November 25, 1947. The question for determination is whether an employee who is injured in the course of his employment, and, without the knowledge and consent of his employer, a self-insurer, makes a binding settlement with a third party against whom he has a claim for damages for his injury, and executes a full and complete release to the latter, is thereby debarred from compensation under the Workmen's Compensation Act. Sec. 7035-11, 1942 Code.
The exceptions also present issues, whether the claimant, Noah Taylor, was an employee of appellant, Mount Vernon-Woodberry Mills, Inc., at the time he received his injuries, and whether the accident giving rise thereto arose out of and in the course of employment. The affirmative of these issues will be assumed, because our disposition of the first question stated will make it unnecessary to pass upon them.
The Industrial Commission held that a voluntary settlement and release entered into between the employee and *Page 418 the third person tort feasor without litigation of any nature, did not bar the employee's right to compensation. Upon exceptions taken to the circuit court, this finding of the Commission was upheld and affirmed. The present appeal is from that judgment.
The relevant facts bearing upon the issue under discussion are not in conflict.
On the night of October 18, 1943, the respondent was riding in an automobile owned and driven by a co-employee, on their way to work at the mill of the appellant in the city of Columbia. While en route, at some point on Gervais Street, they collided with another automobile operated and occupied by James E. Webb, Jr., and Elizabeth Williams. As a result of the collision, the plaintiff's right leg was broken about four inches above the knee. He was taken to a local hospital, where he remained thirty days, and was incapacitated for his usual work for seven months.
On the 26th day of November, 1943, after his discharge from the hospital and while he was at his home, he entered into a voluntary settlement with the third parties for a valuable consideration, giving to them a release which completely discharged and absolved them from all liability growing out of the accident. This release was executed without the knowledge or consent of the Mount Vernon-Woodberry Mills, and before the plaintiff had filed any claim against it for workman's compensation benefits.
The respondent received from the insurer of the third parties in settlement of his claim the sum of $1,330.00, which was applied as follows: $920.00 cash to him, $250.00 hospital bill, and $160.00 for medical bills.
The release provided that in consideration of the payments above mentioned, the respondent discharged the third parties "and all other firms, persons, or corporations from all claims damages, demands, actions, or causes of action on account of * * * bodily injuries * * * and of and for all *Page 419 claims or demands whatsoever in law or in equity which I * * * can, shall, or may have by reason of any matter, cause or thing whatsoever prior to the date hereof. It is understood and agreed that this is a full and final release of all claims of every nature and kind whatsoever, and releases claims that are known and unknown, suspected and unsuspected."
Thereafter, on June 12, 1944, the respondent filed his claim with the Industrial Commission, which, after taking testimony, ordered that the appellant pay to him temporary total disability compensation from October 18, 1943, at the compensable rate of $18.78 per week, until he should be discharged by his physician as being able to return to his former employment or work of similar nature. And it concluded, as a matter of law, that it was premature to determine the extent of permanent disabilities sustained by the claimant as well as disfigurement compensation to which he may be entitled, until the maximum healing period had been reached. The Commission in its award also ordered that the appellant was entitled to have credited against the amount of the award the sum of $1,330.00 paid by the third parties to the claimant under the settlement and release here in above referred to. It may be noted in passing that our Act, Sec. 7035-11, contains no requirement or authority for such credit. It is silent upon the subject.
It is not disputed that the release executed by the respondent to the third parties completely exonerated them from all liability. The appellant contends that by settling with the third parties and giving them a full release the claimant elected to proceed at common law, and having collected from the third parties cannot now collect from the appellant under the Workmen's Compensation Act. And further that by giving such full release before making demand for compensation benefits, and without appellant's knowledge or consent, he has destroyed appellant's right of subrogation against the third parties under the Workmen's Compensation Act, and is estopped to demand benefits under such Act. *Page 420
The question then is: Does this settlement which the injured employee voluntarily made with the third party tort-feasor responsible for his injury, and which the claimant concedes is valid and binding upon him, debar him from compensation under the Act?
The precise question has not previously been presented to this court. It depends upon a proper determination of the pertinent provisions of the Workmen's Compensation Act, Sec. 7035-11.
After providing that the rights and remedies therein granted shall exclude all other rights and remedies of an employee, his personal representatives, parents, dependents and next of kin, as against the employer at common law, subsection 11 of the Act proceeds as follows:
"When such employee, his personal representative or other person may have a right to recover damages for such injury, loss of service, or death from any person other than such employer, he may institute an action at law against such third person or persons before an award is made under this article, and prosecute the same to its final determination; but either the acceptance of an award hereunder, or the procurement and collection of a judgment in an action at law, shall be a bar to proceeding further with the alternate remedy. * * *
"The acceptance of an award under this article against an employer for compensation for the injury or death of an employee shall operate as an assignment to the employer of any right to recover damages which the insured employee or his personal representative or other person may have against any other party for such injury or death; and such employer shall be subrogated to any such right, and may enforce, in his own name or in the name of the injured employee or his personal representative the legal liability of such other party. If the injured employee, his personal representative or other person entitled so to do, has made a claim under this article against his employer, and has not *Page 421 proceeded against such other party, the employer may, in order to prevent the loss of his rights by the passage of time, institute such action prior to the making of an award hereunder. * * *"
Other provisions of this section give subrogation rights to any insurance carrier which may have paid compensation for which the employer is liable or shall have assumed the liability of the employer therefor.
We held in Fuller et al. v. Southern Electric Service Co.,200 S.C. 246, 20 S.E.2d 707, 710:
"The first provision restricts the employee, his personal representative, or other person, to recovery by one of the alternative remedies. If he has a right to recover damages from any person other than the employer, he may institute an action at law before an award is made and may prosecute his suit to its final determination; but if he procures a judgment in the action at law he is barred of his remedy for an award under the Workmen's Compensation Law, and if he accepts an award he is barred of his remedy in the action at law. He may recover by one of the alternate remedies, but not by both. * * *"
Subsection II of Section 7035 of our Workmen's Compensation Act is entitled: "Employee cannot get relief from employer hereunder and third person — relief from one bars alternate remedy * * *."
The particular wording which we are called upon to construe is:
"* * * he may institute an action at law against such third person or persons before an award is made under this article and prosecute the same to its final determination; but either the acceptance of an award hereunder, or the procurementand collection of a judgment in such an action at law, shall be a bar to proceeding further with the alternate remedy." (Emphasis added.)
The question is whether the voluntary settlement and release given by the claimant was tantamount under this article *Page 422 to the procurement and collection of a judgment in an action at law. And in this connection we must consider the effect of the release upon the statutory right of subrogation to which the employer was entitled.
Giving effect to the plain purpose and import of the foregoing language. We think that the employee made his election. To rule otherwise would be to render completely nugatory the subrogation feature of the Act, which was inserted for the benefit of the employer, and give countenance to an obvious evasion of the statute. The employee did not procure or collect a judgment in an action at law, but he "collected" in the sense of the quoted provision, and his right to collect compensation from the employer was thereby extinguished. We are constrained to hold that this article does not empower an injured employee to circumvent the plain intent of the law and thus exclude the employer from all recourse upon the third party tort-feasor. Having obtained relief from the third party, he cannot pursue the alternate remedy.
The Workmen's Compensation Act was adopted, as we have stated in many cases, to protect industrial workers against the hazards of their employment and to cast upon the industry in which they are employed a share of the burden resulting from industrial accidents. We have held that the Act should be liberally construed in order to carry into effect its beneficent purposes. But this does not mean that we should do violence to the statute in order to aid either party. The provisions of subsection 11 were designed to relieve the employer from this burden in cases where the injuries are caused by the fault of other persons and the injured employee obtains redress from them.
The provisions against the collection of both damages and compensation, and subrogating the employer to the rights of the employee in the event compensation is awarded, were enacted for the benefit of the employer, as an integral part of the scheme of compensation. Walters v. Eagle IndemnityCo., 166 Tenn. 383, 61 S.W.2d 666, 88. A.L.R. 654. *Page 423
In Walters v. Eagle Indemnity Co., supra, it was held that the word "collect," as used in a provision of the Compensation Act, whenever an injury was sustained under circumstances creating in some person other than the employer a legal liability, the employee might, at his option, either claim compensation, or proceed at law against such other person to recover damages, or proceed against both the employer and such other person, but that he should not be entitled to "collect" from both, imported an act of payment without reference to the legal grounds on which payment might be demanded. And it was further held that payment of a substantial sum to an injured employee by a third person charged with liability for the injury, in consideration of the employee's covenant not to sue, extinguished the employee's right to demand compensation for the injury from his employer, regardless of whether the third person was actually liable.
It is contended by the respondent that in order to give effect to such rule, it must be made to appear in the suit for compensation that the person from whom damages were collected was in fact legally liable to pay damages for the injury. But it seems to us very evident that if such a burden was placed upon the employer — pleading the collection of damages in bar of the right to compensation — to prove the negligence of the third person, he would be met by both participants in the accident contending that there was in fact no negligence, and the statutory provision would be of little benefit. A confusion of issues would result which an equitable construction of subsection 11 does not sanction or warrant. In any event, the fact of payment by the third party creates a prima facie showing of liability. This reasoning was clearly stated and upheld in Stone v. George W. HelmeCo., 184 Va. 1051, 37 S.E.2d 70.
The position is taken by respondent that since no compensation has actually been paid to the employee, the employer, as self-insurer, has acquired no right of subrogation which has been prejudiced by the act of the *Page 424 employee. This argument is not valid. The right of subrogation under our Act does not depend upon equitable principles which require actual payment before the right accrues. As was held in Reidy v. Old Colony Gas Co., 315 Mass. 631,53 N.E.2d 707, it is purely statutory and arises when the conditions specified are met.
A fair and equitable construction of our statute is that if the employer's or the insurance carrier's statutory right of subrogation is destroyed by the act of the employee, the latter's right to compensation is thereby barred. In the case before us, that is precisely what has happened. Should the appellant pay compensation to the injured employee, under the Act it would be entitled to subrogation to the rights of the respondent against the third parties whom he released from liability. But should the appellant employer then proceed against such third parties, it would be met with a valid and binding release which would be a complete bar to such a suit. In other words, the employer would find the statutory right to subrogation to have been destroyed by the voluntary act of the employee.
It is stated in the record that the amount paid by the third parties to the respondent was a fair and proper settlement under the circumstances. There is no showing or contention that any fraud was practiced upon him, or that he was misled in any manner.
The Workmen's Compensation Acts of Virginia and Tennessee, while somewhat different in phraseology from ours, are of similar import, and in the cases we have cited from these states, the courts reached the same conclusion that we have reached in this case. For related cases see Annotations 106 A.L.R. 1040, 88 A.L.R. 665.
The circuit court in its order ruled that the claimant could not waive his rights under the Act because of the provision contained in Section 7035-24, which reads: "No agreement by an employee to waive his rights to compensation under this Article shall be valid". *Page 425
The Article referred to, of which the above quotation is the last paragraph, exempts compensation benefits from tax and creditor's claims, and prohibits the assignment of such benefits, or agreements by employees to share the expenses of workmen's compensation costs. The quoted paragraph refers to compensation under this article, but even if it refers to the Act, such a provision, if applied here, would relate solely to rights existing between employer and employee. The claimant in his dealings with a third party is a free agent and the agreement he made with the third parties exonerating them from liability had the effect under Sec. 7035-11 of an exercise of his option to pursue his alternate remedy against such third parties. As such, it operated as a bar to the alternate remedy against the employer.
Judgment reversed.
BAKER, CJ., and TAYLOR and OXNER, JJ., concur.