ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Paul A. Brizendine Timothy W. Wiseman
Floyds Knobs, Indiana Lynne D. Lidke
Indianapolis, Indiana
ATTORNEYS FOR AMICUS CURIAE ATTORNEYS FOR AMICUS CURIAE
INDIANA TRIAL LAWYERS ASSOCIATION DEFENSE TRIAL COUNSEL OF INDIANA
Trevor J. Crossen Rori L. Goldman
Stephen M. Wagner Ty M. Craver
Carmel, Indiana Indianapolis, Indiana
James D. Johnson
Evansville, Indiana
______________________________________________________________________________
In the FILED
Apr 15 2010, 2:07 pm
Indiana Supreme Court
_________________________________ CLERK
of the supreme court,
court of appeals and
tax court
No. 93S02-0906-EX-276
JIMMIE C. SMITH, Appellant (Plaintiff below),
v.
CHAMPION TRUCKING COMPANY, INC. Appellee (Defendant below).
_________________________________
Appeal from the Worker’s Compensation Board of Indiana, Application No. C-172793
The Honorable Linda Hamilton, Chairperson
_________________________________
On Petition to Transfer from the Indiana Court of Appeals, No. 93A02-0808-EX-701
_________________________________
April 15, 2010
Boehm, Justice.
We hold that under Indiana’s Worker’s Compensation Act, an employer’s worker’s
compensation liability for an employee’s benefits terminates if the employee settles a claim
against a third party for the same injury without first obtaining the employer’s consent to the
settlement. The Board’s decision dismissing Smith’s Application for Adjustment of Claim is
affirmed.
Facts and Procedural History
In August 2003, Jimmie Smith, a truck driver employed by Champion Trucking Co., was
injured in an Ohio accident with a third-party motorist. Smith’s initial medical expenses in the
amount of $4,342.42 were paid by Champion’s worker’s compensation coverage. He continued
to work for a year after the accident, but left Champion’s employ in August 2004.1 According to
Smith, he continued to suffer pain related to the accident, and in January 2005 he applied for an
adjustment of his worker’s compensation claim, asserting a permanent impairment and also
seeking compensation for additional medical expenses.
Meanwhile, Smith retained counsel to explore the possibility of recovering from Jeremy
Bittner, the third party motorist. At some point, Smith’s worker’s compensation attorney
notified Champion of his intention to sue Bittner, and on July 6, 2005, Champion responded by
notifying Smith’s attorney in the third-party matter that Champion was entitled to a lien on any
settlement proceeds in the amount of Champion’s worker’s compensation payments to Smith.
Smith settled with Bittner for $10,342 on July 22, 2005. According to Smith, he accepted the
settlement because, although Bittner was 95% at fault for the accident, he had only $12,000 in
liability insurance. The settlement agreement released Bittner from liability for the accident.
Smith does not claim that Champion was notified of the time and place of the settlement
negotiations, or had any role in the negotiation. Smith’s attorney paid 75% of the medical lien
amount ($3,256.74) to Champion and retained 25% as the attorneys’ fee authorized by the
worker’s compensation statute. In August 2005, less than one month after the settlement, a
neurosurgeon evaluated Smith as having suffered a 19% potential permanent impairment, which
would warrant approximately $26,500 in additional worker’s compensation benefits.
Champion moved to dismiss Smith’s application for adjustment of claim, and ultimately
the Worker’s Compensation Board ruled in July 2008 that Smith’s settlement with Bittner
terminated Champion’s liability pursuant to an “absolute bar” provision of the statute described
below. The Court of Appeals reversed, holding that the provision in question did not apply to
Smith’s claim because his worker’s compensation case had not yet been resolved. Smith v.
Champion Trucking Co., 901 N.E.2d 620, 624 (Ind. Ct. App. 2009). Further, the court noted,
1
The parties dispute whether Smith quit or was fired.
2
Champion was aware of both the settlement negotiations before they were concluded and also
the pending application for adjustment of claim and Champion was therefore free to challenge
the amount received from Bittner as inadequate, but failed to do so. Id. at 623. We granted
transfer.
Standard of Review
The Board’s factual findings are to be affirmed if they are supported by substantial
evidence. Walker v. State, 694 N.E.2d 258, 266 (Ind. 1998). “To the extent the issue involves a
conclusion of law based on undisputed facts, it is reviewed de novo.” DePuy, Inc. v. Farmer,
847 N.E.2d 160, 164 (Ind. 2006). Here, the Board’s ruling rested largely on undisputed facts and
the question is one of statutory interpretation to be reviewed de novo. Porter Dev., LLC v. First
Nat’l Bank of Valparaiso, 866 N.E.2d 775, 778 (Ind. 2007).
Settlements with Third Parties Under Indiana’s Worker’s Compensation Act
Section 13 of Indiana’s Worker’s Compensation Act (WCA), titled “Claims Against
Third Persons; Subrogation; Procedures,” contains a number of potentially relevant provisions.2
Smith argues that none of the provisions of Section 13 bars his claim. Champion responds that
this case is governed by language from Paragraph 1, which provides that if an injured employee
has received worker’s compensation and later settles a claim against a responsible third party,
“then from the amount received by the employee,” the employer is to be reimbursed for its
expenditures, “and the liability of the employer or the employer’s compensation insurance carrier
to pay further compensation or other expenses shall thereupon terminate.” Ind. Code § 22-3-2-
13 (2004) (emphasis added). Paragraph 2 has a similar provision applicable to settlements made
before any worker’s compensation has been paid.3
Smith’s contention presents a pure question of statutory interpretation. “When faced with
a question of statutory interpretation, we first examine whether the language of the statute is
2
These provisions inexplicably consist of one section covering three printed pages of the Indiana Code, and
containing nine lengthy unnumbered paragraphs, each consisting of several unnumbered sentences. For
convenience, we refer to the nine unnumbered paragraphs as if they bore numbers.
3
Smith correctly asserts that the Board erroneously relied on Paragraph 2 in denying his claim. Paragraph 2 is
inapplicable here, because it deals only with situations where the employee, “not having received compensation,”
settles with a third party. In that event, Paragraph 2 provides that the employer “shall have no liability” to pay
worker’s compensation benefits to an employee who has settled with a third party. I.C. § 22-3-2-13. It is
undisputed that Smith received over $4,000 in worker’s compensation benefits before settling with Bittner.
3
clear and unambiguous. . . . The statute itself is the best evidence of legislative intent. . . . We
construe statutes only where there is some ambiguity which requires construction.” State v.
American Family Voices, Inc., 898 N.E.2d 293, 297 (Ind. 2008). Therefore, we look first to the
language of the statute to determine whether Champion is liable for additional worker’s
compensation benefits after Smith’s settlement with Bittner. We conclude that precedent and the
statute itself dictate that the “absolute bar” language of the statute is unambiguous and that it
protects Champion from further worker’s compensation liability.
A long line of Indiana decisions supports the proposition that an employer’s worker’s
compensation liability terminates when the injured employee settles with a third-party tortfeasor
without first obtaining the employer’s consent.4 See Koughn v. Utrad Indust., Inc., 150 Ind.
App. 110, 275 N.E.2d 572 (1971) (original Indiana case holding that termination language in
WCA meant that employer’s worker’s compensation liability ceased after employee settled with
third party); Waldridge v. Futurex Indust., Inc., 714 N.E.2d 783, 786 (Ind. Ct. App. 1999), trans.
denied (employee injured by exposure to chemicals settled with manufacturer of one chemical;
court held that this settlement barred employee’s worker’s compensation liability under Section
13); Carrier Agency, Inc. v. Top Quality Bldg. Prods., Inc., 519 N.E.2d 739, 743 (Ind. Ct. App.
1998), trans. denied; McCammon v. Youngstown Sheet and Tube Co., 426 N.E.2d 1360, 1363
(Ind. Ct. App. 1981) (“Clearly the statute provides that if an action is brought by an injured
employee against a third party and a settlement is made, the liability of the employer or
employer's compensation carrier to pay further compensation terminates.”).
Smith argues that these “absolute bar” provisions apply only when the amount received
from the third party exceeds the total worker’s compensation claim. He bases this argument in
part on the italicized language quoted above, claiming without further explanation that it implies
that the third party damages exceed the worker’s compensation claim, and only in that
circumstance does the employer’s liability terminate. The directive to reimburse the employer
“from” the settlement proceeds suggests an assumption that the settlement amount exceeds the
4
We refer to “the employer” because that is the situation in the case before us. The WCA in many places uses
language that expressly includes the employer’s worker’s compensation carrier in some provisions applicable to the
employer. For readability we omit these references to the carrier here with no implication that the provisions do not
also apply to carriers.
4
worker’s compensation benefit, but the unequivocal bar language is in no way qualified by that
requirement.
The cases cited above discussing the effect of a settlement do not specifically address
whether the worker’s compensation claim was greater or less than the settlement received from
the third party. In DePuy, Inc. v. Farmer, 847 N.E.2d 160 (Ind. 2007), we addressed the effect of
a settlement of a worker’s claim against a fellow employee for an intentional tort. Because the
claim was against a fellow employee, Section 13 did not apply and the case was governed by
common law principles. Smith argues, however, that dicta from our opinion in DePuy mandates
that Paragraph 1 of Section 13 applies only when the amount of the settlement is greater than the
anticipated worker’s compensation claim. To the contrary, in DePuy, we indicated our
understanding of this general rule and its application in Indiana: “[w]e assume without deciding
that . . . this rule [that settlement with a third party bars a worker’s compensation claim],
announced over thirty years ago as a matter of statutory interpretation, remains the law as to
claims against third parties.” Id. at 168. We also noted that in each of these cases the amount of
the third-party settlement might be greater than the worker’s compensation benefit. We
identified the issue Smith raises but expressly did not resolve it: “[w]hether [this] rule applies
where the settlement is obtained before a worker’s compensation award has been resolved, and is
in an amount less than the anticipated worker’s compensation benefit is an open question that we
need not resolve here.” Id.
Although we noted the unresolved issue in DePuy, we also found a general consensus
that the employee’s settlement with a third party without the employer’s consent terminates the
employer’s worker’s compensation liability. Id. “[I]f an employee settles a third-party claim
without the employer’s consent, the employee forfeits any right to future compensation.” 6
Larson’s Workers’ Compensation Law § 116.07[2] (2009). Because the settlement with a third
party terminates the employer’s opportunity to recover its expenses from the party responsible
for the employee’s injuries, these absolute bar provisions are designed to prevent employees
from settling with third parties without the employer’s consent. We have previously noted that
the twin purposes of Section 13 are protecting the employer by providing it with subrogation
rights, and preventing double recovery by the employee. Koval v. Simon Telelect, Inc., 693
N.E.2d 1299, 1309 (Ind. 1998). In particular, the purpose of the termination provision is to
prevent employees from signing away the rights of employers. Ansert Mech. Contractors, Inc. v.
5
Ansert, 690 N.E.2d 305, 307 (Ind. Ct. App. 1997). Most recently, in Doerr v. Lancer Transport
Services, 868 N.E.2d 890 (Ind. Ct. App. 2007), trans. denied, the Court of Appeals cited this
consideration in upholding the absolute bar. Because the worker had not yet received worker’s
compensation benefits, the absolute bar provision in Paragraph 2 of Section 13 applied.
However, the court articulated the reasoning behind the absolute bar provisions in both
Paragraphs 1 and 2:
Our interpretation of Section 13, as a whole, is the legislature was attempting to
protect simultaneously the financial interests of both the employee and employer.
Permitting an employee to obtain a “quick and cheap” settlement with the third-
party tortfeasor, and then requiring an employer to exchange unlimited benefits
for whatever miniscule settlement the employee might enter, does not protect the
financial interests of the employer.
Id. at 893.
This reasoning applies equally to Paragraphs 1 and 2 (i.e., whether the employee has or
has not already received some benefits). More importantly for our purposes, the reason for the
bar applies with greater force where the settlement is for less than the anticipated benefits. In
this case, any addition or shortfall in the settlement amount will merely augment or reduce the
amount of the employer’s lien. Because the settlement releases the third party, ultimately the
employer’s money via the statutory lien, not the employee’s, is at stake in the settlement
negotiations. Other courts under similar benefit programs have reached the same conclusion.
See Villanueva v. CNA Ins. Cos., 868 F.2d 684, 687–688 (5th Cir. 1989) (holding that the
Federal Longshore and Harbor Workers’ Compensation Act (LHWCA) barred further worker’s
compensation liability after employee settled with third party whether the settlement amount was
greater or less than the anticipated worker’s compensation claim); Petroleum Helicopters, Inc. v.
Collier, 784 F.2d 644, 647 (5th Cir. 1986) (employee barred from seeking further compensation
under the LHWCA after settling with third party for amount less than anticipated worker’s
compensation claim without obtaining consent of employer); see also Estate of Cowart v.
Nicklos Drilling Co., 505 U.S. 469, 483 (1992) (under the LHWCA employee’s spouse forfeited
right to compensation after settling with third party without obtaining employer’s consent);
Colbert v. District of Columbia Dept. of Employment Servs., 933 A.2d 817, 822 (D.C. Ct. App.
6
2007) (injured employee’s agreement to binding arbitration constituted prohibited compromise
within the meaning of local worker’s compensation statute, and employee was not entitled to
further worker’s compensation benefits from her employer after agreeing to compromise).
We are mindful that the WCA is to be “construed to effectuate its humane purposes and
doubts in the application of terms are to be resolved in favor of the employee.” Christopher R.
Brown, D.D.S., Inc. v. Decatur County Mem’l Hosp., 892 N.E.2d 642, 649 (Ind. 2008). The
result in this case is harsh, because failure to engage Champion in the settlement process with
Bittner reduces Smith’s potential worker’s compensation benefits. But by settling without
Champion’s consent, Smith foreclosed Champion’s ability to recover from Bittner. And Smith
proceeded to consummate the settlement in the face of a long line of cases holding that his
course of action could produce a forfeiture of claims to additional compensation.
Despite its unfortunate result in this case, we think the language of both Paragraph 1 and
Paragraph 2 of Section 13 of the WCA unequivocally impose a bright line rule that settlement
with a third party without the employer’s consent bars a worker’s compensation claim.
Moreover, there are important reasons for the statutory scheme to insist that the employee obtain
the employer’s consent before settling with a third party. First, this rule eliminates satellite
litigation over the adequacy of the settlement. Second, notice and consent to settlement will not
often be a burdensome requirement. Although it may complicate and delay settlement
negotiations in some circumstances, in many the practical limits of recovery will be evaluated
equally by both employee and employer. Third, Paragraph 9 of Section 13 includes a provision
that settlements made without the written consent of the employer are “invalid” unless the
employer is “indemnified or protected by court order.” The clear implication is that the
employer’s written consent to a third-party settlement will constitute a waiver of the absolute bar
provisions of Section 13. Any other reading would preclude the employer, the employee, and the
third party from voluntarily entering into an arrangement that is in the interests of all parties.
Finally, where the third party recovery is less than compensation benefits, it is not
obvious why pursuing a third party claim is in the employee’s interest. The employee’s attorney,
however, may have an incentive to pursue it. Section 13 provides a claimant’s attorney with a
higher percentage of the recovery for pursuing third party claims than is allowed by statute for
7
pursuing a worker’s compensation claim.5 This consideration may be inapplicable in this case,
where different attorneys handled the third party and worker’s compensation issues, but it
supports the statutory choice of requiring the employer’s consent across the broad range of cases.
The cases cited by Smith in support of his claim are not inconsistent with our holding
today. See Roberts v. ACandS Inc., 806 N.E.2d 1, 6 (Ind. Ct. App. 2004) (where there is no
evidence that the settlement with the third party has been paid or made final in any way, the
employee’s worker’s compensation claim is not barred by the Occupational Diseases Act);
Ansert, 690 N.E.2d at 307 (payment by third party that did not release third party from liability
did not constitute settlement within the meaning of Section 13 termination provisions); Calvary
Temple Church, Inc. v. Paino, 555 N.E.2d 190, 193 (Ind. Ct. App. 1990), abrogated on other
grounds by Brown, 892 N.E.2d 642 (employee’s settlement with third party occurred after the
employer had already agreed to pay full worker’s compensation claim); see also Barrett v. City
of Brazil, 919 N.E.2d 1176 (Ind. Ct. App. 2010) (settlement with third party motorist for full
amount of insurance limits treated as final judgment within the meaning of Paragraph 3 of
Section 13 and therefore settlement did not terminate employer’s worker’s compensation
liability).
Smith also contends that footnote 4 in the Doerr opinion mandates that Paragraph 1 of
Section 13 is inapplicable to his claim. We disagree. The cited footnote merely points out that if
the third party’s liability is greater than the worker’s compensation liability, the employee is
permitted to keep the excess after reimbursing the employer for its worker’s compensation
outlay. Doerr, 868 N.E.2d at 893 n.4.
The Court of Appeals suggested that Champion could have challenged the settlement
amount as “inadequate.” Smith, 901 N.E.2d at 623. It is not clear how that challenge could have
been mounted before the settlement was finalized given that Champion was not notified of the
5
I.C. § 22-3-1-4(d) provides that attorneys who represent employees in a successful worker’s
compensation claim shall receive 20% of the first $50,000 of recovery; 15% of the recovery over $50,000,
and 10% of the value of various medical expenses. On the other hand, Paragraph 8 of Section 13 provides
that attorneys representing employees in third-party claims will receive:
a fee of . . . 25% , if collected without suit, of the amount of benefits actually repaid after
the expenses and costs in connection with the third party claim have been deducted
therefrom, and a fee of . . . 33 1/3%, if collected with suit.
I.C. § 22-3-2-13.
8
substance or terms of the settlement negotiations. And once the settlement was reached, it
released Bittner. Indiana courts have not invoked Paragraph 9 to invalidate settlements made
between employees and third-party tortfeasors without the employer’s consent. Doerr recently
reaffirmed that rule. Doerr, 868 N.E.2d at 894. For at least twenty years the Court of Appeals
has held that if an employee settles with a third party without first obtaining employer’s consent,
the employer’s sole avenue for reimbursement of worker’s compensation payments is through
the employee, and the employer may not continue to pursue the third party. State v. Mileff, 520
N.E.2d 123 (Ind. Ct. App. 1988). Although some other jurisdictions do not adhere to the same
interpretation of similar provisions,6 the Court of Appeals, citing the interest of finality from the
point of view of the third party, has long held that once an employee releases the third party from
liability related to the injury-causing accident, the employer may not continue to pursue the third
party. Given this longstanding precedent on an issue of statutory interpretation, we believe it is
up to the legislature to implement any change. DePuy, 847 N.E.2d at 168; Fraley v. Minger, 829
N.E.2d 476, 492 (Ind. 2005).
Conclusion
The finding of the Full Worker’s Compensation Board dismissing Smith’s Application
for Adjustment of Claim is affirmed.
Shepard, C.J., and Sullivan and Rucker, JJ., concur.
Dickson, J., concurs in result.
6
In Insurance Company of North America v. Andrew, 564 N.E.2d 939 (Ill. Ct. App. 1990), the court interpreted a
similar provision as preserving the employer’s right to a private cause of action against the third party. See also
Henning v. Wineman, 306 N.W.2d 550, 553–54 (Minn. 1981) (settlement between employee and third party,
without consent of employer or employer’s insurer, does not bar subsequent suit by employer or insurer against third
party).
9