Hawkins v. Southwest Kansas Co-op Svc.

No. 118,379
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
HUGH MICHAEL HAWKINS,
Appellant/Cross-appellee,
v.
SOUTHWEST KANSAS CO-OP SERVICE and
TRAVELERS INDEMNITY COMPANY,
Appellees/Cross-appellants.
SYLLABUS BY THE COURT
K.S.A. 44-504(b) and (d) are considered and applied in determining an employer's
subrogation lien and future credit for workers compensation benefits provided to an
injured employee.
Appeal from Workers Compensation Board. Opinion filed April 3, 2020. Reversed and remanded
with directions.
Scott J. Mann, of Mann, Wyatt & Rice, LLC, of Hutchinson, for appellant/cross-appellee.
William L. Townsley, III, of Fleeson, Gooing, Coulson & Kitch, L.L.C., of Wichita, for
appellees/cross-appellants.
Before POWELL, P.J., PIERRON and ATCHESON, JJ.
ATCHESON, J.: This case requires us to apply the statutory scheme permitting an
employer that has provided workers compensation benefits to an injured employee to
obtain both a subrogation interest in any recovery the employee receives from a third
party and a credit for future benefits. The governing statute, K.S.A. 44-504, is something
less than a model of clarity and generated a split decision from the Workers
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Compensation Board in this case. We part ways with the Board majority on the proper
methods for determining the subrogation lien and the future credit and, therefore, reverse
and remand for further proceedings.
Consistent with K.S.A. 44-504(d), the jury verdict in Hugh Hawkins' third-party
negligence action should be used to determine the fault of Southwest Kansas Co-op
Service, his employer, and the measure of Hawkins' damages from his workplace injury.
The jury decided both those issues. As we explain, those determinations then drive the
reduction in Southwest Kansas Co-op's subrogation lien and future credit for workers
compensation benefits it has provided or will provide to Hawkins. The Board erred in
applying the jury's finding of fault to Hawkins' settlement with one of several defendants
in his negligence action to compute the reduction.
Consistent with K.S.A. 44-504(b), Southwest Kansas Co-op's credit for future
benefits should have been determined using each annual settlement payment to Hawkins
from one of the third-party defendants when that payment was received. The Board erred
in aggregating those payments and relying on the total amount, when Hawkins would not
receive the last installment for 20 years.
PROCEDURAL AND FACTUAL POSTURE OF CASE
This appeal comes to us through the Kansas Judicial Review Act (KJRA), K.S.A.
77-601 et seq. See K.S.A. 44-556(a) (decisions of Workers Compensation Board subject
to review in Court of Appeals under KJRA). The material facts in this appeal are
undisputed. The controlling issue requires us to determine what subrogation and credit
rights those facts trigger under K.S.A. 44-504. That is a matter of statutory interpretation
and presents a question of law. See State v. Murdock, 299 Kan. 312, 314, 323 P.3d 846
(2014) (interpretation of statute a question of law given unlimited review on appeal);
Estate of Belden v. Brown County, 46 Kan. App. 2d 247, 258-59, 261 P.3d 943 (2011)
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(when material facts undisputed, issue presents question of law). We owe no particular
deference to the Board in deciding matters of law, so we exercise unlimited review.
Fernandez v. McDonald's, 296 Kan. 472, 475, 292 P.3d 311 (2013). And under the
KJRA, we may reverse an agency action, such as the Board's order, for legal error.
K.S.A. 77-621(c)(4).
Hawkins suffered serious permanent injuries while employed by Southwest
Kansas Co-op in 2006 when a boom crane in which he was working collapsed. Although
the precise nature of the injuries is immaterial to this appeal, we understand them to be
fairly characterized as catastrophic, and Hawkins has required continuing medical care as
a result. Again, for purposes of this appeal, Hawkins' right to workers compensation
benefits from Southwest Kansas Co-op is undisputed. Based on the administrative law
judge's decision issued in 2017 regarding subrogation, we understand Southwest Kansas
Co-op to have provided workers compensation benefits to Hawkins valued at
$852,460.34. We further understand everyone expected Hawkins would continue to
receive benefits. In explaining our decision, we use the numbers appearing in the
decisions issued by the administrative law judge and the Board. Those numbers and our
arithmetic using them are entirely secondary to the statutory methods we outline for
determining an employer's subrogation interest and future credit under K.S.A. 44-504 for
workers compensation benefits provided to an injured worker.
In the interests of completeness, we mention Travelers Indemnity Company, as
Southwest Kansas Co-op's insurance carrier, has actively participated in the workers
compensation proceedings, including this appeal. For convenience, we refer to Southwest
Kansas Co-op without repeatedly mentioning Travelers, as well, since they have united
legal interests and have been represented by the same lawyers.
In 2007, Hawkins filed a civil action in Stanton County District Court to recover
damages from other parties he contended bore some legal responsibility for the collapse
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of the crane and his injuries. Ultimately, Hawkins proceeded against three named
defendants: JLG Industries, Inc., which manufactured the crane in 1995; United Rentals
Northwest, Inc., the successor in interest to a company that bought the crane from JLG
and sold it in 1999; and Western Steel and Automation, Inc., which bought the crane in
1999 and had leased it to Southwest Kansas Co-op. Southwest Kansas Co-op chose not to
exercise its right under K.S.A. 44-504(b) to intervene in that action to protect its statutory
subrogation interests.
Pertinent here, the Stanton County action played out this way:
• Hawkins settled with Western Steel in 2008 for $925,000. The district court
approved the settlement that designated the full amount paid as damages for a loss of
consortium claim. Neither the district court nor the settlement itself apportioned fault
among the defendants or specifically to Western Steel or Southwest Kansas Co-op. Under
K.S.A. 44-504(b), an employer may not assert a subrogation lien or claim for future
benefits against damages an employee recovers from a third party in satisfaction of a loss
of consortium claim.
• Hawkins settled with JLG in early 2011. The settlement amount depended on the
outcome of separate litigation between a successor in interest to JLG and the successor's
insurance carrier. Ultimately, Hawkins was to receive annual payments of $75,000 for 20
years, yielding a total recovery of $1.5 million. Hawkins began receiving those payments
in 2012. Payments were made at least through 2016, although their status since then is
not readily apparent from the briefing or the appellate record. The district court also
approved the settlement with JLG and accepted a stipulation that Hawkins' actual
damages were $6.3 million. The settlement did not apportion fault in any way.
• Hawkins went to trial in April 2011 on his negligence claims against United
Rentals. The district court submitted Western Steel, JLG, and Southwest Kansas Co-op as
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phantom defendants to the jury for comparative fault purposes. The jury had the option to
apportion fault to Hawkins, as well. The jury attributed no fault for the crane mishap to
United Rentals, JLG, or Hawkins and found Western Steel to be 75 percent at fault and
Southwest Kansas Co-op to be 25 percent at fault. The jury determined Hawkins'
damages to be $4,081,916.50. Hawkins appealed the judgment entered on the jury
verdict, and a panel of this court affirmed. First National Bank of Hutchinson, as
Conservator for Hugh M. Hawkins v. United Rentals Northwest, Inc., No. 109,664, 2014
WL 5346255 (Kan. App. 2014) (unpublished opinion).
After the Stanton County action wrapped up, Southwest Kansas Co-op filed a
request in the workers compensation proceeding for a determination of its statutory
subrogation lien and any credit for future benefits that Hawkins might receive. Under
K.S.A. 44-504(a), employees injured in the course of their employment may receive
workers compensation benefits from their employers and may independently pursue civil
actions against third parties they believe have some legal liability for their injuries. If the
employee recovers from a third-party wrongdoer, the employer commonly will have a
subrogation lien against that recovery and possibly a credit for future benefits. Two
subsections of K.S.A. 44-504 govern workers compensation subrogation and credits:
"(b) In the event of recovery from such other person by the injured worker or the
dependents or personal representatives of a deceased worker by judgment, settlement or
otherwise, the employer shall be subrogated to the extent of the compensation and
medical aid provided by the employer to the date of such recovery and shall have a lien
therefor against the entire amount of such recovery, excluding any recovery, or portion
thereof, determined by a court to be loss of consortium or loss of services to a spouse. . . .
Whenever any judgment in any such action, settlement or recovery otherwise is
recovered by the injured worker or the worker's dependents or personal representative
prior to the completion of compensation or medical aid payments, the amount of such
judgment, settlement or recovery otherwise actually paid and recovered which is in
excess of the amount of compensation and medical aid paid to the date of recovery of
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such judgment, settlement or recovery otherwise shall be credited against future
payments of the compensation or medical aid. . . .
....
"(d) If the negligence of the worker's employer or those for whom the employer
is responsible, other than the injured worker, is found to have contributed to the party's
injury, the employer's subrogation interest or credits against future payments of
compensation and medical aid, as provided by this section, shall be diminished by the
percentage of the recovery attributed to the negligence of the employer or those for whom
the employer is responsible, other than the injured worker. "
In a decision issued in February 2017, the administrative law judge determined
Southwest Kansas Co-op's subrogation rights and credit against future benefits due
Hawkins. For reasons the judge did not fully explain, she determined the subrogation lien
by reducing Hawkins' settlement from JLG, which she valued at $1.5 million, by 25
percent, reflecting the fault the jury attributed to Southwest Kansas Co-op in the trial, and
subtracting that amount ($375,000) from the workers compensation benefits paid
($852,460.34). Based on that approach, Southwest Kansas Co-op had a subrogation lien
against Hawkins' recovery for $477,460.34. The judge then found Southwest Kansas Co-
op had a credit against future benefits of $272,539.66. She subtracted the benefits paid
from the JLG settlement yielding a credit of $647,539.66, which she then reduced by the
$375,000, derived from Southwest Kansas Co-op's percentage of fault as applied to the
JLG settlement.
The judge referred to and ostensibly relied on formulas for computing subrogation
and credits under K.S.A. 44-504 developed in Enfield v. A.B. Chance Co., 228 F.3d 1245
(10th Cir. 2000). As we later explain, we agree with Enfield's method for computing
subrogation liens but not its method for future credits. The administrative law judge
misapplied Enfield in determining the subrogation lien. Hawkins and Southwest Kansas
Co-op appealed the judge's determination to the Board.
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Three members of the Board, hence a majority, essentially adopted the
administrative law judge's reasoning and affirmed the result she reached. The majority
also relies on Enfield and discusses at length Harwood v. Feyh, No. 108,603, 2013 WL
5187637 (Kan. App. 2013) (unpublished opinion). But Harwood is inapposite to the
issues in this case. In Harwood, this court rejected the injured employee's argument that
his employer's subrogation lien should be proportionately reduced because his actual
recovery from a third-party wrongdoer, who admitted liability, was substantially less than
his actual damages. The employer in that case bore no fault for the employee's injuries.
As the Harwood court recognized, K.S.A. 44-504(b) includes no allowance for reducing
an employer's subrogation lien in that circumstance. 2013 WL 5187637, at *3. But
Harwood doesn't presume to deal with the reduction of a subrogation lien or a future
credit based on an employer's adjudicated fault, as mandated in K.S.A. 44-504(d).
Another Board member would have discarded the jury's determination of
Southwest Kansas Co-op's fault and would have used the settlement with JLG without
reduction to compute the subrogation lien and the future credit. The Board member did
not then make the actual computations in his short concurring and dissenting opinion. His
position matched the outcome Southwest Kansas Co-op principally advanced.
The fifth Board member dissented and would have used both the jury's allocation
of fault to Southwest Kansas Co-op and its assessment of Hawkins' actual damages in
figuring the subrogation lien—an approach consistent with Enfield. The Board member
says the jury found the damages to be about $3.9 million, although the actual figure was
about $4.1 million. Applying Southwest Kansas Co-op's 25 percent fault to either amount
yields an offset that exceeded the workers compensation benefits paid and, thus, wiped
out any subrogation lien. The dissenting Board member did not specifically address
whether Southwest Kansas Co-op might have a credit against future benefits.
Hawkins appealed the Board's decision, and Southwest Kansas Co-op has
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cross-appealed.
LEGAL ANALYSIS
Workers Compensation Principles and Comparative Fault Law
We begin by looking at several basic principles associated with workers
compensation and how that administrative process interacts with tort law.
The historical public policy underlying workers compensation helps illuminate the
purpose for subrogation liens and future credits in K.S.A. 44-504 and how they should be
measured. Before the enactment of workers compensation, injured employees could bring
tort actions against their employers. But they had to prove the employer's negligence and
faced a bar to recovery if they were contributorily negligent. Those were formidable legal
obstacles. See Ringer v. Railroad Co., 85 Kan. 167, 116 P. 212 (1911) (contributory
negligence barred workplace injury claim). When injured employees could not work,
they and their families often were left destitute and became public charges. Workers
compensation statutes sought to mitigate that socially undesirable outcome by replacing
common-law tort remedies with a streamlined administrative process designed to provide
limited benefits to injured workers promptly and without regard to fault. The benefits
included medical care, rehabilitative treatment, and at least partial income replacement—
all aimed at returning injured employees to the workforce and keeping their families from
impecuniousness in the meantime. The administrative adjudicatory scheme largely
shifted the financial losses associated with workplace injuries from the individual
employee to employers, who could then choose to insure against those losses as a cost of
doing business. By the same token, however, employers could not be sued in traditional
negligence actions and, thus, avoided facing juries, satisfying potentially large verdicts
for noneconomic damages, and paying lawyers to defend protracted civil litigation. See
Injured Workers of Kansas v. Franklin, 262 Kan. 840, 883, 942 P.2d 591 (1997)
8
(acknowledging underlying purpose of workers compensation legislation); Green v.
Burch, 164 Kan. 348, 355-56, 189 P.2d 892 (1948) (detailed discussion of public policy
basis for workers compensation); see also Madera Sugar Pine Co. v. Industrial Accident
Commission of California, 262 U.S. 499, 502-03, 43 S. Ct. 604, 67 L. Ed. 1091 (1923)
(purpose and operation of workers compensation statutes generally in considering
California scheme); Kansas Bldg. Industry Workers Comp. Fund v. State, 302 Kan. 656,
660, 359 P.3d 33 (2015) (employer may self-insure or obtain insurance coverage for
workers compensation claims from authorized carrier or group-funded pool).
The Kansas workers compensation scheme has undergone major revisions since it
was enacted in 1911. Among the significant amendments made in 1974, the Kansas
Workers Compensation Act, K.S.A. 44-501 et seq., became mandatory for most
employers. The Act has since been substantially overhauled in 1993 and 2011.
Likewise, tort law has not remained static over the past century. Pertinent here, the
Kansas Legislature adopted comparative fault in 1974, effectively abolishing contributory
negligence as a defense to common-law negligence claims. K.S.A. 60-258a; Brown v.
Keill, 224 Kan. 195, 197, 580 P.2d 867 (1978). The comparative fault statute permits the
determination of fault attributable to potential wrongdoers who have settled claims
against them or who are immune from liability, such as employers in negligence actions
for workplace injuries to their employees. Those settling or immune parties are
commonly known as phantom defendants.
When comparative fault went into effect, employers had a right to subrogation for
workers compensation benefits against any recovery an injured employee might make
against a third-party wrongdoer, along with a credit for future benefits—matching the
protections in K.S.A. 44-504(b). Until then, fault would not have been formally ascribed
to an employer in a third-party negligence action. Comparative fault changed that and,
thus, highlighted an anomaly with subrogation liens and future credits in K.S.A. 44-
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504(b) for employers paying workers compensation benefits. An employer bearing some
or even the predominate legal fault for its employee's injuries, though immune from
liability in a negligence action, could recoup the full amount it paid in workers
compensation benefits for medical expenses and lost income from any recovery the
employee obtained from a defendant found to be at fault. The employer would, then,
suffer no financial loss despite its negligence contributing to the employee's injury; and,
in that respect, it would be in precisely the same preferred position as an employer that
bore no legal fault for an employee's injury. The Kansas Supreme Court acknowledged
the anomaly in Negley v. Massey Ferguson, Inc., 229 Kan. 465, Syl. ¶ 2, 468-69, 625
P.2d 472 (1981), and characterized a full subrogation recovery by a negligent employer
as an unavoidable "inequity" necessitated by the language of K.S.A. 44-504(b). 229 Kan.
at 468.
The year after Negley was decided, the Legislature added subsection (d), requiring
the reduction of an employer's subrogation lien and credit for workers compensation
benefits if the employer bears some legal fault for the employee's injuries. See Brabander
v. Western Cooperative Electric, 248 Kan. 914, 917, 811 P.2d 1216 (1991). As part of the
major revision of the Workers Compensation Act in 1993, the Legislature replaced the
phrase "damage award" in K.S.A. 44-504(d) with the term "recovery," thereby matching
the language in K.S.A. 44-504(b). L. 1993, ch. 286, § 26. The statutory provisions
governing liens, credits, and their reduction for an employer's fault have remained the
same since then.
Subrogation Liens under K.S.A. 44-504
In tackling the proper measure of Southwest Kansas Co-op's subrogation lien and
credit, our first obligation is to carry out the legislative purpose behind the enactment of
K.S.A. 44-504(b) and (d), considered in tandem and as part of the comprehensive
Workers Compensation Act. Travelers Cas. Insurance v. Karns, 56 Kan. App. 2d 388,
10
393, 431 P.3d 301 (2018). An appellate court should look initially to the words of a
statute to discern legislative intent. Bussman v. Safeco Ins. Co. of America, 298 Kan. 700,
725-26, 317 P.3d 70 (2014). If particular language is open to more than one reasonable
interpretation, the court may consider the overall statutory purpose and favor a reading
that comes to a "consistent, harmonious, and sensible" result effectuating that purpose. In
re Marriage of Traster, 301 Kan. 88, 98, 339 P.3d 778 (2014). Judicial interpretation
should avoid adding something to the statutory language or negating something already
there. Casco v. Armour Swift-Eckrich, 283 Kan. 508, Syl. ¶ 6, 154 P.3d 494 (2007). A
court, of course, may also deploy those analytical tools to debunk a suggested
interpretation of a statute as improbable, particularly when the suggestion would
undermine a legislative purpose. See State v. James, 301 Kan. 898, 903, 349 P.3d 457
(2015) (court should construe statute "to avoid unreasonable or absurd results"). We
augment our examination of the statutory language with direction drawn from Brabander
and Enfield, although neither case is entirely analogous to the circumstances here.
Hawkins filed his negligence action against multiple defendants, leading to
settlements with and, thus, recoveries from two of them and a jury trial with a third that
resulted in a verdict apportioning fault and fixing an amount of damages or a recovery for
him. But K.S.A. 44-504 was not drafted with explicit guidance for figuring out liens and
credits for employers based on third-party litigation with sequential settlements and
verdicts.
In navigating the statutory language, we begin with the word "recovery," since it
appears in K.S.A. 44-504(b) and (d) and is integral to both subsections. As a legal term,
"recovery" carries several meanings, two of which fit here. The definitions, though
related, refer to different things. First, a recovery may be "[t]he obtainment of a right to
something . . . by a judgment or decree." Black's Law Dictionary 1528 (11th ed. 2019)
(meaning 2). And it may be "[a]n amount awarded in or collected from a judgment or
decree." Black's Law Dictionary 1528 (11th ed. 2019) (meaning 4). So a "recovery" may
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be the right to be paid, whether or not any money is forthcoming. In that sense, an
unsatisfied judgment is a recovery. But a recovery also may be an actual payment on a
judgment, meaning money in hand.
Working through the statutory language of K.S.A. 44-504(b), we see the
Legislature directs that an employer has a subrogation lien against a "recovery" an injured
employee obtains against a third-party wrongdoer. The term appears to refer to the
employee's right to recover from the third party, so the lien comes into existence
contemporaneously with the employee's right and attaches to any money the employee
receives then or later. A recovery for loss of consortium is excluded from the employer's
lien. The statutory language plainly treats both settlements and judgments as recoveries.
That subsection also describes the employer's credit against future workers compensation
benefits. The credit reflects the amount by which the workers compensation benefits
already received exceed what the injured employee has "actually [been] paid and
recovered" from any third-party wrongdoer as of the date of the wrongdoer's payment.
The actually-paid-and-recovered qualification on the credit tends to support reading
"recovery" generally to mean a decree of or right to payment rather than money the
injured employee has received. Our assessment of that part of the statute essentially
matches the Tenth Circuit's approach. Enfield, 228 F.3d at 1250-51.[1]
[1]Having federal circuit authority construing state workers compensation law
seemed sufficiently off the beaten procedural path to suggest an explanatory comment, if
only parenthetically. Enfield worked for the City of Goodland and was injured on the job
while removing a utility pole using equipment the A.B. Chance Company manufactured.
Enfield sued A.B. Chance on state law products liability claims and relied on diversity
jurisdiction to file the action in federal district court. The City later intervened to protect
its rights under K.S.A. 44-504, based on the workers compensation benefits it had paid.
The intervention did not disturb the district court's diversity jurisdiction. See Siloam
Springs Hotel v. Century Sur. Co., 781 F.3d 1233, 1239 (10th Cir. 2015) (diversity
jurisdiction determined at time complaint filed); Mattel, Inc. v. Bryant, 446 F.3d 1011,
1013 (9th Cir. 2006) (federal court retains diversity jurisdiction if nondiverse intervenor
is not an essential party). After Enfield won a jury verdict against A.B. Chance, the City
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asked the district court to determine its lien and credit rights under K.S.A. 44-504 and,
disappointed with the result, appealed that ruling.
Here, of course, Southwest Kansas Co-op paid workers compensation benefits to
Hawkins, and Hawkins has obtained recoveries within the meaning of K.S.A. 44-504(b).
So Southwest Kansas Co-op has subrogation lien and future credit rights—a point
nobody disputes. The value of any lien or credit is, however, a matter of considerable
dispute. And that brings us to K.S.A. 44-504(d) governing the reduction of liens and
credits based on the legal fault of an employer for its employee's injuries. Unfortunately,
the statutory language is something less than crystal clear.
The reduction is triggered if the employer's negligence "is found to have
contributed to" the employee's injuries. But that part of the statute is written in the
passive voice, so we don't know who specifically must make the finding of contributory
negligence. That said, we have no doubt that a jury rendering a verdict fixing the
employer's fault along with the named defendants and other phantom defendants in an
employee's third-party action fits the legislative design. We have an appropriate jury
verdict here. A district court's finding of fault following a bench trial would likewise be
sufficient. We needn't speculate on whether an apportionment of fault in a court-approved
settlement in a third-party action, with or without the employer's intervention, would
necessarily be satisfactory. But an apportionment of fault to which the employer agrees as
part of a settlement or consent decree presumably would be a binding admission
sufficient for K.S.A. 44-504(d).
The jury verdict here adjudicated Southwest Kansas Co-op to be 25 percent at
fault for Hawkins' injuries. The next step requires applying that percentage to something
to compute the amount by which the employer's subrogation lien and credit for future
benefits should be reduced. The Kansas Supreme Court has charted at least part of the
path for us in Brabander, 248 Kan. at 918. Construing the pre-1993 version of K.S.A. 44-
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504(d), the court held that the percentage of fault ascribed to the employer would be
multiplied by the damages awarded the injured employee to determine the dollar amount
of the reduction. The court was untroubled by the statutory directive that the lien or credit
"shall be diminished by the percentage of the damage award attributed to the negligence
of the employer." (Emphasis added.) K.S.A. 1992 Supp. 44-504(d). The phrasing of the
statute is odd in that damage awards are expressed in dollar amounts, not percentages.
But percentage can mean "an indeterminate part," which seems to fit more naturally than
the predominate meaning of "a part of a whole expressed in hundredths." Merriam-
Webster's Collegiate Dictionary 859 (10th ed. 2001). The Brabander court categorically
rejected the argument that the subrogation lien itself should be reduced by the percentage
of fault attributed to the employer—an otherwise plausible reading of the language. 248
Kan. at 918. But a lien reduction corresponding to the employer's percentage of legal
fault would only haphazardly (and partially) rectify the inequity recognized in Negley.
As we have said, two years after Brabander, the Legislature substituted "recovery"
for the phrase "damage award" in K.S.A. 44-504(d) as part of the 1993 revision of the
Workers Compensation Act. The Tenth Circuit applied the amended version of K.S.A.
44-504(d) in Enfield and concluded the rewording did not change the method for
computing the reduction of the employer's lien and credit in that case. So the employer's
percentage of fault should be multiplied by the employee's "recovery" to yield a dollar
amount reducing the lien and any credit. The Tenth Circuit rejected the idea that the
amendment signaled some design to legislatively overrule Brabander. Enfield, 228 F.3d
at 1252.
The recovery in Enfield had to be the damages the jury awarded, since A.B.
Chance was the only defendant, there were no pretrial settlements with other potential
defendants, and no fault was attributed to Enfield. The Enfield court did not have a
situation in which a plaintiff had settled with some defendants, yielding recoveries, and
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had gone to trial against a remaining defendant, yielding a recovery in the form of a
verdict assessing fault and fixing damages.
Where, as here, a jury has rendered a verdict apportioning fault among one or
more active defendants, the plaintiff, and phantom defendants that have settled or are
otherwise immune and has arrived at a dollar amount for the plaintiff's damages, those
determinations should be used to calculate the reduction of the employer's workers
compensation lien and future credit. The same would be true of a district court judgment
entered following a bench trial. First, of course, our conclusion is consistent with
Brabander and Enfield. More particularly, however, that common approach directly
addresses and corrects the inequity in denying a reduction in the employer's subrogation
lien or future credit based on its adjudicated fault for the employee's injuries. The fault-
driven reduction aligns with the liability the employer would have faced in the
employee's civil action but for the workers compensation bar. To reiterate: Without a
corresponding lien and credit reduction, the employer would otherwise realize an
undeserved financial break ensconced in the public policy considerations underlying the
Workers Compensation Act, especially compared to those employers that pay benefits to
injured employees and bear no legal fault for the injuries.
In this case, the jury found Southwest Kansas Co-op to be 25 percent at fault and
fixed Hawkins' damages at $4,081,916.50. The resulting offset or reduction against the
workers compensation benefits is $1,020,479.10. In the words of K.S.A. 44-504(d),
Southwest Kansas Co-op's "subrogation interest or credits against future payments . . .
shall be diminished" by that amount. The impact on the subrogation lien is
straightforward. As provided in K.S.A. 44-504(b), Southwest Kansas Co-op's lien was
the amount it had paid to Hawkins in workers compensation benefits as of the date of
recovery. The jury verdict was rendered on May 5, 2011, and we understand Southwest
Kansas Co-op had paid $852,460.34 by then. After subtracting the statutory reduction
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from the benefits paid, the administrative law judge and the Board should have reduced
the lien to $0, and Southwest Kansas Co-op would have had a deficit of $168,018.80.
Credit for Future Benefits under K.S.A. 44-504
Determining Southwest Kansas Co-op's credit for future benefits isn't quite as
linear an exercise. But an employer's subrogation lien and the future credit function as an
integrated whole within the workers compensation scheme. The calculation should be
approached that way. The credit, like the lien, should be reduced by the employer's fault-
based portion of the employee's damages as determined by the fact-finder in the third-
party litigation—eliminating the inequitable windfall identified in Brabander. But the
overall diminution of the lien and the credit should not exceed that amount, since a larger
offset would effectively impose a penalty on the employer.
Consistent with that purpose, an employer would be eligible for a credit only after
providing additional workers compensation benefits equaling any deficit created because
the statutory reduction under K.S.A. 44-504(d) exceeded the lien for benefits already
provided. Here, Southwest Kansas Co-op would have had to pay $168,018.80 in workers
compensation benefits to Hawkins after May 5, 2011, to be in a position to claim a credit
going forward from that point.
The event identified in the statute triggering the computation of the employer's
credit is the injured employee's receipt of money in full or partial satisfaction of any
"judgment, settlement or recovery" in the third-party action. K.S.A. 44-405(b). Under
K.S.A. 44-504(b), the credit reflects the amount by which the workers compensation
benefits the employer has paid exceed the money the employee has actually received in
the third-party action, after making any reduction required under K.S.A. 44-405(d).
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Hawkins has never received any money based on the verdict in the jury trial
because the only parties found to have legal fault for his injuries were Western Steel,
which had already settled and was a phantom defendant, and Southwest Kansas Co-op,
which had immunity by virtue of the workers compensation bar. As we have explained,
the district court approved the settlement with Western Steel that designated the full
amount as compensation for loss of consortium. Accordingly, that settlement amount was
exempt under K.S.A. 44-405(b) from any subrogation lien or future credit. (On appeal,
Southwest Kansas Co-op has incidentally groused about the settlement's damage
designation as a legal fiction. It may be. But Southwest Kansas Co-op chose not to
intervene in Hawkins' negligence action and, thus, relinquished any platform to complain
about the fiction to the district court. And the company recognizes it can't construct the
platform now.)
Hawkins also settled with JLG, and that settlement is not statutorily exempt from a
subrogation lien or credit. But, as we have held, Southwest Kansas Co-op had its
subrogation lien eclipsed by the jury verdict. That did not, however, automatically
extinguish Southwest Kansas Co-op's statutory right to a credit.
The terms structuring JLG's settlement through annual payments to Hawkins for
20 years impose additional wrinkles in determining any credit due Southwest Kansas Co-
op. The plain language of K.S.A. 44-504(b) treats each annual installment of $75,000 as
an amount Hawkins recovers when he receives the payment. The receipt triggers the
credit. Assuming Southwest Kansas Co-op paid workers compensation benefits of more
than $168,018.80 to Hawkins after May 5, 2011, the full reduction required by K.S.A.
44-504(d) would have been satisfied at that point. After that, Southwest Kansas Co-op
could claim a credit to the extent a given $75,000 payment to Hawkins exceeded the
additional benefits the company had paid him as of the date he received that payment.
The record does not provide readily discernable information that would permit us to
compute the extent of any credit.[2]
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[2]We offer an illustrative, though purely hypothetical, example of how the credit
would function in this case. For our illustration, we assume Southwest Kansas Co-op paid
$25,000 a year in additional workers compensation benefits to Hawkins starting in 2011.
We further assume Hawkins received $75,000 under the JLG settlement each May 1,
starting in 2012. Southwest Kansas Co-op would have no claim for a credit in 2011,
2012, and 2013 because the difference between Hawkins' annual settlement payment of
$75,000 and the benefits provided of $25,000 would not have exceeded the $168,018.80
deficit carried over from the lien reduction. In 2014, however, the company would have
realized a credit of $31,981.20, reflecting the difference between the settlement payment
($75,000) and the benefits provided ($25,000) or $50,000 then reduced by the remainder
of the statutory reduction ($18,018.80). In each following year, the company would have
a credit equal to the difference between the $75,000 settlement to Hawkins and the
workers compensation benefits provided up to then, as reduced by any existing credit.
Had JLG settled with Hawkins for an immediate payment of $1.5 million rather
than structured payments spread over 20 years that amount would have been used in
determining the credit. The payment would have been essentially contemporaneous with
the jury verdict. The $1.5 million would have been reduced by the $168,018.80,
reflecting the amount by which Southwest Kansas Co-op's liability based on the jury
verdict exceed the workers compensation benefits it had provided by then, yielding a
credit of $1,331,981.20 against future benefits.
We differ with the Enfield court in determining an employer's credit for future
benefits. The Tenth Circuit's method reduces the future credit by the full amount of the
employer's fault-based responsibility for the employee's damages while also reducing the
employer's subrogation lien by the same amount. Enfield, 228 F.3d at 1252-53. The court
doesn't explain why it takes that tack. The approach entails a form of double counting
against the employer. And it disassociates the reduction of an employer's subrogation lien
from the reduction of future credit when they actually are coordinated parts of a whole:
The diminution of the employer's right to reimbursement for workers compensation
benefits it has paid or will pay to an injured employee by an amount equivalent to the
employer's fault-based responsibility for the employee's damages, thereby shielding the
employee's recovery from third parties to that extent. Our method applies the amount
reflecting the employer's fault-based responsibility for those damages to both the
subrogation lien and a future credit as a unitary setoff against workers compensation
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benefits. The Tenth Circuit (incorrectly in our view) uses the amount first to reduce the
employer's lien and then a second time to reduce the employer's future credit.
The Board's Position Considered
The administrative law judge and the Board majority applied Southwest Kansas
Co-op's percentage of fault, as found by the jury, to the settlement between Hawkins and
JLG to calculate the subrogation lien and the credit for future benefits. Southwest Kansas
Co-op also supported that method as an alternative way of applying K.S.A. 44-504. But
we find the approach flawed in several respects. First, the language of K.S.A. 44-504(d)
contemplates using both the fault allocation and the assessment of damages or the
recovery for the injured employee made by a fact-finder when there is a jury trial or a
bench trial. In that circumstance, the fact-finder will have heard evidence on both issues
and presumably will have arrived at reasonable determination, subject to posttrial
motions and appellate review. Those two findings—the employer's fault and the
employee's damages—establish what the employer would have been legally responsible
for absent the workers compensation bar on liability. And an offset of that amount against
the employer's subrogation interest and future credit eliminates the inequity recognized in
Brabander. The Tenth Circuit did precisely that in Enfield to compute the reduction in
the employer's subrogation lien. The administrative law judge and the Board majority
mistakenly suggest they have followed Enfield.
Substituting the amount of a settlement between the employee and another party
with potential fault and liability interjects an entirely different and off-kilter dynamic. A
settlement, by its very nature, typically reflects a compromise that nobody thinks
particularly represents the injured party's realistic recovery from the defendant in a trial.
The amount is acceptable to each side, taking account of the often substantial costs and
risks of litigation. Economic certainty supplants litigation brass, as plaintiffs accept less
than they believe they deserve and defendants pay more than they think they should or
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would owe. That artificiality is accentuated in a comparative fault case with multiple
actual and phantom defendants. A given defendant may realistically face only some
portion of the overall fault, so its potential liability could look quite different from other
defendants. What it may be willing to pay in settlement should be quite different, as well.
In short, the amount JLG spent to buy its peace in Hawkins' negligence action
bears little or no obvious correlation to what the jury found as to Southwest Kansas Co-
op's fault and Hawkins' damages. Neither the language in K.S.A. 44-504(d) nor a logical
application of comparative fault principles suggests using JLG's settlement with Hawkins
to establish the dollar amount to which the jury's finding of fault attributable to
Southwest Kansas Co-op should be applied to calculate the reduction of its lien and
future credit.
The error was compounded here, given the terms of the settlement between JLG
and Hawkins. JLG was to pay Hawkins $75,000 a year for 20 years beginning in 2012.
The judge and the Board majority figured the settlement to be $1.5 million, as if it were
cash on the barrelhead. But that's inaccurate. Hawkins has yet to receive half the full
amount. Given the time value of money, the settlement isn't worth nearly that to
Hawkins, and it has cost JLG somewhat less, since the company has retained a substantial
portion of the total payout for years. The present value to Hawkins in 2011 was more in
the vicinity of $1.0 million. That imposes another distorting effect the judge and the
Board majority ignored. The distortion was particularly pronounced in their handling of
the credit for future benefits.
The concurring and dissenting Board member looked only at the settlement with
JLG to calculate any reduction in Southwest Kansas Co-op's subrogation lien or future
credit and discarded the jury verdict entirely. First, of course, we see no sound reason to
consider the amount of the settlement with JLG at all in computing the reduction. And
ignoring the jury verdict effectively reads out of existence K.S.A. 44-504(d) because it
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requires using a determination of fault attributable to the employer for that purpose. The
Board member justified doing so because the settlement between Hawkins and JLG did
not purport to apportion fault and, thus, no fault should be attributed to Southwest Kansas
Co-op. That approach effectively imposes no reduction and, not surprisingly, reflects
Southwest Kansas Co-op's preferred position on appeal. The company argues the
outcome is eminently sound precisely because the court-approved settlement makes no
finding of fault, reprising the Board member's explanation. But the argument trades on
wordplay—no finding of fault is not the same as a finding of no fault. The first is the
absence of a determination; the second is a determination of nil.
Southwest Kansas Co-op has offered other arguments to advance this position.
The company suggests that the jury verdict cannot be applied to the earlier JLG
settlement. But K.S.A. 44-504(d) contemplates use of the jury findings to diminish
subrogation liens that attach to settlements that precede the jury trial. Nothing in K.S.A.
44-504(b) or (d) qualifies how a jury verdict may be used or limits its use to later
settlements. In a case with multiple defendants, most settlements commonly would be
reached before trial. Contrary to Southwest Kansas Co-op's intimation, the settlement
with JLG did not create some sort of claim or issue preclusion as to its own fault or the
measure of Hawkins' damages.
Southwest Kansas Co-op also suggests that the inclusion of phantom defendants
for a jury's consideration in a comparative fault case can itself have distorting effects on
the verdict. For example, an active defendant may be inclined to fob off liability on the
phantom rather than trying to blame the plaintiff or directly attacking the plaintiff's
claimed damages as inflated. In a given case, a defendant might well shape its litigation
strategy that way. In this case, however, Southwest Kansas Co-op's protestation invites
neither much legal consideration nor a lot of sympathy. As we have said, the company
chose not to exercise its right to participate in the trial and, thus, to present evidence and
argument guiding the jurors to what it viewed as the best result. Having strategically
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elected to remain a phantom party in front of the jury, Southwest Kansas Co-op must now
bear the consequences of its decision.[3]
[3]The jury did not apportion any fault to Hawkins. But such an apportionment
would not affect the methods or the actual calculations we have outlined. The
calculations are driven by the jury's allocation of fault to the employer and its
determination of the injured employee's damages, as fixed in the verdict. Those are not
variables once the jury has returned a verdict. In a negligence action, the jury must be
instructed that finding a plaintiff to be 50 percent or more at fault bars a recovery. See
Nail v. Doctor's Bldg., Inc., 238 Kan. 65, 66-68, 708 P.2d 186 (1985); PIK Civ. 4th
105.01. If a jury finds a plaintiff to be at least 50 percent at fault, it returns a defense
verdict without determining damages. See PIK Civ. 4th 181.04 (comparative fault verdict
form). In that circumstance, the plaintiff would not realize a recovery for purposes of
K.S.A. 44-504(d).
Conclusion
We reverse the Board's determination of Southwest Kansas Co-op's subrogation
lien and future credits and remand for a redetermination of them consistent with this
opinion. The lien has to be calculated as of the time of the jury verdict in Hawkins' third-
party action based on the workers compensation benefits Southwest Kansas Co-op had
then paid. Those are matters of undisputed historical fact, effectively making the
calculation a nondiscretionary arithmetic exercise. The lien will equal the workers
compensation benefits paid less the damages (or recovery) the jury awarded Hawkins
multiplied by the percentage of fault the jury attributed to Southwest Kansas Co-op. The
computation will yield a negative number.
In redetermining the future credit, the Board should consider each annual payment
to Hawkins under the JLG settlement as a recovery actually paid and calculate any credit
based on the workers compensation benefits Southwest Kansas Co-op had provided
through the date of the JLG payment, once those settlement payments less the benefits
paid exceeded the lien deficit. The Board, in its discretion, may reopen the record, with or
22
without a remand to the administrative law judge, to determine the value of the credit
through the most recent settlement payment from JLG to Hawkins.
Reversed and remanded with directions.
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