Argonaut Insurance Co. v. Baker

Justice HANKINSON,

dissenting.

The facts of this case are perhaps no different than any other case in which a third party injures someone covered by worker’s compensation insurance, and in accord with its statutory subrogation rights, the worker’s compensation insurer seeks to recoup benefits paid. But there is one essential difference in this case that the Court discusses but then disregards— that is, that Anthony Baker’s employei*, Flowers Construction Company, chose an insurance plan with an optional self-insured deductible of $250,000, but then did not pay any part of that deductible to its workers’ compensation carrier, Argonaut Insurance Company. By choosing a deductible plan, Flowers received a substantial premium discount of over $400,000. But also by choosing a deductible plan, Flowers bound itself to pay the deductible amount to Argonaut under Texas Insurance Code art. 5.55C(d). See Tex. Ins. Code art. 5.55C(d).

The Court, however, permits Argonaut to recover the amount of the deductible from Anthony’s settlement, instead of from Flowers, even though Flowers is legally responsible under the Insurance Code for paying the deductible, and has not done so. In so holding, the Court accepts Argonaut’s contention that the deductible is not relevant, and treats this case as if article 5.55C simply does not exist. This result is contrary to the statutory scheme governing optional deductible plans. More troubling, this result is based on the fiction that Argonaut is asserting its own subro-gation right with regard to the deductible, when it is actually asserting Flowers’ putative subrogation right. Flowers, however, as an employer, does not have any subro-gation interest under the express terms of the Labor Code. See Tex. Lab.Code §§ 417.001(b), 401.011(27). Thus, the Court has shifted the risk represented by the employer’s choice of a deductible policy from the employer to the employee, which the Legislature has plainly forbidden, and created statutory subrogation rights in favor of the employer, which the Legislature has plainly not provided. Accordingly, I respectfully dissent.

In its 1989 overhaul of the worker’s compensation system, one of the Legislature’s primary goals was to reduce the cost of worker’s compensation insurance and bring more employers into the system. See Ashcraft & Alessandra, A Review of the New Texas Workers’ Compensation System, 21 Tex. Tech. L.Rev. 609, 610 (1990); 1 Montfoed Et Al„ A Guide to Texas Workers’ Comp Reform, at 1-2 (1991). As part of its efforts to achieve that goal, the Legislature amended the Insurance Code to authorize, among other reforms, premium incentives for small employers, group insurance, certified self-insurance, and certain loss-sensitive insurance arrangements, including retrospectively rated policies and optional deductible plans. Act of Dec. 11, 1989, 71st Leg., 2nd C.S., ch. 1, § 13.08, 1989 Tex. Gen. Laws 85; 2 Montford, supra, at 13-8. A deductible plan allows an employer to reduce its premium by agreeing to reimburse the insurer for benefits the insurer pays to injured employees up to the deductible amount. See Tex. Ins.Code art. 5.55C(c), (d). This kind of plan effectively shifts the risk of having to pay the amount of the deductible away from the *533insurer and to the employer in exchange for a reduction of the insurance premium.

Deductible plans are governed by the detailed provisions of Insurance Code art. 5.55C. Article 5.55C requires worker’s compensation carriers to offer optional deductible plans that allow employers to self-insure for the deductible amount. Tex. Ins.Code art. 5.550(a). It further requires that the policy “must provide that the company ... will make all payments for benefits that are payable from the deductible amount and that reimbursement by the policyholder shall be made periodically, rather than at the time claim costs are incurred.” Id. art. 5.550(d). The Legislature also specified that “[a] person who is employed by a policyholder who self-insures the deductible amount as provided under this article may not be required to pay any of the deductible amount.” Id. art. 5.550(f); see also Tex. Lab.Code § 415.006(a) (“An employer may not collect from an employee, directly or indirectly, a premium or other fee paid by the employer to obtain workers’ compensation insurance coverage,” except under certain circumstances concerning general contractors, subcontractors, and motor carriers).

The Bakers’ argument is simple — that under article 5.55C, they cannot be made to pay the deductible on Flowers’ behalf out of Anthony’s settlement, and that Argonaut cannot assert a subrogation right on behalf of Flowers to recover the deductible out of Anthony’s settlement. The Court rejects that argument based on the general subrogation right granted insurers in Labor Code §§ 417.001 and 417.002. In so doing, the Court seems to be of the view that article 5.55C applies only when there is no recovery from a third party or the recovery is less than the deductible amount. But article 5.55C contains no such limiting language, and does not differentiate between collecting a deductible out of an employee’s paycheck and out of his settlement proceeds or damages recovery. See Tex. Ins.Code art. 5.55C(f) (an employee of an employer who self-insures the deductible “may not be required to pay any of the deductible amount”); see also Tex. Lab.Code § 415.006(a) (“[a]n employer may not collect from an employee, directly or indirectly, a premium or other fee paid by the employer to obtain workers’ compensation insurance coverage”).

We can harmonize the specific provisions governing deductible plans with an insurer’s general statutory right to subrogation under Labor Code §§ 417.001 and 417.002. See Tex. Gov’t Code § 311.026(a) (“If a general provision conflicts with a special or local provision, the provisions shall be construed, if possible, so that effect is given to both.”). Sections 417.001 and 417.002 establish the carrier’s right to recoup benefits paid, but do not address recovery of a deductible. See Tex. Lab. Code §§ 417.001(b), 417.002(a). As explained above, deductible plans are governed by the specific provisions of article 5.55C, which mandate that the employer make periodic payments toward the deductible, and forbid requiring the employee to pay any of the deductible amount. Tex. Ins.Code art. 5.55C(d), (f). The specific provisions of article 5.55C can be reconciled with a carrier’s general statutory right to subrogation by reimbursing the carrier from an employee’s settlement or damages recovery for benefits paid over the deductible amount. But because the Legislature has mandated that an employee cannot be required to pay any part of the deductible, the carrier must seek reimbursement for the deductible from the party statutorily and contractually responsible to pay it — the employer.

Thus my interpretation of the relevant sections of the Insurance Code and the Labor Code provides for full reimburse*534ment to the insurer of all benefits it has paid, while at the same time preventing it from shifting payment of the deductible from the employer to the employee. An insurer that has paid benefits to an injured employee may recoup any amounts in excess of the deductible from the employee’s settlement or damages recovery, thereby giving effect to Labor Code §§ 417.001 and 417.002, but then must look to the employer to reimburse the deductible amount, thereby giving effect to Insurance Code art. 5.55C. This ensures that the employer bears the financial risk it assumed when it opted for a lower premium in exchange for a higher deductible, without defeating the insurer’s right to subro-gation for the benefits it has paid.

Moreover, to permit Argonaut to recoup the deductible owed by Flowers means that Argonaut is actually asserting subro-gation rights on Flowers’ behalf. Argonaut’s counsel agreed as much in briefing and at oral argument of this cause: “[T]he insurer in this case is actually also pursuing the employer’s subrogation rights to the extent of the employer’s deductible.” (Brief on the Merits at 9); “[I]n a sense Argonaut stands here today also in the shoes of Flowers Construction under the contract.” (Oral Argument Transcript at 3). But an employer who chooses- a deductible plan does not have subrogation rights under the Labor Code. Subrogation rights under sections 417.001 and 417.002 are limited to entities defined as an “insurance carrier,” which includes insurance companies, certified self-insurers, and self-insured governmental entities. Tex. Lab. Code § 401.011(27). Employers who choose optional deductible plans do not fall within any of those categories, and thus do not have statutory subrogation rights under the worker’s compensation law. See id. §§ 401.011(6) (defining “certified self-insurer”), 401.011(28) (defining “insurance company”).

The carrier simply does not have a sub-rogation right with regard to the deductible. Permitting the carrier to recover the deductible in this case is possible only if one accepts Argonaut’s proffered fiction that it is asserting its own subrogation right, when it is actually asserting the employer’s putative subrogation right. But by accepting this fiction, the Court extends subrogation rights to employers with deductible plans, notwithstanding: (1) the absence of such rights in the Labor Code; (2) that the Insurance Code requires the employer to pay the deductible; and (3) that the claim against the third party belongs to the employee. See Franks v. Sematech, Inc., 936 S.W.2d 959, 960 (Tex.1997) (“There is but one cause of action for an employee’s injuries, and it belongs to the employee.”); Guillot v. Hix, 838 S.W.2d 230, 232 (Tex.1992). The Legislature could easily amend the Labor Code to give statutory subrogation rights to employers with deductible policies or amend the Insurance Code to specify that article 5.55C applies only when there is no recovery from a third party, or when the recovery is less than the deductible amount. But the Court’s effort to treat Argonaut’s subrogation claim on Flowers’ behalf as if it were Argonaut’s own subro-gation claim effectively amends the statutes in the Legislature’s stead.

Nor is Anthony receiving a double recovery, as Argonaut contends. Anthony suffered severe permanent injuries, including brain damage, when an eighteen-wheel tractor-trailer going the wrong way on a divided highway slammed into the van he was riding in while on the job. His wife sued the driver and trucking company on behalf of Anthony and their children. The trucking company’s insurer tendered policy limits, and shortly after the Bakers filed suit the parties settled for $657,000 in cash and $225,000 in an annuity. Although An*535thony’s family members each claimed loss of consortium, the parties allocated the full settlement amount to Anthony. There is no dispute that Anthony’s ongoing medical expenses mil likely exceed the amount of the settlement and his worker’s compensation benefits. Thus Anthony has yet to be made whole, and so Argonaut’s contention that he is receiving a double recovery in this case is incorrect. Furthermore, this argument is beside the point.

The specialized statutory subrogation rule in worker’s compensation — that first money goes to the insurer — exists because we have a no-fault worker’s compensation system. And under that no-fault system, for public policy reasons, we permit the insurer to recoup what it has paid ahead of anyone else’s interest, sometimes in derogation of the employee’s right to be made whole, a right that would be superior under equitable subrogation principles. Compare Capitol Aggregates, Inc. v. Great Am. Ins. Co., 408 S.W.2d 922, 923 (Tex.1966) (stating that compensation carrier entitled to first money paid to or recovered by employee), with Ortiz v. Great S. Fire & Cas. Ins. Co., 597 S.W.2d 342, 343 (Tex.1980) (stating that under equitable subro-gation, “[a]n insurer is not entitled to sub-rogation if the insured’s loss is in excess of the amounts recovered from the insurer and the third party causing the loss.”). So long as the insurer can recoup the amounts it has paid, the purpose of subro-gation in the worker’s compensation scheme is fulfilled. Moreover, that the Department of Insurance has taken a position consistent with Argonaut’s construction of the relevant statutory provisions, and that the policy here contained language consistent with that construction, does not make that construction any more persuasive. See Continental Casualty Co. v. Downs, 81 S.W.3d 803, 805 (Tex.2002). That construction is at odds with the Legislature’s plain language forbidding an employee from paying the deductible and excluding employers from those entitled to statutory subrogation rights.

This cause presents a simple question: As between the employer and the employee, who should reimburse the carrier for the deductible? I agree with the court of appeals’ answer that “[r]egardless of how it is characterized, reimbursement of the deductible amount out of an employee’s recovery from a third-party amounts to payment of the deductible by the employee instead of the employer. This is statutorily forbidden.” 36 S.W.3d at 591. Deductible plans were designed to shift risk between insurers and employers, and employers agree to accept that risk, not shift that risk to employees. Argonaut is clearly entitled to recoup the full amount of benefits it has paid, but offers no reason why it cannot look to Flowers to reimburse the deductible as required by article 5.55C and the insurance policy. To permit Argonaut to recoup the deductible amount out of Anthony’s settlement proceeds conflicts with both article 5.55C(d)’s mandate that employers reimburse carriers for benefits paid to the extent of the deductible amount and article 5.55C(f)’s prohibition on requiring employees to pay any of the deductible amount. It also creates statutory subrogation rights in favor of employers, when the Labor Code does not provide them. Accordingly, I respectfully dissent.