DePuy, Inc. v. Farmer

ATTORNEYS FOR APPELLANT ATTORNEY FOR APPELLEE
James P. Buchholz David C. Kolbe
Larry L. Barnard Warsaw, Indiana
Fort Wayne, Indiana
______________________________________________________________________________

In the
Indiana Supreme Court
_________________________________

No. 93S02-0503-EX-97

DEPUY, INC.,
Appellant (Plaintiff below),

v.

ANTHONY FARMER,
Appellee (Defendant below).
_________________________________

Appeal from the Worker’s Compensation Board, No. 139388
________________________________

On Petition To Transfer from the Indiana Court of Appeals, No. 93A02-0404-EX-301
_________________________________

May 17, 2006

Boehm, Justice.

An injured worker settled a civil suit against a co-employee for an intentional injury in
the workplace. We hold that the settlement reached before worker’s compensation benefits have
been resolved does not bar the injured employee from pursuing worker’s compensation for that
injury, but if worker’s compensation benefits are awarded, the employer is entitled to subroga-
tion rights to prevent double recovery.

Facts and Procedural History

On September 1, 1994, as Anthony Farmer started to clock out at the end of his shift at
DePuy Manufacturing, Inc., he brushed his time card against Wynn Swindel’s side. In response,
Swindel, who weighed approximately 470 pounds, yelled at Farmer, pinned him against a ma-
chine, and bent him backwards over it. Farmer sustained severe injuries to his back, resulting in
lost work, surgery, and medical bills.

Farmer requested worker’s compensation benefits in the amount of $58,556 in medical
expenses, $3,312 for eight weeks temporary total disability, and $16,250 for twenty-five percent
permanent impairment. He also filed a civil suit against Swindel for battery and DePuy for neg-
ligence. The trial court dismissed the civil claim against DePuy on the basis that the Worker’s
Compensation Act (WCA) barred a civil tort claim against Farmer’s employer for injuries sus-
tained in this workplace incident.

DePuy also moved unsuccessfully to dismiss the worker’s compensation claim as arising
from “horseplay” not governed by the WCA. After Swindel paid Farmer $3,000 to settle the bat-
tery suit, DePuy renewed its motion to dismiss the worker’s compensation claim, this time on the
ground that it had not consented to the agreement between Farmer and Swindel. The Hearing
Judge agreed that the Worker’s Compensation Board lacked jurisdiction as a result of Farmer’s
“third-party settlement” with Swindel. The Board reversed the Hearing Judge but directed
Farmer to remit the $3,000 settlement sum to DePuy as a condition to maintaining his worker’s
compensation claim.

Worker’s compensation applies to injuries incurred “by accident arising out of and in the
course of” employment. The Hearing Judge found that Farmer’s injuries met these requirements,
and the Board affirmed, but a divided panel of the Court of Appeals reversed the Board. The
Court of Appeals agreed with the Board that the civil settlement did not bar Farmer’s worker’s
compensation claim, but held, with Judge Vaidik dissenting, that Farmer’s injuries “although
sustained in the course of his employment, [did] not arise out of his employment with DePuy.”
DePuy, Inc. v. Farmer, 815 N.E.2d 558, 565 (Ind. Ct. App. 2004). We granted transfer. DePuy,
Inc. v. Farmer, 831 N.E.2d 740 (Ind. 2005).

Standard of Review

DePuy first argues that the Worker’s Compensation Board erred when it affirmed the
Hearing Judge’s finding that Farmer’s injuries arose out of his employment. To the extent this

2
finding turns on disputed facts, “[o]n appeal, we review the decision of the Board, not to re-
weigh the evidence or judge the credibility of witnesses, but only to determine whether substan-
tial evidence, together with any reasonable inferences that flow from such evidence, support the
Board’s findings and conclusions.” 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.
Id. DePuy also argues that Farmer’s settlement with Swindel in the civil suit bars his worker’s
compensation claim. The resolution of this issue involves a question of law which we review de
novo. Id.

I. Application of Worker’s Compensation Act

The WCA provides “compensation for personal injury or death by accident arising out of
and in the course of employment.” Ind. Code § 22-3-2-2 (2004). The parties do not dispute that
Farmer’s injuries arose “in the course of” his employment with DePuy. He was injured while at
work when he was in the process of clocking out at the end of his shift. This was clearly “in the
course of” his employment because clocking in and out was part of Farmer’s job. See Global
Constr., Inc. v. March, 813 N.E.2d 1163, 1166 (Ind. 2004) (“An accident occurs ‘in the course
of’ employment when it takes place at the time and place of a person’s employment while an
employee is fulfilling his duties.”); Bertoch v. NBD Corp., 813 N.E.2d 1159, 1161 (Ind. 2004).

DePuy argues that Farmer’s injuries were incurred in “horseplay” and therefore were not
compensable under the WCA because they did not “arise out of” his employment. The Court of
Appeals held that Farmer’s injuries did not arise out of his employment because “the quarrel was
a consequence of Swindel’s bad start of the day and grouchy mood. Starting out irritably, Swin-
del introduced his personal problems into the work environment, which eventually resulted in
Farmer’s injuries.” DePuy, 815 N.E.2d at 565. We agree with the earlier decision of the Court
of Appeals that a participant in horseplay is not entitled to worker’s compensation because the
horseplay is not for the benefit of the employer and therefore does not arise out of the employ-
ment, but an innocent victim of horseplay by others is entitled to worker’s compensation bene-
fits. Fields v. Cummins Employees Fed. Credit Union, 540 N.E.2d 631, 638 (Ind. Ct. App.
1989). The issue then is whether Farmer, not Swindel, was engaged in conduct outside his em-
ployment.

3
 An injury “arises out of” employment when a causal nexus exists between the injury or
death and the duties or services performed by the injured employee. March, 813 N.E.2d at 1165-
66; Bertoch, 813 N.E.2d at 1161; Burke v. Wilfong, 638 N.E.2d 865, 869 (Ind. Ct. App. 1994).
The causal relationship is established “when a reasonably prudent person considers a risk to be
incidental to the employment at the time of entering into it.” Burke, 638 N.E.2d at 869. “Em-
ployment” means more than merely performing services directly related to the job for which the
employee was hired, and includes activities “reasonably incidental to one’s employment.” Wine-
Settergren v. Lamey, 716 N.E.2d 381, 384, 389 (Ind. 1999). Ordinary courtesies to fellow em-
ployees may not be required by the employer, but are nevertheless incidental to the employment.
Id. Whether a risk or injury is incidental to employment is determined by the activity in which
the employee was engaged when injured and its relationship to: 1) “his duties;” 2) “the reason-
ableness of employee’s acts in relation to the sum total of conditions and circumstances consti-
tuting the work setting at the time of the injury;” and 3) “the knowledge and acquiescence of the
employer in situations where acts incidental to employment are being done in violation of com-
pany rules.” March, 813 N.E.2d at 1169 (citing Segally v. Ancerys, 486 N.E.2d 578, 581 (Ind.
Ct. App. 1985)).

We believe Judge Vaidik in dissent correctly gave deference to the Board’s finding that
Farmer’s acts were reasonable conduct in this work setting and did not provoke Swindel’s attack.
See DePuy, 815 N.E.2d at 567. Farmer’s injuries were incurred while he was performing ser-
vices for DePuy (i.e., walking towards the time clock to end his shift), and Swindel’s loss of con-
trol and unprovoked attack does not change that. Accordingly, the incident was within the scope
of employment as ordinary courtesies to a fellow employee, and Farmer’s injuries “arose out of”
his employment.

DePuy also argues that because Farmer dragged his time card across Swindel’s midsec-
tion, Farmer’s injuries were not “by accident.” Whether an injury inflicted by a fellow employee
is “by accident” turns on the intent of the injured employee, not that of the employee inflicting
the harm. Tippmann v. Hensler, 716 N.E.2d 372 (Ind. 1999). As Tippmann put it, the issue is:
‘“Did the party who is advocating the applicability of the Act intend for harm to result from the
actions that party undertook?’ If so, then the injury did not occur ‘by accident,’ for that particu-
lar litigant.” Id. at 376. The same injury intentionally inflicted by a co-worker can be both “by

4
accident” as far as the employer is concerned and not “by accident” if the fellow employee seeks
to invoke tort immunity under the Act. Id. In this case, the Hearing Judge found that Farmer’s
actions were not unreasonable and did not provoke Swindel’s attack, and the Board affirmed this
finding. Specifically, the Hearing Judge found Farmer “was injured in the course and scope of
his employment when another employee, Wynn Swindel, assaulted [him]” and Farmer’s “actions
in greeting Wynn Swindel and touching him with his timecard did not constitute horseplay or
provocation of Swindel’s assault.” The only evidence of the reason for the incident was
Farmer’s report that another co-worker had asked Swindel why he had attacked Farmer and
Swindel’s reply was that he had had a fight with his wife and had taken it out on Farmer. Farmer
denied Swindel’s statement as recorded in the Sheriff’s report that Farmer had given Swindel a
“titty twister” which provoked him to anger and retaliation. DePuy did not offer the Sheriff’s
report or any evidence from Swindel or any other employee as to the reason for the attack. The
Hearing Judge is entitled to credit Farmer’s testimony, and if so, to find as she did that Farmer,
like the victim in Tippmann, did not intend for his action to cause harm to himself and did not
provoke the ensuing injury. In sum, because the incident was the product of no fault on the part
of either Farmer or his employer, it occurred “by accident” as far as DePuy is concerned.

II. The Effect of a Civil Tort Recovery From a Fellow Employee

It is well settled that if the WCA applies to an injury, the rights and remedies granted to
an employee by the WCA “exclude all other rights and remedies of such employee.” I.C. §§ 22-
3-2-6, 22-3-6-1(e); Evans v. Yankeetown Dock Corp., 491 N.E.2d 969, 971 (Ind. 1986). Courts
have no jurisdiction to entertain common law claims against the employer or a fellow employee
for accidental injuries arising out of and in the course of the victim’s employment. Knoy v.
Cary, 813 N.E.2d 1170, 1171 (Ind. 2004). “This is part of the quid pro quo in which the sacri-
fices and gains of employees and employers are to some extent put in balance, for, while the em-
ployer assumes a new liability without fault, he is relieved of the prospect of large damage ver-
dicts.” 6 Arthur Larson & Lex K. Larson, Larson’s Workers’ Compensation Law, § 100.01
(Matthew Bender & Co., Inc. 2005); accord Williams v. Delta Steel Corp., 695 N.E.2d 633, 635
(Ind. Ct. App. 1998), trans. denied.

A. The Statutory Provisions

5
 Although the WCA provides the exclusive remedy against the employer and fellow em-
ployees for accidental injuries, section 13 of the Act has a number of provisions that explicitly or
by judicial construction allow an employee to sue a “third party.” See I.C. § 22-3-2-13;
Waldridge v. Futurex Indus., Inc., 714 N.E.2d 783, 785 (Ind. Ct. App. 1999), trans. denied. Sec-
tion 13 defines a “third party” as a person who is not “the employer and not in the same employ.”
Thus, by its terms, section 13 does not apply to the civil suit between Farmer and Swindel.
However, to understand the parties’ arguments, and the actions of the Board, it is necessary to
describe briefly both section 13 and the case law under that section.

The WCA addresses a number of issues that may arise in claims against a third party. All
of these provisions are found among the nine unnumbered paragraphs of section 13 which ad-
dress a number of other subjects as well. For convenience we will refer to these paragraphs as if
they bore numbers. Paragraph 1 provides that if the injured employee gets a judgment or settles
with a third party the liability of the employer to pay “further compensation” under the WCA
terminates. 1

Paragraph 1 includes an explicit obligation of the employee to reimburse the employer in
the event of a settlement with a third party:

[I]f the action against the other person [i.e. a “third party” tortfeasor] is brought
by the injured employee . . . and . . . settlement is made with the other person, ei-
ther with or without suit, then from the amount received by the employee . . .
there shall be paid to the employer or the employer’s compensation insurance car-
rier . . . the amount of compensation paid to the employee or dependents, plus the
[expenses] . . . paid by the employer . . .

I.C. § 22-3-2-13. In Norris v. United States Fidelity and Guaranty Co., 436 N.E.2d 1191, 1194
(Ind. Ct. App. 1982), this right of the employer was held to be a lien, not a subrogation right, and
therefore not subject to proration between amounts also covered by worker’s compensation and
those that are not. This right of the employer is, however, subject to the employer’s reimbursing
the employee for its “pro-rata share of the reasonable and necessary costs and expenses of assert-
ing the third party claim.” I.C. § 22-3-2-13 (paragraph 1).

1
In all cases these descriptions are attempts to capture the substance of the statutory provisions, but do
not include all caveats or details and cannot be taken as complete recitations of these provisions.

6
 Notwithstanding the forgoing provisions governing settlements with third parties, if the
injured employee receives a “final judgment” against the third party that is for less than the
amount of the employer’s liability under the WCA, then the injured employee may still collect
worker’s compensation benefits by “either collecting the judgment and repaying the employer
[or employer’s insurer] for compensation previously drawn, if any, . . . or . . . assigning all rights
under the judgment to the employer [or employer’s insurer].” I.C. § 22-3-2-13 (paragraph 3).

Paragraph 3 says that if an employee gets a final judgment “other than by agreement” for
less than his worker’s compensation benefits, the employee can assign that to the employer and
proceed to collect benefits. This provision permits an employee who is not fully compensated by
a third party judgment to obtain the remaining balance of his worker’s compensation benefits.

B. Case Law Involving Settlements with Third Parties

The Court of Appeals has held that this provision of paragraph 3 does not permit an as-
signment and collection of benefits if the employee settles a tort claim “by agreement.” M-
cCammon v. Youngstown Sheet & Tube Co., 426 N.E.2d 1360, 1364 (Ind. Ct. App. 1981).
More generally, there is substantial authority for the proposition that “if an employee settles a
third-party claim without the employer’s consent, the employee forfeits any right to future com-
pensation.” See 6 Larson, supra, § 116.07[2]. This is presumably based on the view that be-
cause the employer is entitled to be reimbursed from any third party award, the employer’s con-
sent is required for any settlement that would limit that amount. It is noteworthy, however, that
the cases cited to support this proposition are sprinkled with “but see.” Id. at § 116.07D[2].

Several Indiana cases also suggest that a settlement with a third party precludes worker’s
compensation benefits whether or not it is in an amount equal to or greater than the benefits. 2

2
In McCammon, a settlement with a third party was achieved after a temporary disability award had been
paid. The employee subsequently sought permanent impairment and the Board found no evidence that
there was permanent impairment, and the Court of Appeals agreed. However, the Court of Appeals also
affirmed the Board’s finding to discontinue compensation on the ground that section 13 terminates cover-
age in the event of a settlement of a third party claim. The Court of Appeals cited the provision that in the
event of a settlement with a third party “the liability of the employer . . . to pay further compensation . . .
shall thereupon terminate.” Id. at 1364. This alternative and apparently unnecessary holding did not spe-
cifically address the effect of a settlement with a third party before compensation is awarded. The only
case McCammon cited for this proposition was Koughn v. Utrad Industries, Inc., 150 Ind. App. 110, 275
N.E.2d 572 (1971). That case clearly held that a settlement with a third party terminated the employer’s

7
These cases all addressed situations where either the employee settled with the third party after
worker’s compensation benefit had been paid or the settlement amount was greater than the
worker’s compensation benefits. No third party tortfeasor case has squarely addressed the situa-
tion we have before us where a tort claim was settled for less than the apparent worker’s com-
pensation benefits before the worker’s compensation claim was resolved.

The third party tortfeasor cases all turn on the specific language of section 13, in particu-
lar the “further compensation . . . shall thereupon terminate” language of paragraph 1. They did
not address the effect of paragraph 9 of section 13, which states, with exceptions not relevant
here, 3 “[n]o release or settlement of claim for damages . . . shall be valid without the written con-
sent” of the employer.

“[I]t is well-established that a judicial interpretation of a statute, particularly by the Indi-
ana Supreme Court, accompanied by substantial legislative inaction for a considerable time, may

liability for “further compensation.” Although the facts of Koughn are not entirely clear, it is certain that
the carrier was repaid in full. We assume, therefore that the amount of the settlement exceeded the
amounts paid under the worker’s compensation award.
Similarly, the courts have dealt with attempts to allocate third party settlements to damages other
than those covered by worker’s compensation. In Carrier Agency, Inc. v. Top Quality Building Prod.,
519 N.E.2d 739, 740 (Ind. Ct. App. 1988), trans. denied, an injured employee was awarded $129,680 in
worker’s compensation benefits from his employer. However, because of a dispute between the employer
and the employer’s insurance carrier the injured employee was not paid his benefit. Subsequently, the
employer paid the employee $10,000 and assigned its rights against its carrier to the employee in consid-
eration of the employee’s covenant not to execute on the worker’s compensation award. The injured em-
ployee and his wife then settled a civil claim against a third party for $18,000 without the consent of the
employer or its carrier, and assigned the bulk of the settlement to the employee’s wife’s loss of consor-
tium claim. The Court of Appeals held that this allocation attempt was ineffective to defeat the carrier’s
statutory lien. The ultimate issue in Carrier Agency was whether the employee’s $18,000 settlement with
a third party barred any further payments of the worker’s compensation. The Court of Appeals stated:
The law in Indiana is settled that where an action is brought by an injured employee
against a third party tort-feasor and a settlement is made and a release executed, the
liability of the employer, or the employer’s compensation carrier, to pay further
compensation terminates. Additionally, the employer is entitled to subrogation for the
amounts paid, or is entitled to a lien on the judgment received by the employee against
the third party tort-feasor.
Id. at 742. For this proposition, the Court of Appeals cited section 13 of the WCA and four earlier cases,
one from this Court and three from the Court of Appeals, and held that the employee was barred from
further pursuit of payment against the carrier for awarded benefits because of the settlement between the
injured employee and the third party. Id. at 743.
3
In Koval v. Simon Telelect, Inc., 693 N.E.2d 1299, 1310 (Ind. 1998), we held that a court order specifi-
cally preserving an employer’s, or employer’s insurer’s, right to bring a suit against the third party does
not constitute “protect[ion] by court order.”

8
be understood to signify the General Assembly’s acquiescence and agreement with the judicial
interpretation.” Fraley v. Minger, 829 N.E.2d 476, 492 (Ind. 2005); accord Durham v. U-Haul
Int’l., 745 N.E.2d 755, 759 (Ind. 2001) (“if a line of decisions of this Court has given a statute
the same construction and the legislature has not sought to change the relevant parts of the legis-
lation, the usual reasons supporting adherence to precedent are reinforced by the strong probabil-
ity that the courts have correctly interpreted the will of the legislature.”); Dep’t of Revenue v.
U.S. Steel Corp., 425 N.E.2d 659, 662 (Ind. Ct. App. 1981) (“When the court interprets a statute
and the legislature fails to take action to change that interpretation, the legislature is presumed to
have acquiesced in the court’s interpretation.”). The general rule that a third party settlement
bars worker’s compensation benefits has been recited in these other settlement contexts. We as-
sume without deciding that DePuy is correct in claiming that this rule, announced over thirty
years ago as a matter of statutory interpretation, remains the law as to claims against third par-
ties. Whether that 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. 4

4
Recently, the Court of Appeals has backed away from the strict bar to worker’s compensation after an
injured employee has received some money from a third party. In Ansert Mechanical Contractors, Inc. v.
Ansert, 690 N.E.2d 305 (Ind. Ct. App. 1997), trans. denied, an injured employee was offered $100,000
from a third party tortfeasor’s insurance company. In an attempt to preserve its statutory subrogation
right, the employer’s worker’s compensation insurance carrier collected that sum from the third party’s
liability insurer and then advanced the injured employee $100,000. The employee did not release his
claim against the third party tortfeasor and did not enter into a written settlement agreement. The em-
ployer argued that this transaction constituted a “settlement” between the injured employee and the third
party, and therefore the employee was barred from pursuing worker’s compensation against the employer.
The Court of Appeals disagreed: “the apparent purpose behind the termination provision of section thir-
teen is to prevent injured employees from settling with a third party, thereby cutting off the opportunity of
a worker’s compensation carrier to pursue the liable party to recover any benefits it has paid.” Id. at 307.
Because the employee was still pursuing a claim against the third party tortfeasor, and his acceptance of
the $100,000 from the third party’s liability insurer did not preclude the employer’s worker’s compensa-
tion insurance carrier from pursuing the third party tortfeasor in recovering any worker’s compensation
benefits paid to the employee, the Court of Appeals held that section 13 did not bar the employee from
recovering worker’s compensation benefits. Id.
In Calvary Temple Church, Inc. v. Paino, 555 N.E.2d 190 (Ind. Ct. App. 1990), the Worker’s
Compensation Board found no “final settlement agreement” had been reached between an injured em-
ployee and a third party where the employer and its carrier had not signed an agreement between the em-
ployee and third party in settlement of a civil suit. The carrier was therefore liable for future compensa-
tion benefits. The Court of Appeals noted that the Board was “technically correct,” but found it unneces-
sary to rule on this issue. Id. at 193. Because the payment received from the third party was greater than

9
 C. Intentional Torts by Co-Employees

The WCA specifically extends the immunity provided by the exclusivity of remedies
provision to those “in the same employ” as the injured employee when the injury occurred.
Tippmann, 716 N.E.2d at 375. This immunity applies only if the injury is “by accident.” The
parties do not dispute that Farmer was injured by an intentional tort of a co-worker. Accord-
ingly, Farmer could pursue a civil tort claim against Swindel in civil court, and the exclusivity
provisions of the WCA did not bar Farmer’s civil action against Swindel. The principal issue
presented by this case is the extent to which the rules developed under the specific language of
section 13 as to third party torts also apply to intentional torts by fellow employees.

The Court of Appeals applied section 13 to Farmer’s settlement with Swindel, but held
that by ordering Farmer to give DePuy the settlement sum, the Board ensured that Farmer could
not receive double recovery. DePuy, Inc., 815 N.E.2d at 563. Thus, the Court of Appeals held
that section 13 did not bar Farmer’s worker’s compensation claim. Id. We agree with this result.
In summary, we conclude first that by its terms, section 13 does not apply to a claim against a
fellow employee. Second, the cases cited by the parties all address claims against third party
tortfeasors, which are governed by section 13. Third, to the extent case law supports the view
that a settlement is an absolute bar to worker’s compensation benefits, these decisions either ad-
dressed recoveries in excess of the worker’s compensation benefits or settlements after the
worker’s compensation benefits were resolved, and none of these cases addressed the situation
we have here, where the settlement is for less than the anticipated amount of the worker’s com-
pensation benefit which has yet to be resolved. Fourth, although an absolute statutory bar is not
applicable to a recovery against a fellow employee, equitable subrogation rights nevertheless
give DePuy the right to offset any recovery from Swindel against its worker’s compensation li-
ability. Fifth, if an employee settles without the approval of the employer (or its carrier) the em-
ployer (or its carrier) is free to challenge the amount received as inadequate.

As noted above, the parties agree that the several provisions found in section 13 of the
WCA apply by their terms only to recoveries against third parties who are not “in the same em-
ploy.” DePuy argues that these provisions, as interpreted by the court decisions described above,

the worker’s compensation previously awarded, the Board ordered the employee to reimburse the carrier,
less the carrier’s pro rata share of attorney’s fees. Id. at 194.

10
nevertheless apply to suits against co-workers for injuries caused by intentional torts. Specifi-
cally, DePuy argues that this Court in Tippmann incorporated the limitations and constraints of
section 13 onto civil suits alleging an injury from an intentional tort by a coworker. Thus,
DePuy argues that, though Swindel is not a “third party,” the settlement agreement between
Farmer and Swindel barred Farmer’s worker’s compensation claim and the Board did not have
the authority to resurrect the claim even if it also required Farmer to give the settlement sum to
DePuy.

In Tippmann we stated that allowing an employee to sue a co-employee for an intentional
tort would not lead to double recovery “because the employer or its worker’s compensation in-
surance carrier would have subrogation rights to the award under Ind. Code § 22-3-2-13.” 716
N.E.2d at 380 (citations omitted). We adhere to this view, but section 13 is not the source of
subrogation rights in a recovery by one employee for the intentional tort of another. Paragraph 1
of section 13 specifically limits its application to suits against “some other person than the em-
ployer and not in the same employ.”

The result reached in Tippmann is produced by the common law even in the absence of
the statutory right conferred by section 13. In the absence of a specific statutory provision, this
subrogation right comes from the common law. Subrogation operates “in favor of persons who
are legally obligated to pay for a loss caused by another’s tort.” Steury v. N. Ind. Pub. Serv. Co.,
Inc., 510 N.E.2d 213, 214 (Ind. Ct. App. 1987) (citing 73 Am. Jur. 2d Subrogation § 38 (1974);
83 C.J.S. Subrogation § 16 (1953)). Common law subrogation is “a doctrine of equity jurispru-
dence” that “arises by operation of law, that is to say it is created by the legal consequences of
the acts and relationships of the parties, and thus is a legal fiction.” 83 C.J.S. Subrogation §§ 2, 4
at 499-500, 504 (2000) (citations omitted); accord 73 Am. Jur. 2d Subrogation § 1 at 541 (West
2001). It is “designed to promote and to accomplish justice, and . . . compel the ultimate pay-
ment of a debt by one who, in justice, equity, and good conscience, should pay it.” 83 C.J.S.
Subrogation § 3 at 502-03. The main goals of common law subrogation is to reimburse the sub-
rogee for payments made by it, and prevent unjust enrichment of the subrogor. Bank of New
York v. Nally, 820 N.E.2d 644, 653 (Ind. 2005); Erie Ins. Co. v. George, 681 N.E.2d 183, 186
(Ind. 1997); 73 Am. Jur. 2d Subrogation § 2 at 543. The Board’s decision to allow Farmer to

11
continue his worker’s compensation claim contingent upon his remitting the settlement sum to
DePuy achieved these goals, and was a proper application of these common law principles.

The purpose of the WCA is ‘“to shift the economic burden of a work-related injury from
the injured employee to the industry and, ultimately, to the consuming public.’” Daugherty v.
Industrial Contracting & Erecting, 802 N.E.2d 912, 919 (Ind. 2004) (citing Talas v. Correct Pip-
ing Co., Inc., 435 N.E.2d 22, 28 (Ind. 1982). Worker’s compensation is for the benefit of the
employee, and the Act should “be liberally construed . . . so as to not negate the Act’s humane
purposes.” Frampton v. Cent. Ind. Gas Co., 260 Ind. 249, 251, 297 N.E.2d 425, 427 (1973). As
Tippmann observed, in the absence of subrogation, the intentional tortfeasor could shift the cost
of wrongdoing to industry and thus to the general public. We think that the Board’s order con-
forms with and carries out this humane purpose of the WCA, and also prevents double recovery,
the equitable result demanded by common law subrogation. However, one purpose of the WCA
is to provide prompt compensation to an injured employee. Because DePuy had not yet begun
payment of Farmer’s award, the Board should have allowed Farmer to keep the settlement sum,
and permitted DePuy a credit against any future compensation. A subrogee should reimburse the
employee for its proportionate costs of any recovery from the fellow employee tortfeasor, just as
the statute so provides as to “third parties.” 5 And lastly, an injured employee who settles with a
fellow employee without consent from the employer (or its carrier) leaves it open for the em-
ployer (or carrier) to challenge the adequacy of the settlement. 6

5
Paragraph 6 of section 13 allows the employee two years “after the cause of action accrues” to file a
third party suit. That paragraph also provides that the employer (or its carrier) “may collect in their own
name . . . compensation paid or payable to the injured employee.” This provision does not mention attor-
ney fees, but in Indiana State Highway Commission v. White, 259 Ind. 690, 693, 291 N.E.2d 550, 552
(1973), this Court stated “it is quite obvious that the employer or carrier would be required to pay for the
legal services necessary to maintain its subrogation action, and could not deduct any part of the cost of
those services from the compensation due a claimant.” Similarly, if a subrogee has a common law subro-
gation right to all of or a portion of a settlement in a legal proceeding equitable principles demand that the
subrogee pay its proportionate costs for any amount it recovers. 73 Am. Jur. 2d Subrogation at § 11; 83
C.J.S. Subrogation at § 6 (In general, subrogation should be applied in a manner that dictates equity, jus-
tice, and good conscience, as well as public policy.).
6
See Liberty Mut. Ins. Co. v. Ameta & Co., 564 F.2d 1097, 1103 (4th Cir. 1977) (Employee was injured
and received compensation benefits from his employer. Employee then settled with a third party for less
than the compensation award. The court held that the employer’s insurer was not bound by the release of
liability between the third party and the employee because the insurer had neither consented to the settle-
ment nor was a party to the civil action.); Dickerson v. Orange State Oil Co., 123 So. 2d 562, 572 (Fla.
1960) (The employee accepted a settlement with a third party tortfeasor without giving notice to his em-

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 III. Statutory Award Increase

Farmer contends that he is entitled to an increased award pursuant to Indiana Code sec-
tion 22-3-4-8(f), which provides: “An award of the full board affirmed on appeal, by the em-
ployer, shall be increased thereby five percent (5%), and by order of the court may be increased
ten percent (10%).” Thus, the statute explicitly requires the courts to increase the award by five
percent if affirmed, and gives the courts discretion to increase the award an additional five per-
cent. For the most part this discretion has been exercised to discipline frivolous or dilatory ap-
peals. The standard for discretionary damage award increases on appeal generally was described
in Orr v. Turco Manufacturing Company, Inc., 512 N.E.2d 151, 152 (Ind. 1987): “[i]n general, a
discretionary award of damages has been recognized as proper when an appeal is permeated with
meritlessness, bad faith, frivolity, harassment, vexatiousness, or purpose of delay.” The Court of
Appeals has since cited the standard described in Orr in exercising discretion under section 22-3-
4-8(f). See, e.g., Manous v. Manousogianakis, 824 N.E.2d 756, 768 (Ind. Ct. App. 2005); Tan-
glewood Trace v. Long, 715 N.E.2d 410, 416 (Ind. Ct. App. 1999), trans. denied. On the other
hand, the Court of Appeals has also cited “the extended period that [the employee] has been pre-
vented from obtaining worker’s compensation benefits” as a factor in increasing the award of the
Board by the full ten percent. Graycor Indus. v. Metz, 806 N.E.2d 791, 801-02 (Ind. Ct. App.
2004).

Although the statute is silent on the point, the Court of Appeals has long held that a
worker’s compensation award may include interest. See Calvary Temple Church, Inc. v. Paino,
555 N.E.2d 190, 195 (Ind. Ct. App. 1990). Farmer’s did not. Farmer’s injuries were incurred
over a decade ago, and he has yet to receive any worker’s compensation benefit. This delay is
nearly twice the time consumed by most cases from injury to final determination on appeal. See,
e.g., Dial X-Automated Equip. v. Caskey, 826 N.E.2d 642 (Ind. 2005) (5 years); Manous, 824

ployer or obtaining the employer’s consent. The court held that the settlement did not bar the insurer’s
subsequent action against the third party but did limit recovery in the second action to the extent of the
insurer-subrogee’s amount paid in compensation. The court stated that because the third party had
knowledge that the employee was injured in the course of employment, the third party is “charged with
the knowledge of the law providing that the employer or his insurance carrier is subrogated to the rights
of the employee and the third party is cast with statutory notice of the employer’s subrogation interests.”);
Henning v. Wineman, 306 N.W.2d 550, 553-54 (Minn. 1981) (an employee may settle without the em-
ployer’s or carrier’s consent, but such a settlement does not affect the employer’s or carrier’s rights
against the third party).

13
N.E.2d 756 (5 ½ years); Graycor, 806 N.E.2d 791 (4 ½ years); Tanglewood, 715 N.E.2d 410 (6
years). As Farmer points out, the extra five percent is far less than the interest on the award over
that period of time. We agree that the issues raised by DePuy are not frivolous, and “disingenu-
ous” defenses are usually the basis of an enhanced award. However, we think a delay of over a
decade warrants an additional five percent even if, as here, the employer in good faith raises
fairly debatable issues.

Conclusion

The compensation awarded to Farmer by the Worker’s Compensation Board is affirmed
and hereby increased by ten percent.

Shepard, C.J., and Dickson, Sullivan, and Rucker, JJ. concur.

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