IN THE SUPREME COURT OF TENNESSEE
AT KNOXVILLE
GREY GRAVES v. COCKE COUNTY, TENNESSEE and COCKE
COUNTY SCHOOLS
Appeal as of Right from the Circuit Court for Cocke County
No. 24,043 Hon. Richard R. Vance, Judge
No. E1999-01387-SC-R3-CV - Decided June 30, 2000
This workers’ compensation appeal presents two issues for review. The first is whether an employer
is entitled to a credit under Tenn. Code Ann. § 50-6-112 for future medical payments made on behalf
of an employee when the employer and employee settle their workers’ compensation suit for a lump
sum award. The second issue is whether the made whole doctrine applies to workers’ compensation
cases. For the reasons explained hereafter, we answer both questions in the negative. Accordingly,
the trial court is affirmed.
Rule 3, Tenn. R. App. P.; Judgment of the Circuit Court Affirmed.
DROWOTA , J., delivered the opinion of the court, in which Anderson, CJ., Birch, Holder, and Barker,
JJ. joined.
Gerald L. Gulley, Jr. and Elizabeth A. Townsend, Knoxville, Tennessee, for defendants-appellants,
Cocke County, Tennessee and Cocke County Schools.
Gordon Ball, Knoxville, Tennessee, for plaintiff-appellee, Grey Graves.
OPINION
The employee in this workers’ compensation case, Grey Graves, worked as a maintenance
supervisor for the Cocke County school system. On July 12, 1996, the employee severely injured
his hip and knees in a car accident that occurred in the course and scope of his employment. He
subsequently filed suit against his employer, Cocke County and the Cocke County school system,
for workers’ compensation benefits.
While the employee’s workers’ compensation claim was pending, the employee filed suit
against the driver of the other car involved in the accident. The employee settled that suit for
$138,000. In the workers’ compensation suit, the parties agreed that the employee was totally and
permanently disabled and should receive a lump sum award of $122,140, less an amount for
temporary total benefits erroneously paid to the employee after he reached maximum medical
improvement. The parties also agreed that the employee would pay the employer $77,998.57,
representing the employer’s subrogation interest for medical expenses that had already been paid.
The parties could not agree on whether the employer was entitled to an additional credit for future
medical expenses paid on the employee’s behalf. The parties agreed to have the trial court resolve
that issue.
After holding a hearing, the trial court held that the employer was not entitled to a credit for
future medical payments made on behalf of the employee. The trial court explained its decision as
follows:
The issue as to future medicals is always an uncertainty. You can’t calculate
what future medical bills will be. You can’t calculate if there will be future medicals
and the extent and nature of it because it’s in the future, as you could if payments
were being made on a regular basis you would know specifically that it would be a
certain amount.
....
Future medicals are incalculable at this time. They’re speculative, they could
go on forever. Courts favor resolutions of lawsuits which would impose some
finality to the judgment. In such a case, Mr. Graves would be required to keep his
money in the bank and possibly pay back his employer at unknown and uncertain
times in the future and unknown and uncertain amounts, that’s a possibility. So this
Court is going to find that the Act does not require subrogation for future medicals
which are unknown and uncertain.
Thus, the trial court found that the credit provided for in Tenn. Code Ann. § 50-6-112 did not
encompass future medical payments when the parties settled for a lump sum award. The employer
appealed the trial court’s decision. The case was argued before the Special Workers’ Compensation
Appeals Panel, but transferred to the full Supreme Court before the Panel issued its decision.
The first issue we must decide concerns the employer’s credit for future medical payments
under Tenn. Code Ann. § 50-6-112. Tenn. Code Ann. § 50-6-112(a) permits an injured worker who
receives workers’ compensation benefits to pursue an action against a third-party tortfeasor.1 In
order to prevent the injured worker from receiving a double recovery, Tenn. Code Ann. § 50-6-
112(c) provides for a subrogation lien in favor of the employer against any recovery by the employee
1
Tenn. Code Ann. § 50-6-112(a) provides as follows: “When the injury or death for which
compensation is payable under the Workers’ Compensation Law was caused under circumstances
creating a legal liability against some person other than the employer to pay damages, the injured
worker, or such injured worker’s dependents, shall have the right to take compensation under such
law, and such injured worker, or those to whom such injured worker’s right of action survives at law,
may pursue such injured worker’s or their remedy by proper action in a court of competent
jurisdiction against such other person.”
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from the third-party. The pertinent part of the statute provides as follows:
(c)(2) In the event the net recovery by the worker . . . exceeds the amount paid by the
employer, and the employer has not, at the time, paid and discharged the employer’s
full maximum liability for workers’ compensation under this chapter, the employer
shall be entitled to a credit on the employer’s future liability, as it accrues, to the
extent the net recovery collected exceeds the amount paid by the employer.
(3) In the event the worker . . . effects a recovery, and collection thereof, from such
other person, by judgment, settlement or otherwise, without intervention by the
employer, the employer shall nevertheless be entitled to a credit on the employer’s
future liability for workers’ compensation, as it accrues under this chapter, to the
extent of the net recovery.
Tenn. Code Ann. § 50-6-112(c)(2), (3).
In this case, the employer makes several arguments challenging the trial court’s decision that
the credit provided for by Tenn. Code Ann. § 50-6-112(c) does not include future medical payments
when the parties settle for a lump-sum award. First, the employer points out that the statutory
language is not limited to fixed or known amounts, but provides for a credit based on the employer’s
“full maximum liability.” Tenn. Code Ann. § 50-6-112(c)(2). Since future medical expenses are
part of the employer’s “full maximum liability” under the parties’ settlement, the employer contends
that it is entitled to a credit for future medical payments. The employer also maintains that its
interpretation of Tenn. Code Ann. § 50-6-112(c) should be adopted because limiting the credit to
known or fixed amounts would lessen or even eliminate an employer’s incentive to settle when the
employee has a claim pending against a third-party. The employer further claims that its
construction of Tenn. Code Ann. § 50-6-112(c) is consistent with the legislative intent to place the
economic loss on the third-party tortfeasor as “the author of the misfortune.” Plough, Inc. v. Premier
Pneumatics, Inc., 660 S.W.2d 495, 499 (Tenn. Ct. App. 1983) (“By enacting [Tenn. Code Ann. §
50-6-112] we feel that the Legislature clearly intended to place the pecuniary loss on the author of
the misfortune, thus allowing both employer and employee to benefit.”).
In addition, the employer relies on the language in Tenn. Code Ann. § 50-6-112(c)(2) which
states that the “employer shall be entitled to a credit on the employer’s future liability, as it accrues,
to the extent the net recovery collected exceeds the amount paid by the employer.” (Emphasis
added). To the extent that the employee incurs future medical expenses, those expenses are part of
the employer’s “future liability” for which the employer is due a credit under the statute. Thus, the
employer maintains that the trial court’s interpretation of the statute is inconsistent with the
legislative intent to reimburse an employer “to the extent of [the] employer’s total obligation” under
the workers’ compensation law. See Beam v. Maryland Cas. Co., 477 S.W.2d 510, 513 (Tenn.
1972). If the trial court’s decision stands, the employer would be denied its opportunity to recoup
its “total obligation” to the employee.
Finally, the employer argues that the trial court’s decision will give employees an incentive
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to designate a large portion of their settlement with a third-party tortfeasor as future medical
expenses in order to place those expenses out of the employer’s reach. Thus, employees will have
a convenient way of circumventing the employer’s subrogation rights.
In seeking to uphold the trial court’s interpretation of Tenn. Code Ann. § 50-6-112(c), the
employee argues that future medical expenses should not be included in the statutory credit because
such expenses are, by their very nature, unpredictable and incapable of being calculated. Therefore,
including such benefits in the employer’s statutory credit would, according to the employee, inject
an element of uncertainty into the award that could effectively prevent employees from spending any
of the funds because of the possibility that some or all of the award may have to be returned to the
employer at an uncertain time in the future. The employee also argues that an employer who agrees
to a lump sum settlement should bear the risk of loss for future medical expenses given the
importance of finality of lump sum awards. See Underwood v. Zurich Ins. Co., 854 S.W.2d 94, 98
(Tenn. 1993) (observing that “the balance in workers’ compensation cases involving lump-sum
awards is weighted in favor of finality”). According to the employee, the employer’s interpretation
of the statute would effectively eliminate the finality of judgments in many workers’ compensation
cases.
Although both parties have presented plausible arguments in support of their positions, we
are persuaded that the employee’s construction of Tenn. Code Ann. § 50-6-112(c) is the one that
should be adopted. Employees should not be placed in the difficult position of not being able to
spend their workers’ compensation benefits for fear that some or all of those benefits may have to
be returned to the employer if needed medical treatment is sought. If the employee is unwilling or
unable to pay the employer when the employer seeks reimbursement from the employee, the
employer could obtain a judgment against the employee and presumably be in a position to collect
that judgment on the employee’s personal assets and whatever income stream the employee might
have at the time. This situation is an untenable one that should be avoided. Although the employer
in this case responds to this concern by noting that it would not seek to have the employee return
benefits already paid, there is no legal impediment preventing the employer from doing so. Other
employers may not hesitate to do just that. And even accepting the employer’s argument that it is
seeking a credit against future medical payments and not reimbursement from benefits already paid,
it is certainly foreseeable that some workers will not seek medical treatment or will be denied
medical treatment because they will have to pay for it themselves. Such a result is inconsistent with
the policy underlying the workers’ compensation system of providing injured workers with needed
medical treatment.
Furthermore, we believe that the trial court’s concern about finality of judgments is a
compelling one. This Court has repeatedly expressed concern that reopening workers’ compensation
agreements frustrates the legitimate goals of judicial economy and finality of settlements. See, e.g.,
Cox v. Martin Marietta Energy Sys., 832 S.W.2d 534, 538 (Tenn. 1992); Hale v. CNA Ins. Co., 799
S.W.2d 659, 661 (Tenn. 1990); but see Brewer v. Lincoln Brass Works, Inc., 991 S.W.2d 226 (Tenn.
1999). Many subrogation cases like the one at bar would be in and out of court for years - in some
instances every time the employee needed medical treatment - if the employer’s interpretation of
Tenn. Code Ann. § 50-6-112(c) was adopted. The employer’s position is inconsistent with the goals
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of judicial economy and finality of settlements.
Accordingly, we hold that the “credit on the employer’s future liability” as used in Tenn.
Code Ann. § 50-6-112(c)(2), (3) does not encompass future medical payments when the parties have
settled the case for a lump sum award. This construction of the statute recognizes the importance
of finality in lump sum cases and avoids the other problems noted above.
The second issue in this case is whether the made whole doctrine applies to workers’
compensation cases.2 This issue is controlled by our decision in Castleman v. Ross Engineering,
Inc., 958 S.W.2d 720 (Tenn. 1997). In Castleman, the employee argued that enforcement of the
employer’s subrogation rights under Tenn. Code Ann. § 50-6-112 was conditioned on the employee
being made whole by the third-party tortfeasor. In rejecting the employee’s argument and holding
that the made whole doctrine does not apply to workers’ compensation cases, we stated:
The statute [Tenn. Code Ann. § 50-6-112(c)] creating the subrogation claim
does not by its terms condition the claim upon the employee obtaining a full recovery
of damages sustained. The subrogation lien attaches to “the net recovery collected”
and secures the amount “paid” by the employer or the amount of the employer’s
“future liability, as it accrues.” It appears that, under the statute, the subrogation lien
attaches to any recovery from the tortfeasor “by judgment, settlement or otherwise.”
Consequently, even if under equitable principles of subrogation the employer was not
entitled to assert the subrogation lien, the statute specifically creates that right.
Castleman, 958 S.W.2d at 724 (citation omitted). Thus, Castleman stands for the proposition that
the made whole doctrine does not apply to workers’ compensation cases.3
The employee in the present case argues that Castleman should be overruled. According to
the employee, Castleman was wrongly decided because it allows employers to receive a windfall
since they can assert their subrogation rights even though the employee has not been fully
compensated. This argument was implicit in the employee’s argument in Castleman that the
employer not be given the statutory credit until the employee is made whole. The Court in
Castleman rejected the argument in light of the language in Tenn. Code Ann. § 50-6-112(c). We are
compelled to do the same in the present case because when statutory language is plain and
unambiguous, this Court must not apply a construction apart from the words of the statute. See State
v. Nelson, __ S.W.3d __ (Tenn. 2000). Thus, we hold as we did in Castleman that the made whole
2
The made whole doctrine refers to the injured party receiving full compensation for his or
her losses as a prerequisite for allowing an insurer to exercise its subrogation rights. See York v.
Sevier County Ambulance Auth., 8 S.W.3d 616, 619 (Tenn. 1999).
3
This Court has, however, applied the made whole doctrine in non-workers’ compensation
cases. See, e.g., York v. Sevier County Ambulance Auth., 8 S.W.3d 616 (Tenn. 1999); Blankenship
v. Estate of Bain, 5 S.W.3d 647 (Tenn. 1999).
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doctrine does not apply to workers’ compensation cases.
In view of the foregoing discussion, we conclude that the employer is not entitled to a credit
under Tenn. Code Ann. § 50-6-112(c) for future medical payments made on the employee’s behalf.
Further, we reiterate the holding of Castleman that the made whole doctrine does not apply to
workers’ compensation cases. Accordingly, the trial court is affirmed. Costs of this appeal are
taxed to the employer.
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