ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Robert D. Brown Philip E. Kalamaros
Merrillville, Indiana South Bend, Indiana
ATTORNEYS FOR AMICUS CURIAE, David M. Mattingly
THE INSURANCE INSTITUTE OF David J. Mallon, Jr.
INDIANA, INC., THE AMERICAN Christopher S. Sears
INSURANCE ASSN., THE NATIONAL Brent W. Huber
ASSN. OF INDEPENDENT INSURERS, Indianapolis, Indiana
THE INDIANA SELF-INSURERS ASSN.,
INC., AND THE INDIANA
MANUFACTURERS ASSN.
Robert A. Fanning
Julia Blackwell Gelinas
Indianapolis, Indiana
IN THE
SUPREME COURT OF INDIANA
SPANGLER, JENNINGS )
& DOUGHERTY P.C., )
) 71S03-9806-CV-359
Appellant (Plaintiff Below), ) in the Supreme Court
)
v. ) 71A03-9603-CV-89
) in the Court of Appeals
INDIANA INSURANCE CO., )
)
Appellee (Defendant Below). )
APPEAL FROM THE ST. JOSEPH SUPERIOR COURT
The Honorable Jeanne M. Jourdan, Judge
Cause No. 71D02-9401-CP-72
May 25, 2000
SHEPARD, Chief Justice.
What fee must an employer or its worker's compensation insurance
carrier pay the attorney who represents an injured employee in a suit
against third-party tortfeasors? The Indiana law firm of Spangler,
Jennings & Dougherty appears to desire one-third of the amount already paid
by the carrier, plus one-third of the amount collected from third-party
tortfeasors but not reimbursed to the carrier, plus one-third of future
medical expenses the carrier would have paid but for the tort recovery. We
conclude otherwise.
I. Factual Background and Procedural History
In December 1988, Kirk Weidenaar was rendered a quadriplegic during
the course of his employment at Korellis Roofing. The worker's
compensation carrier for Korellis, Indiana Insurance Company, paid
Weidenaar's medical expenses and weekly wage replacement until Weidenaar
filed a claim for worker's compensation benefits. After he claimed
benefits, Weidenaar and Indiana Insurance stipulated that the carrier was
obligated to pay Weidenaar 500 weeks of worker's compensation benefits and
"any additional medical as pursuant to the provisions of the Worker's
Compensation Act." (R. at 25, 98.) They presented this stipulation to the
Worker's Compensation Board, which approved and incorporated it into the
Board's award on July 6, 1992.
Weidenaar thereafter hired Spangler, Jennings & Dougherty, P.C. to sue
Amoco Oil Company and Northern Indiana Public Service Company (NIPSCO) as
tortfeasors who contributed to his injury. The suit resulted in a jury
verdict against both companies. Spangler then negotiated a post-judgment
settlement. Indiana Insurance paid Weidenaar's medical expenses until it
received notice of the settlement.
In dispersing the proceeds of the settlement with Amoco and NIPSCO,
Weidenaar paid one-third of the settlement to Spangler as attorney's
fees.[1] He also reimbursed Indiana Insurance for the benefits it had
already paid him.[2] The record does not make clear the order of these
payments.[3] (Compare Appellee's Trans. Br. at 2-3 n.5 with Appellant's
Trans. Br. at 2-3.) It is likewise unclear whether a Spangler fee was
deducted from the lien the carrier held against Weidenaar’s tort
recovery.[4]
In any event, Spangler sued Indiana Insurance for attorney's fees,
claiming the carrier owed the law firm one-third of the amount of the
medical expenses Indiana Insurance would have paid but was saved due to
Spangler's work on the third-party suit. (R. at 7-8; Appellant's Br. at
7.)
On cross-motions for summary judgment, the trial court granted
judgment to Indiana Insurance, and Spangler appealed. The Court of Appeals
reversed and remanded, with instructions to grant summary judgment in
Spangler's favor instead. Spangler, Jennings & Dougherty v. Indiana Ins.
Co., 685 N.E.2d 705 (Ind. Ct. App. 1997). We granted transfer.
II. Indiana's Worker's Compensation System
Indiana's present worker's compensation system was "essentially
established [by] the Workmen's Compensation Act of 1929." Evans v.
Yankeetown Dock Corp., 491 N.E.2d 969, 971 (Ind. 1986). Prior to worker's
compensation, workers were faced with harsh common law. Frampton v.
Central Indiana Gas Co., 297 N.E.2d 425, 427 (Ind. 1973). “The employee's
only remedy was an action in tort against the employer[,] . . . which w[as]
rarely successful" due to employer-friendly common law defenses. Id.
A. Purpose of Worker's Compensation. With the enactment of the
worker's compensation system, "workers who were previously precluded from
recovery under common law theories are [now] guaranteed compensation."
Walker v. State, 694 N.E.2d 258, 268 (Ind. 1998). Employers must "provide
limited compensation to workers whose injuries arise out of and in the
course of [their] employment, regardless of fault." Note, Charles Richard
O'Keefe, Jr., The Guides to the Evaluation of Permanent Impairment and
Worker's Compensation in Indiana, 27 Ind. L. Rev. 674, 649 (1994). "In
return for the employer's payment of benefits, the employer is given
immunity from civil litigation with his employee." Stephen E. Arthur, 11
Ind. Practice § 119.01 at 241 (Supp. 1999) (citations omitted). "The
scheme is . . . social legislation designed to aid workers and their
dependents and 'shift the economic burden for employment related injuries
from the employee to the employer and consumers of its products [and
services].'" O'Keefe, supra, 27 Ind. L. Rev. at 649-50; see also Collins
v. Day, 604 N.E.2d 647, 648 (Ind. Ct. App. 1992), aff'd on other grounds,
644 N.E.2d 72 (Ind. 1994).
B. Third-party Actions. In addition to shifting the cost of injuries
from worker to employer to achieve social policy goals, the Worker's
Compensation Act also provides a way to seek compensation from third-
parties who caused injuries. "The concept underlying third party actions
is the moral idea that the ultimate loss from wrongdoing should fall upon
the wrongdoer." Arthur Larson & Lex K. Larson, 6 Larson's Workers'
Compensation Law § 71.10 at 14-1 (1999).
Historically, some states required workers to elect at the outset
whether to seek compensation benefits or pursue a third-party action. If
an employee thought his injury arose in the course of his employment, and
applied for compensation, but was incorrect, he was precluded from suing
the third-party. Now, however, an employee can accept compensation
benefits while pursuing a third-party action; at the completion of that
action, the employee may, in effect, keep whichever is worth more.
In worker's compensation third-party actions, as in other tort
settings, the comparative fault of the injured employee-plaintiff is
factored into the final judgment or settlement. And, while the employee is
generally required to repay the worker’s compensation carrier for benefits
and expenses paid while the employee pursued the third-party action, the
amount of that reimbursement is likewise reduced by the amount of the
employee's comparative fault. Ind. Code Ann. § 22-3-2-13 (West 1991); Ind.
Code Ann. § 34-51-2-19 (West 1999).
C. The Interplay Between Compensation and Third-party Actions. The
worker's compensation system does not necessarily provide the kind of
complete recovery an injured employee might receive in a third-party
action. On the other hand, it provides compensation even when the tort
system would give no recovery at all (as in cases whether no one has acted
negligently). It is also reasonably prompt. While it could take years to
reduce a third-party claim to judgment, the Worker's Compensation Act
requires that the employer provide medical treatment before the
adjudication of permanent impairment. Ind. Code Ann. § 22-3-3-4 (West
Supp. 1999).
In some instances, as in this case, a worker's compensation insurance
carrier begins to pay benefits to the injured employee before he even files
a claim. (Appellant's Br. at 4 (citing Dep. of David E. Peiffer at 29-
3[1]).) Worker's "compensation legislation has evolved from efforts to
ameliorate the inequitable and often devastating effects of industrial
accidents on the labor force. . . . Work[er]'s compensation is intended to
provide an expeditious remedy which will guarantee the injured employee
some recovery for an industrial accident." Arthur, supra, 11 Ind. Practice
§ 119.01 at 246 (emphasis added) (citations omitted).
Of course, compensation under the worker’s comp scheme is calculated
on a different basis than the damages awarded in a third-party action.
Compensation benefits are not awarded as "damages for pain, suffering or
other monetary loss." Id. at 247 (citations omitted). The "benefits are
intended to replace the future wages that the employee would earn if he
were able to continue to work."[5] Leisure v. Leisure, 605 N.E.2d 755, 758-
59 (Ind. Ct. App. 1993). The amount of this compensation is not determined
by jury, but rather by statute,[6] and may well be less than what the
injured could receive from the guilty tortfeasor.[7] This compensation
may, however, be the most complete recovery a plaintiff can obtain if, for
example, there is no third-party tortfeasor to sue, or the plaintiff's
injury resulted primarily from his own fault.
The worker’s compensation provision governing claims against third
persons, Ind. Code § 22-3-2-13, provides a plaintiff the opportunity to
choose between worker's compensation and third-party judgments in some
situations, so that he might maximize the recovery. If the final judgment
in a suit brought by an injured employee is less than the amount of the
worker's compensation benefits and medical expenses, the employee can
choose to accept the judgment and reimburse the worker's compensation
payor, or to assign all rights to the judgment to the worker's compensation
payor, and continue to accept the benefits as prescribed by the Board.
Ind. Code Ann. § 22-3-2-13 (West 1991).[8]
If through settlement or litigation an employee obtains an amount that
is more than the worker's compensation benefits, then the employee must
reimburse the worker's compensation payor and keep the remainder of the
judgment or settlement, thereby relinquishing all right to the compensation
benefits. Id.[9] Because an injured employee must choose between the
third-party judgment and the worker's compensation benefits and medical
expenses, or in some instances, because the legislature makes that choice
for the employee, there is no reason an attorney should recover a
percentage of the whole of both awards.
Of course, a carrier must pay a fee to the injured employee’s lawyer
for collecting on its lien by conducting the third-party litigation.
Whether it must pay fees on anything else is the subject of this
litigation.
III. Attorney's Fees in Third-party Actions
A. The Statute. Indiana Code § 22-3-2-13 discusses the fee to which
an attorney is entitled when retained by an injured employee to sue a third-
party tortfeasor, saying:
The employer or the employer's compensation insurance carrier shall
pay its pro rata share of all costs and reasonably necessary expenses
in connection with asserting the third party claim, action or suit,
including but not limited to cost of depositions and witness fees, and
to the attorney at law selected by the employee or his dependents, a
fee of twenty-five per cent (25%), if collected without suit, of the
amount of benefits which benefits shall consist of the amount of
reimbursements, after the expenses and costs in connection with the
third party claim have been deducted therefrom, and a fee of thirty-
three and one-third per cent (33 1/3%), if collected with suit, of the
amount of benefits after deduction of costs and reasonably necessary
expenses in connection with the third party claim[,] action or suit.
(emphasis added).
We think the term "benefits" discussed in the "with suit" situation in
Ind. Code § 22-3-2-13 has the same meaning as the "benefits" defined
earlier in that very same sentence (in the "without suit" situation). Ind.
Code Ann. § 22-3-2-13 (West 1991). Whether the claim is resolved with or
without suit, the benefits are the same: reimbursements.
Our Court has already spoken on the meaning of the term
“reimbursements”, in Indiana State Highway Comm’n v. White, 259 Ind. 690,
694, 291 N.E.2d 550, 553 (1973). In White, a widow had been collecting
weekly worker's compensation benefits from the insurance carrier of her
deceased husband's employer, pursuant to a Worker’s Compensation Board
award. She also pursued a third-party tortfeasor, with whom she settled
before trial. She reimbursed the worker's compensation carrier the sum it
had paid her prior to the settlement. The carrier was thus required to pay
her attorney his percentage (25% of the "reimbursements," according to Ind.
Code § 22-3-2-13). The insurance carrier contended that it owed fees only
for the amounts it actually paid to White, that is, on the amount of its
lien.
Justice DeBruler, writing for the Court, disagreed. After deciding
that the term "reimbursements" was ambiguous, necessitating judicial
interpretation, id. at 553, he concluded that "in a case such as this" the
term is to be construed as the entire award, not just the sum already paid
out by the employer or its insurance carrier at the time the third-party
settlement became final. See id. at 554.[10] We held, therefore, that the
term “reimbursements” meant the entire worker’s compensation award.
Spangler argues that White supports its claim of entitlement to a fee
on the future medical expenses. We disagree.
The distinguishing factor between the future medical expenses in the
present case and the future worker’s compensation benefits in White is that
the benefits in White were readily ascertainable. White died while acting
within the scope of his employment. His death effectively fixed the amount
of medical and funeral expenses and weekly wage benefits. Because
Weidenaar was gravely injured, however, his medical expenses will be
ongoing. To receive a fee on those unascertained expenses, Spangler would
have to prove their value. Litigating that value would be a task of some
consequence; the briefs before us demonstrate that the present parties
disagree how such expenses should be measured, let alone what the facts
might be. Spangler is unlikely to expend its resources to make such a
showing because, as we will explain, there is no way to pay the firm a fee
for doing so without paying it twice for delivering the same dollar to the
client.
B. One Complete Fee. The fact that the insurance carrier must pay
fees on the whole worker’s compensation award does not mean that the
injured employee’s attorney may keep a fee on the award in addition to the
percentage of the third-party judgment he should receive. The attorney's
entire fee for a third-party action should be no more than a percentage of
the whole third-party judgment or settlement.[11]
Limiting Spangler's recovery from Indiana Insurance to a percentage of
the carrier’s lien provides Spangler one complete fee for its part of the
work: the third-party action that benefits both Weidenaar and Indiana
Insurance. If an attorney could keep a percentage of both the entire third-
party judgment and a percentage of the future medical expenses the carrier
would have been paid but for the third-party tort action, that lawyer would
be paid twice for the same dollar recovered. When an attorney sues for an
injured employee, he has only one chance to sue the third parties for his
client's injury and must necessarily seek compensation for all of the
client's damages, economic (such as lost future wages and medical expenses)
and non-economic (such as pain and suffering). Ordinarily, whatever the
attorney obtains for his client, the client uses to reimburse the worker's
compensation carrier and pay attorney's fees. The client then keeps the
remainder.[12]
Both economic and non-economic damages are subject to the
reimbursement/lien of the worker's compensation carrier. Dearing v. Perry,
499 N.E.2d 268, 270 (Ind. Ct. App. 1986). An injured employee cannot sue a
third-party for non-economic damages and then try to avoid the carrier’s
lien on the ground that the lien is meant to reimburse the carrier for the
economic damages of wage loss and medical expenses. Id. If an attorney
does not sue for all types of damages, economic and non-economic, when the
lien is finally paid, his client will be left with an incomplete recovery.
Cf. Wedel v. American Elec. Power Service Corp., 681 N.E.2d 1122, 1131
(Ind. Ct. App. 1997), trans. denied.
Because we presume that Spangler did its job, we assume that the
future medical expenses were part of the verdict that Spangler won for
Weidenaar, and upon which it negotiated a settlement. If Spangler could
collect one-third of the entire third-party settlement and also keep one-
third of the future medical expenses that should have been included in that
settlement, Spangler would indeed be "double dipping."[13]
C. Channeling the Excess Fees to the Client. Spangler should have
already received one-third of the third-party judgment, in part from
Weidenaar, and in part from Indiana Insurance.[14] Any fee Indiana
Insurance pays the law firm on future medical expenses must, therefore, be
forwarded to the client. We explained the reason for this in White:
[T]he purpose the Legislature had in mind [when it enacted § 22-3-2-
13] . . . was to free the injured workman . . . from paying
attorney['s] fees for legal services for recovering the equivalent of
the employer or compensation insurance carrier subrogation claim. In
effect, the Legislature intended that the ultimate recovery of the
employee should not be diluted by having to pay that portion of the
attorney['s] fees required to collect that, which the injured employee
. . . [is] entitled to collect under a compensation award, without any
suit or settlement.
White, 259 Ind. at 695-96, 291 N.E.2d at 553-54. In other words, the
injured employee should not have to pay attorney’s fees on the worker’s
compensation award, because the employee should get those fixed benefits
without doing anything at all.
Weidenaar’s worker’s compensation award included a segment of fixed-
value, weekly payments, upon which Indiana should pay an attorney’s fee
under the rule of White. If Spangler has not yet received the fee to which
it was entitled under its agreement with Weidenaar and Ind. Code § 22-3-2-
13, then this amount goes to Spangler. Otherwise, it goes to the client.
Conclusion
We affirm the decision of the trial court insofar as medical expenses
are concerned and remand the case for proceedings concerning fees that
relate to weekly worker’s compensation payments.
Dickson, Sullivan, Boehm, Rucker, JJ. concur.
-----------------------
[1] Pursuant to their contingency fee agreement. (R. at 82-83.)
[2] Pursuant to the Worker's Compensation Act. Ind. Code Ann. § 22-3-
2-13 (West 1991).
[3] Did Weidenaar reimburse Indiana and then pay Spangler one-third of
the remainder, or did he pay Spangler first, and then reimburse the carrier
out of the remainder?
[4] Indiana Insurance asserts that it paid Spangler one-third of the
reimbursement it received from Weidenaar as its pro-rata share of the
attorney's fees. (Appellee's Trans. Br. at 2-3 n.5 (citing R. at 138-40).)
Spangler claims that the assertion is "absolutely false," (Appellant's
Trans. Br. at 2), and that there is nothing in the record to indicate it
"double dipped" in the manner of the carrier’s "false accus[ation,]" (see
id. at 2-3).
[5] The injured employee may also collect medical expenses. See Ind.
Code Ann. § 22-3-3-5 (West Supp. 1999).
[6] "The schedule of benefits recoverable under the work[er]'s
compensation act is set forth at [Ind. Code Ann. §] 22-3-3-10." Stephen E.
Arthur, 11 Ind. Practice § 119.01 at 246 (Supp. 1999).
[7] Most states "give the employer so much of the negligence recovery
as is necessary to reimburse him for his compensation outlay, and to give
the employee the excess. This is fair to everyone concerned: the
employer, who, in a fault sense, is neutral, comes out even; the third
person pays exactly the damages he would normally pay, which is correct,
since to reduce his burden because of the relation between the employer and
the employee would be a windfall to him . . . ; and the employee gets a
fuller reimbursement for actual damages sustained than is possible under
the compensation system alone." Arthur Larson & Lex K. Larson, 6 Larson's
Workers’ Compensation Law § 71.20 at 14-7 - 14-13 (1999) (footnote
omitted).
[8] The statute provides in relevant part:
In the event any injured employee . . . shall procure a final judgment
against the [third-party] other than by agreement, and the judgment is
for a lesser sum than the amount for which the employer or the
employer's compensation insurance carrier is liable for compensation
and for medical . . . services and supplies, as of the date the
judgment becomes final, then the employee . . . shall have the option
of either collecting the judgment and repaying the employer or the
employer's compensation insurance carrier for compensation previously
drawn . . . and for medical . . . services and supplies previously
paid, . . . or of assigning all rights under the judgment to the
employer or the employer's compensation insurance carrier and
thereafter receiving all compensation and medical . . . services and
supplies[] to which the employee . . . would be entitled if there had
been no action brought against the other party.
Ind. Code Ann. § 22-3-2-13 (West 1991) (emphasis added).
[9] The statute provides in relevant part:
[I]f the action against the [third-party] is brought by the injured
employee . . . and judgment is obtained and paid, and accepted or
settlement is made with the other person, either 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 carrier,
subject to its paying its pro-rata share of the reasonable and
necessary costs and expenses of asserting the third[-]party claim, the
amount of compensation paid to the employee . . . , plus the medical .
. . expenses paid by the employer or the employer's compensation
insurance carrier 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 Ann. § 22-3-2-13 (West 1991) (emphasis added).
[10] The “entire award” was $818.85 medical and hospital expenses,
$768.00 funeral expenses, and $19,440.00 weekly compensation benefits,
totaling $21,026.85. White, 259 Ind. at 692, 291 N.E.2d at 552.
[11] The percentage the employee-client must pay is determined by the
contingency fee agreement between attorney and client, and the percentage
the employer or its compensation insurance carrier must pay is determined
by Ind. Code § 22-3-2-13. Often these two percentages are the same, as in
this case. Contingency fee agreements frequently state a fee of one-third
of a judgment or settlement if collected with suit, and one-quarter of the
judgment or settlement if collected without suit; Ind. Code § 22-3-2-13
provides for the same fractions in those same situations.
An injured’s attorney who has pursued a third-party tort claim may
not, however, receive both a contingent fee on the carrier’s subrogation
lien and a similar contingent fee on the whole of the tort recovery, absent
an explicit permissible arrangement with the client. “Had the legislature
intended for the in[j]ured’s attorney to retain an additional amount on top
of the agreed contingent fee, it would not have identified the insurer’s
cost sharing obligation as a ‘pro-rata’ share of the cost of representation
resulting in settlement.” In re Lehman, 690 N.E.2d 696, 703 (Ind. 1997);
see also Erie Ins. Co. v. George, 681 N.E.2d 183, 194 n.17 (Ind. 1997)
(discussing possible double recovery under Ind. Code § 34-4-41-2).
[12] The client can choose to continue receiving the worker's
compensation benefits only if he did not settle with the third parties and
if the judgment is less than the worker's compensation benefits. Ind. Code
Ann. § 22-3-2-13 (West 1991). In all other instances, the client must keep
the third-party judgment or settlement and use it to reimburse the entity
that paid his worker's compensation benefits (the employer or its
compensation carrier) and to cover all of his future expenses. Id.
[13] Such would not be the case when an attorney receives a fee under
Ind. Code § 22-3-4-12 for litigating an insured’s case before the Board and
then performs the separately productive duty of pursuing a third-party tort
claim for the benefit of the injured and/or carrier.
[14] Disregarding, for the purposes of this footnote, any fee on the
future medical expenses, and to ensure that both Weidenaar and Indiana
Insurance pay their shares and no more, we illustrate the proper payment
procedure in the ordinary worker’s compensation third-party judgment
situation: First, the injured employee is paid by the third-party. The
insurance carrier's lien against that third-party judgment/settlement
attaches to it. If a jury has determined the employee's percentage of
comparative fault, the third-party settlement of the judgment and the lien
are reduced by this percentage. Weidenaar v. Indiana Ins. Co., 874 F.
Supp. at 236-37. Next, the employee pays the carrier's lien out of the
third-party judgment, holding out a fee (determined by Ind. Code § 22-3-2-
13) for the work his attorney did in collecting the funds being reimbursed.
Then, the employee pays his attorney a percentage of what remains of the
third-party judgment or settlement (determined by their written contingency
fee agreement). The employee and the carrier thus join in paying the
attorney a percentage of the entire third-party settlement: in this case,
one third of the settlement minus the lien from Weidenaar, plus one third
of the lien from Indiana Insurance.
The parties disagree as to whether Spangler has received one third of
the reimbursement. (Compare Appellee's Trans. Br. at 2-3 n.5 with
Appellant's Trans. Br. at 2-3.) On remand, we direct the trial court to
determine this issue. It is additionally unclear when Spangler received
its one-third of the third-party settlement. (See R. at 82-83 ("The
Weidenaars did pay as compensation[] a contingent fee of one-third of the
monies actually collected [from the third parties].").) If Weidenaar paid
Spangler before Indiana Insurance's lien was satisfied as the record on
appeal suggests, Weidenaar may have paid Spangler a cut of the entire third-
party judgment, which we hold should be paid by both Weidenaar and Indiana
Insurance. In this instance, Weidenaar would have paid more than his share
of Spangler's fee. Moreover, once Spangler also collects a cut of the
reimbursement from Indiana Insurance, it will be overpaid. If this
occurred, to rectify Weidenaar's overpayment and Spangler's
overcompensation, we direct the trial court to order that Indiana
Insurance's payment to Spangler be paid to Weidenaar.