Eckhardt v. Village Inn (Vicorp)

Chief Justice ROVIRA

dissenting:

The majority today holds that, not only does a subrogated insurance carrier have an obligation to act reasonably in determining whether to consent to settlement of a third-party suit, but the carrier is obligated to make a good faith appraisal of the suit and act accordingly, which may include intervention in the third-party suit as a demonstration of reasonableness. See maj. op. at 858, 862. Because I believe that the majority’s decision interposes a rule into the Colorado Workers’ Compensation Act (the Act) which derogates from the long-established principle that such rule-making is the province of the General Assembly, I respectfully dissent.

I

The majority finds that, once a carrier is given notice of a third-party lawsuit, a duty arises on the part of the carrier to act reasonably and in good faith in determining whether to grant consent. I believe, however, that under the current statutory scheme, there is no obligation on an insurance carrier that neither participated in nor encouraged settlement negotiations to act other than in its own perceived best interest in determining whether to consent to settlement.

We recently outlined the statutory scheme from which the right of subrogation arises. When a third-party tortfeasor causes the employment-related injury and the employee has chosen to receive workers’ compensation benefits and also to sue the tortfeasor, the insurer is subrogated to the employee’s rights against the tort-feasor for the amount of the insurer’s workers’ compensation liability. The statutory scheme allows the employee to receive interim workers’ compensation benefits, recover from the tortfeasor, reimburse the insurer for interim benefits, credit the insurer for owed future benefits and keep the remainder as excess damages. Tate v. Industrial Claim Appeals Office, 815 P.2d 15, 17 (Colo.1991). The Act also permits the injured claimant to settle with the third-party tortfeasor. A settlement for an amount less than the insurer’s total liability for past or future workers’ compensation benefits requires the written approval of the insurer. § 8-52-108(2), 3B C.R.S. (1986). Since the subrogation right and any limits on that right are, therefore, statutorily derived, I start by examining the statutes to decide if they are the source of a duty on the part of an insurer to act other than in its own self interest in determining whether to consent to a settlement between the insured and the third-party tortfeasor.

A

In construing a statute, we are to ascertain and give effect to the legislature’s intent where possible. Where statutory language is plain and its meaning clear, we must apply it as written. Danielson v. Castle Meadows, Inc., 791 P.2d 1106, 1111 (Colo.1990); Griffin v. S.W. Devanney & Co., 775 P.2d 555, 559 (Colo.1989). Section 8-52-108(2), 3B C.R.S. (1986), states:

A compromise of any ... [third party liability action] by the employee or his dependents at an amount less than the compensation provided for by articles 40 to 54 of this title shall be made only with the written approval ... of the person, *864association, corporation, or insurance carrier liable to pay the same.1

(Emphasis added.) Nothing in the language of this statute requires the carrier to act in any particular manner in determining whether to give approval to the compromise. We have consistently held that, since the legislature is the branch empowered to change the Act, a court should not read nonexistent provisions into the Act. Kraus v. Artcraft Sign Co., 710 P.2d 480, 482 (Colo.1985). See also Chartier v. Winslow Crane Service Co., 142 Colo. 294, 317, 350 P.2d 1044, 1056 (1960) (where this court refused to “read or interpret ... limitations into the Workmen’s Compensation statutes,” and consequently found that an employee had a cause of action against a contractor where the statute proscribed suits against third persons “in the same employ”).

In In re Death of Peterkin, 729 P.2d 977 (Colo.1986), in affirming suspension of future workers’ compensation benefits to a claimant who settled for an amount less than that necessary to discharge the employer’s insurer without first obtaining the carrier’s consent, we raised the possibility in a footnote that “[o]ther protections may be required where the insurer unreasonably refuses to consent to the employee’s settlement.” Id. at 981 n. 2. The majority reads this statement as an acknowledgement that “a different rule may be required for the protection of the employee” where the refusal to consent is unreasonable. See maj. op. at 859. The statement does not, however, establish any unreasonableness or bad faith exception to the rule of forfeiture, but simply suggests that an unreasonable refusal to consent presents a situation where other protections may be required. The protections to be afforded, however, remain the province of the legislature,2 and it is not the role of the judiciary to read a nonexistent requirement to act reasonably into section 8-52-108(2).

The majority implies that, since we were willing to read the rule of forfeiture into section 8-52-108(2), see maj. op. at 859, then we are being consistent with our past exercises of judicial power by now imposing a duty into section 8-52-108(2) to act reasonably in determining whether to consent to settlement. In In re Death of Peterkin, 729 P.2d 977, 981 (Colo.1986), we accepted the rule of forfeiture whereby a claimant who fails to obtain the carrier’s consent to settlement before settling a third-party claim as mandated by section 8-52-108(2) forfeits his or her right to receive all future benefits from that carrier. While the rule of forfeiture is not expressly existent in the provision, it is implied by the mandatory language of section 8-52-108(2). The provision states that “[a] compromise ... shall be made only with the written approval of the ... carrier liable to pay the same.” (Emphasis added.) The rule of forfeiture that we adopted in Peterkin was the result of not only policy considerations (see infra section I B) but also was derived from the nondiscretionary nature of the requirement to obtain consent. The obligation to obtain consent is placed on the claimant. Consequently, failure to comply with the mandate results in a disadvantage to the noncompliant party. Conversely, section 8-52-108(2) does not impose any obligation at all on carriers. Therefore, to now impose an obligation on these parties would be to overstep the bounds of our judicial power.

*865B

Since the obligation does not arise from the language of the statute itself, I examine whether the judicially imposed duty of good faith and fair dealing that workers’ compensation carriers owe claimants requires carriers to act other than in their own self interest in determining whether to consent to third-party settlement offers.

Recently, we found that independent claims adjusting companies acting on behalf of self-insured employers owe a duty of good faith and fair dealing to claimants of workers’ compensation benefits. Scott Wetzel Services v. Johnson, 821 P.2d 804, 813 (Colo.1991). Our rationale for imposing the duty in Wetzel was twofold. We sought both to protect the employee from the disparity of wealth and resources heavily favoring the insurance carrier and to serve the purposes of the Act, which include assisting injured workers and their families and promoting the speedy resolution of claims arising out of employment-related activities. See Wetzel at 810, 812.

Our decision in Wetzel was based in part on our earlier decision in Travelers Insurance Co. v. Savio, 706 P.2d 1258, 1273 (Colo.1985), where we found that an insurance carrier who provides workers’ compensation benefits to an employee owes the employee a duty of good faith and fair dealing. Similar to Wetzel, our purpose in imposing the duty in Savio was to remedy the bargaining disadvantage suffered by injured workers in relation to the financially secure insurance carriers. We noted that this discrepancy in bargaining power could result in the claimant being coerced to accept a lower settlement amount than that provided for by an insurance contract.

No such disparity of bargaining power exists here. In fact, here, a claimant who accepts a settlement offer for an amount lower than the amount for which the carrier is liable jeopardizes the carrier’s interest and it is the carrier who is disadvantaged because it remains liable for the deficiency. The majority contends that only the interests of carriers that are unaware of a third-party suit are at jeopardy. See maj. op. at 859-860. I do not find this distinction meritorious. Even the interests of carriers that are aware of third-party suits are jeopardized when the insured settles a third-party claim without first obtaining the carrier’s consent. Pursuant to section 8-52-108(1), the third-party cause of action is assigned to the carrier that has already paid workers’ compensation benefits. Regardless of whether the carrier is notified of the initiation and prospects of recovery under the third-party suit, the carrier is “subrogated to the rights of the injured employee” under section 8-52-108(1). Therefore, the carrier is benefitted by having the right to recover the settlement amount received by the employee, limited to the amount of the carrier’s total liability for compensation to the employee under the Act. However, once an injured employee settles a third-party claim for less than the amount of the workers’ compensation benefits due the employee, the carrier is barred from suing the third party to recover any deficiency and the carrier’s interests are, therefore, jeopardized irrespective of whether the carrier received notification of the suit. See § 8-52-108(1), 3B C.R.S. (1986) (payment by a carrier of compensation under the Act operates as an assignment of the cause of action against the third-party tort-feasor to the carrier).

In In re Death of Peterkin, 729 P.2d 977, 981 (Colo.1986), we explained the “harsh rule of forfeiture.” We stated that this rule is supported by sound policy considerations protective of insurance carriers:

Just as the employee needs to be protected from dispositions of third-party rights from compensation carriers motivated solely by carrier self interest, so the carrier sometimes needs to be protected from improvident dispositions of third party rights by employees.
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The commonest expression of this concern is the familiar rule, sometimes explicitly laid down in statute, that if an employee settles a third party claim without the employer’s consent, the employee forfeits any right to future compensation.

*866Id. (citing 2A A. Larson, Larson’s Workmen’s Compensation Law § 74.17 at 14-372 to -373 (1982)); See also Kusiak v. Commercial Union Assur. Co., 49 A.D.2d 122, 373 N.Y.S.2d 714, 716 (N.Y.App.Div. 1975) (purpose of statute was “to prevent settlements which might prejudice the rights of the carrier”); Maryland Cas. Co. v. Simmons, 193 So.2d 446, 448 (Fla.Dist. Ct.App.1966) (prohibition on settlement without- carrier’s consent is designed to protect carrier to extent of benefits conferred).

Eckhardt argues that, as in Wetzel and Savio, we should liberally interpret section 8-52-108(2) so as to give effect to the beneficent purpose behind the Act. If we fail to impose a duty of reasonableness in determining whether to.consent, he argues, then insurance carriers would be free to unreasonably refuse settlement offers. This argument is also without merit.

An insurance carrier’s subrogation interest secures contribution and indemnity to the carrier. See Kirkham v. Hickerson Bros. Truck Co., 29 Colo.App. 303, 308, 485 P.2d 513, 516 (1971). It is in the best interests of the carrier, therefore, to fairly and reasonably evaluate settlement offers before deciding whether to grant or withhold consent.3 As a result, I find it unnecessary to judicially impose a new rule in this arena when the interests of the insured are protected by the very nature of the subrogation interest.

Recently, the legislature has declared that the Act should be “interpreted so as to ensure the quick and efficient delivery of ... benefits to injured workers at a reasonable cost to employers, without the necessity of any litigation_” § 8-40-102, 3B C.R.S. (1991 Supp.). While this legislative declaration was enacted subsequent to the orders of the administrative law judge and the Panel in this case, we can consider subsequent legislation to determine ongoing legislative intent. See Swerdfeger v. Swerdfeger, 793 P.2d 618, 620 (Colo.App. 1990). This legislative purpose is further served by allowing carriers to make the decision whether to consent to settlement without subjecting them to additional litigation over the reasonableness of their actions. By not imposing such a duty and inducing carriers to consent to avoid such litigation, the integrity of insurance funds in order to meet future requirements is promoted.

II

Because I would not impose a new duty on workers’ compensation insurance carriers to act other than in their own perceived best interests in determining whether to consent to settlement, I would also not apply the failure to intervene test proposed by the majority for determining whether a refusal to consent was unreasonable. See maj. op. at 861. I agree with Justice Erickson’s conclusion that the imposition of such a requirement is not supported by case law, statutory authority or the policy underlying the Act.

. When the Act was recodified and reenacted in 1990, substantial amendments were made. This section, however, remained unchanged, indicating legislative satisfaction with the language of the provision.

. By statute, other jurisdictions protect employees from unreasonable refusal by a carrier to consent by providing for a judicial compromise order or court approval of a settlement as an alternative to carrier consent. See, e.g., Ark. Code Ann. § 11-9-410 (Michie 1987); Neb.Rev. Stat. § 48-118 (1988); N.Y.Work.Comp.Law § 29(5) (McKinney 1991 Supp.). Such judicial order protects the employee’s right to future compensation in the absence of obtaining the employer or carrier’s consent. Schnabel v. Grimes, 31 A.D.2d 375, 298 N.Y.S.2d 271, 274 (N.Y. App.Div. 1969).

In Ostolski v. C.M.H. Co., 28 A.D.2d 1036, 283 N.Y.S.2d 798, 801-02 (N.Y.App.Div.1967), the court explains that the legislature amended the New York statute to permit a claimant to settle without the consent of the carrier by order of the court in order to promote the spirit and purpose of the Act.

. I note, however, that the duty outlined in Wetzel and Savio may be implicated where a carrier first encourages or participates in the settlement negotiations between the insured and the third party. The carrier’s initial participation in the settlement negotiations may spur the insured to accept a settlement offer because such involvement indicates that the carrier will consent to settlement. Breach, of the duty of good faith and fair dealing set forth in Wetzel subjects the carrier to tort liability. See Scott Wetzel Services, Inc. v. Johnson, 821 P.2d 804 (Colo.1991). Subsequent bad faith or unreasonable refusal to consent to settlement implicates a lack of good faith by the carrier in promoting settlement originally, with the potential for a claim against the carrier for breach of the Wet-zel duties. In this case, however, no such encouragement or participation transpired.