California: Helpful Tips When Considering a Third Party Credit

Recently, the WCAB issued three panel decisions addressing a defendant’s right to assert a third party credit. In the first case, Orozco v. Ronald McDonald Farms, 2017 Cal. Wrk. Comp. P.D. LEXIS 219, the panel found that where the workers’ compensation insurance company, in this case Zenith, sells its lien rights to a third party, even where it sells its lien for less than the value of the workers’ compensation benefits paid, it does not constitute a waiver of the third party credit. The panel emphasized that in order to waive the third party credit, the waiver must be express. In short, the sale, assignment or transfer of an employer’s lien rights does not necessarily affect the employer’s right to assert a third party credit.

The second and third cases deal with different forms of third party recoveries. Typically, the employee will allege that a third party was negligent and recover damages that arise from the alleged negligence. The classic case is where the employee is a delivery driver and is rear-ended by a third party on his way to make a delivery. However, depending on the nature of the alleged negligence, or the nature of the recovery that is obtained, the analysis can become quite complex.

In Edwards v. City of Los Angeles, 2017 Cal. Wrk. Comp. P.D. LEXIS 156, the dependents of the deceased employee made an allegation that the decedent’s death was the result of the medical negligence of Kaiser. In fact, the dependents recovered an $850,000 settlement from Kaiser and the employer in the workers’ compensation case wanted a third party credit. Unfortunately for the employer, when it comes to medical negligence recoveries, the parties should first look to California Civil Code section 3333.1 of the Medical Compensation Reform Act of 1975 (MICRA). After the panel first pointed out that death benefits were clearly a form of compensation to which a third party credit could apply, the more difficult question was whether the employer’s claim of a credit was barred by Civil Code section 3333.1.

Civil Code section 3333.1 was an effort by the legislature to reduce the financial impact of medical malpractice claims. The idea was to reduce the value of medical malpractice recoveries by first reducing any such recovery by the value of the payments made by a collateral source such as workers’ compensation. Thus, where there is a factual record of a reduction in the medical malpractice recovery as a result of the workers’ compensation payments, there can be no third party credit. However, in Edwards, since there was no evidence of what was contemplated at the time of the third party recovery, it could not be determined whether the employer’s Labor Code section 3861 credit was barred by Civil Code section 3333.1 or not.

Edwards is an important reminder that the nature of the alleged negligence must be considered before all else. If the recovery is based on the alleged negligence of a professional health care provider, and if the workers’ compensation benefits were considered in determining the amount of the third party recovery, the employer is likely barred from asserting any type of third party credit, regardless of how large the third-party recovery may be.

Finally, the WCAB issued Sywassink v. Pacific Gas and Electric Company, 2017 Cal. Wrk. Comp. P.D. LEXIS 205.  In Sywassink, the employee suffered an adverse reaction to a company sponsored flu vaccine. The employee filed a petition for compensation with the National Vaccine Injury Compensation Program (NVICP). She received a Federal civil action settlement in the sum of $300,000 as a result of her petition. After reviewing the statutes governing the NVICP, the panel noted that the NVICP prohibits subrogation by any entity providing health benefits and grants the program subrogation rights with respect to any vaccine-related injury for compensation that is paid. The panel went further and stated that unlike the California Civil Code section 3333.1 issue, in the NVICP context, it does not matter whether the court is aware of what workers’ compensation benefits may have been paid. The panel concluded that it was the NVICP trust that had the credit rights, and not the workers’ compensation employer. Accordingly, as a matter of law, when dealing with a NVICP recovery, there can be no third party credit.

In conclusion, these cases highlight the nuances that must be considered when dealing with third party credit issues. It is key when addressing these issues to consider the nature of the negligence alleged as well as the nature of the recovery that is obtained. There are many State and Federal programs that may provide additional benefits to an injured employee in the context of a work related injury. Most if not all of these programs have controlling statutes that will be critical in determining whether the employer can successfully assert a third party credit.

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