precise
question presented herein has never before been addressed [by] the Industrial Commission” or by
this Court. Izaguirre further argues that the plain language of I.C. § 72-223 evinces a legislative
intention to limit a surety’s right of subrogation from a third-party settlement. As he puts it, the
Legislature’s restrictive “use of the modifier, ‘compensation,’ when describing the extent of an
employer’s right of subrogation,” shows an intention to limit those subrogation rights. Izaguirre
contends that the intention was to limit a surety’s subrogated interest in a third-party recovery to
“that portion of the third party recovery which corresponds to a benefit payable under the
workers’ compensation laws of this state.” He accordingly concludes this would not extend to
damages for pain and suffering.
The Respondents argue in agreement with the Commission, contending that “Izaguirre
reads a limit into [I.C. § 72-223] that does not exist.” They aver in particular that while the
statute may well contain a limitation, “it is not a limitation on [the Respondents’] subrogation
right as to the type of damages to which their subrogation right attaches.” Rather, the
Respondents argue, “this language simply serves as a limit or cap on the amount of Respondents’
subrogation right against the third party tortfeasor.”
In Idaho there is “no question but that an injured employee may receive workmen’s
compensation benefits and thereafter bring a negligence action against a third-party tortfeasor
who was a nonemployer.” Schneider v. Farmers Merch., Inc., 106 Idaho 241, 243, 678 P.2d 33,
35 (1983). If an employee does bring such a suit “against a third party in addition to receiving
workmen’s compensation benefits, this Court has established a system of apportioning the
employee’s damages between the employer and third party.” Id. The mechanism for doing so is
found in I.C. § 72-223. Id.; Barnett v. Eagle Helicopters, Inc., 123 Idaho 361, 363, 848 P.2d 419,
421 (1993). I.C. § 72-223(3) provides:
(3) If compensation has been claimed and awarded, the employer having paid
such compensation or having become liable therefor, shall be subrogated to the
rights of the employee, to recover against such third party to the extent of the
employer’s compensation liability.
“Compensation” is broadly defined in Title 72 as “any or all of the income benefits and the
medical and related benefits and medical services.” I.C. § 72-102(7).
In determining the meaning of I.C. § 72-223, we do not confine our analysis solely to
subsection (3), because “our duty is to ascertain, if possible, from a reading of the whole act . . .
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the purpose and intent of the legislature and give force and effect thereto.” George W. Watkins
Family v. Messenger, 118 Idaho 537, 539, 797 P.2d 1385, 1387 (1990). “Statutes must also be
construed as a whole without separating one provision from another.” Id.Section 72-223 appears to place no limits on the extent of an employer’s recovery—just
that the employer can recover “to the extent of the employer’s compensation liability.” I.C. § 72-
233(3). One could easily read “employer’s compensation liability” as simply the amount that the
employer paid in benefits to the claimant. However, Izaguirre avers that “compensation liability”
limits the surety to recovering only those portions of a third-party settlement that correspond to
what workers’ compensation insures and that a “surety should not have any access to that part of
the settlement . . . which is attributable to . . . pain and suffering.” But this latter interpretation
does not follow from I.C. § 72-223(4), which goes on to state that “[u]nless otherwise agreed,
upon any recovery by the employee against the third party, the employer shall pay or have
deducted from its subrogated portion thereof, a proportionate share of the costs and attorney’s
fees incurred by the employee.” The crucial takeaway from subsection (4) is that any recovery
obtained from a third party is subject to subrogation. The provision makes no exception for pain
and suffering. Beyond this, I.C. § 72-223(4) makes a specific exception for attorney fees but
does not carve out an exception for pain and suffering. Further, subsection (5) provides:
If the amount recovered from the third party exceeds the amount of the
subrogated portion payable to the employer for past compensation benefits paid,
then to the extent the employer has a future subrogated interest in that portion of
the third party recovery paid to the employee, the employer shall receive a credit
against its future liability for compensation benefits.
Again, there is no language indicating that the third-party recovery is to be segregated out into its
individual elements or that certain portions are to be protected from the employer’s right of
subrogation. A proper reading of the statute requires that “employer’s compensation liability” be
interpreted as Respondents urge―not as a limit on the type of damages subject to subrogation,
but as a cap on the amount. Put simply, the most coherent reading of I.C. § 72-223 is that an
employer or its surety may recover the full amount of their payments, less attorney fees, out of a
recovery against a third party. 2
In Schneider, we described the “system of apportioning the employee’s damages,” which
is based on I.C. § 72-223, as follows:
2
Of course, any excess recovery would go to the workers’ compensation claimant. Shields v. Wyeth Lab., Inc., 95
Idaho 572, 574, 513 P.2d 404, 406 (1973).
8
Based on our focus in apportionment, and on the foundation of § 72-223, the
system of apportionment generally works as follows. In those situations where the
employer is not negligent, the employer is entitled to subrogate to the employee’s
recovery against a third party, and thus obtain a reimbursement of the workmen’s
compensation benefits he paid. Conversely, in those situations where the
employer is negligent, the employer is denied this reimbursement and the third
party is entitled to a credit against his judgment in the amount of the workmen’s
compensation benefits the employer paid. Thus, the employee’s award is reduced
by the amount of workmen’s compensation he received. In either event, the
employee does not retain both the workmen’s compensation benefits and the full
tort recovery.
Id. at 244, 678 P.2d at 36. Nothing in Schneider speaks of dividing the recovery into its
component parts or disallowing recovery as against damage elements not specifically payable
under the workmens’ compensation law. The decision does speak of preventing a double
recovery by the workers’ compensation claimant.
As noted above, both parties cite our Struhs decision in support of their respective
interpretation of “employer’s compensation liability.” In Struhs, the Court examined a workers’
compensation claim in which the claimant settled with a third party. 133 Idaho at 721, 992 P.2d
at 170. The claimant and the third party, acting with no input from the surety, “voluntarily
characterized the settlement as ‘general damages.’” Id. at 722, 992 P.2d at 171. Thus, the
claimant argued, the terms of the settlement “barred the [surety] from recovering reimbursement
from the settlement monies” for workers’ compensation benefits that had already been paid. Id.
at 721, 992 P.2d at 170.
In examining the issues in Struhs, the Court noted at the outset that the purposes of
workers’ compensation subrogation “would [not] be [accomplished] by a rule that forbids
recovery by an employer who voluntarily pays benefits.” Id. at 719, 992 P.2d at 168. We stated:
It is a matter of first impression before this Court whether an agreement between a
third-party tortfeasor and an injured employee can restrict the employer’s
subrogation rights. In automobile insurance cases, we have held that an insurer is
not bound by a decision to which it was not a party. . . . Employers have a
statutory right to subrogation, and any characterization of damages to which the
employer is not privy cannot change the employer’s statutory rights. A contrary
holding could lead to situations where employees and third-party tortfeasors
reached unilateral agreements that would give the employee a double recovery or
result in the culpable party not shouldering its full responsibility for damages—
results that would be diametrically opposed to the purposes of the subrogation
statute. . . . Therefore, we hold that an employee and third party’s unilateral
actions cannot restrict an employer’s subrogation rights.
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Id. at 721, 992 P.2d at 170. However, as the Commission noted in its Decision, the Court did not
remand the matter to the Industrial Commission for further proceedings, but instead, “affirm[ed]
the Industrial Commission’s conclusion that [the surety] could exercise its subrogation rights.”
Id. As the Commission puts it, had this Court “been of the view that I.C. § 72-223 limited
surety’s right of subrogation to that portion of the proceeds of a third party recovery which
corresponded to workers’ compensation benefits paid, it would, presumably, have found it
necessary to remand the matter to the Commission for further proceedings.” The Struhs Court,
however, did not remand for an apportionment of the claimant’s settlement, implying that
apportionment would have no bearing on the surety’s subrogation rights. Put simply, Struhs
suggests that those subrogation rights correspond solely to the surety’s outlays, minus attorney
fees.
Perhaps Izaguirre’s best argument is an equitable one—as he puts it, “allowing the surety
to access damages which the Industrial Commission finds to be attributable to pain and suffering
essentially enlarges the rights of the surety to recover against that which it does not insure; all at
the expense of the Claimant’s just recovery.” While there may be merit in his equitable
argument, as a legal matter the text of the statute and this state’s case law go against him. If the
Legislature deems this result inequitable, it may change the statute accordingly. We find no legal
grounds to disturb the Commission’s determination of this issue.
IV.
CONCLUSION
The Decision of the Industrial Commission is affirmed. We decline to declare a
prevailing party and award costs on appeal. Although the Respondents did not file a cross-
appeal, they raised two issues of questionable merit―lack of jurisdiction by this Court and the
third party beneficiary claim―on both of which they failed to prevail.
Chief Justice BURDICK, and Justices EISMANN, W. JONES and HORTON CONCUR.
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