Chesapeake Haven Land Corp. v. Litzenberg

JAMES S. GETTY, Judge, Retired, Specially Assigned. The single issue raised by this appeal is whether the Circuit Court for Cecil County calculated correctly the amount of credit against future worker’s compensation benefits an employer/insurer was entitled to claim from an award obtained by a claimant in a third-party proceeding. The appellant (employer and insurer) submits that the entire net award of $212,687.30 is the correct amount of the credit; the appellee (claimant) insists that $60,285.22 is the right figure. Undisputed Facts On April 22, 1993, Monteith Gilpin Litzenberg, appellee herein, was injured in a motor vehicle accident when a tarpaulin blew off a truck in front of him and covered the windshield of a vehicle approaching appellee.

The driver of the third vehicle lost control and a head-on collision occurred between the third vehicle and appellee. ⁴¹⁴ Appellee was driving a vehicle owned by his employer, Chesapeake Haven Land Corporation. He filed a claim for worker’s compensation benefits dated July 1, 1993, indicating that he had been unable to return to work due to injuries to his back, legs, and knees. His employer’s compensation insurer, Pennsylvania National Insurance Company, provided ap-pellee with medical, vocational rehabilitation, and temporary total disability benefits. In addition to his compensation claim, appellee filed a tort action against David A. Bramble, Inc.., and Cramaro Tarpaulin Systems, Inc., the third-party defendants.

In January 1996, a jury in the Circuit Court for Cecil County returned a verdict for appellee in the amount of $349,400. The damages were itemized as follows: Past medical and rehabilitation expenses.......................................$ 28,900 Future medical and expenses........................$ 13,500 Past lost earnings..................................$ 34,000 Future loss of earnings.............................$213,000 Non-economic damages.............................$ 60,000 1 Appellee suffered a permanent back injury that precluded his return to Chesapeake Haven and some unrelated work he performed in restoring houses. He received vocational rehabilitation training resulting in a job .where he earned the same income he had received at Chesapeake Haven. The third-party defendants appealed the jury verdict.

In Anderson, et al. v. Litzenberg, 115 Md.App. 549 , 694 A.2d 150 (1997), this Court (Harrell, J.) affirmed the judgment. The issues on appeal in that case related to instruction on spoliation of evidence (the tarpaulin had been destroyed), admission of evidence relating to costs of a replacement worker, and alleged error in denying a new trial on the issue of the loss of future earning capacity. The issues were decided adversely to ⁴¹⁵ appellants for failure to raise the same at trial, or failure to support with authority their position. The Court did acknowledge that “appellee concedes that his future economic loss claim is based solely on the earnings he would have derived from his unrelated real estate renovation business.” In addition to his employment with Chesapeake Haven, appellee operated his own part-time real estate business, which consisted of buying “run down” houses, restoring, and renting these properties by his own labor.

It is the secondary employment award that adds to the misunderstanding between the parties herein. The issue before us in this appeal is whether the compensation insurer’s subrogation interest in appellee’s third-party recovery extends to the $213,000 future economic loss award for damage to appellee’s continuation of his real estate business, which is separate from his employment with Chesapeake Haven. Appellee contends that appellant has no subrogation rights against the $213,000 paid by the third parties, because those damages are not part of the compensation insurer’s past or future liability to the injured worker. Appellant claims that the Commission had no authority to reduce appellant’s credit against future benefits under section 9-902 of the Labor and Employment Article of the Md.Code (1999 Repl.Vol.) (“LE”), and, therefore, the entire $213,000 should be credited to appellant against future claims for compensation filed by appellee.

Analysis Sec. 9-902(a) authorizes an insurer, when compensation is awarded or paid, to bring an action for damages against a third party who is liable for the injury or death of a covered employee. Sec. 9-902(b) provides that, if the insurer recovers damages exceeding the amount of compensation awarded and the amount of payments made for medical or funeral services, the insurer shall (1) deduct from the excess amount its costs and expenses for the action; and (2) pay the balance of the excess amount ⁴¹⁶ to the covered employee, or to the dependents of the employee in case of death. Under Sec. 9-902(c), if the insurer 2 does not bring an action against a third party within two months after the Commission makes an award, the covered employee may bring the action for damages against the third party. When the covered employee recovers damages, the distribution under Sec. 9-902(e) shall be as follows: (1) deduct the expenses for the action; (2) reimburse the insurer for the compensation already awarded, including amounts paid for medical services; and (3) keep the balance of the damages recovered.

Sec. 9-903 provides that if a covered employee receives damages less than the amount he or his dependents would be entitled to receive under this title, the employee or dependents may reopen this compensation claim to recover the difference between the amount of damages received and the full amount of compensation payable. Appellee complied with sec. 9-902(e)(2), requiring that the employer-insurer be reimbursed for compensation already paid and amounts paid for medical services. Appellant’s total expenditures amounted to $64,812, which was reduced by appellant’s pro rata share of attorney’s fees and costs of $23,538.95. The balance, $41,273.05, was distributed to appellant.

The appellate courts of Maryland have recognized consistently that the allowance to a compensation insurer of an interest in a third-party recovery obtained by a claimant is a right of subrogation. Brocker Manufacturing & Supply Company, Inc. v. Mashburn, 17 Md.App. 327 , 301 A.2d 501 (1973); Cogley v. Schnaper & Koren Construction Company, 14 Md. App. 322 , 286 A.2d 819 (1972); Baltimore Transit Co. v. State to Use of Schriefer, 183 Md. 674 , 39 A.2d 858 (1944); see also Anne Arundel County v. McCormick, 323 Md. 688 , 594 A.2d ⁴¹⁷ 1138 (1991); Smith v. Bethlehem Steel Corp., 303 Md. 213 , 492 A.2d 1286 (1985). LE sections 9-902 and 903 are the statutory codification of the compensation insurer’s rights of subrogation, Johnson v. Miles, 188 Md. 455 , 53 A.2d 30 (1947), and provide for the distribution of third-party claim recoveries after payment of compensation benefits, and for the compensation insurer’s responsibility to make future payments thereafter. Both appellant and appellee cite Brocker v. Mashburn, supra, as the “only case on point,” although they interpret it differently.

That case, authored by Judge Richard P. Gilbert, involved payment of compensation benefits based on permanent injuries, a third-party suit filed by the wife as guardian of the claimant, and a separate count by the wife for loss of consortium. The litigation was settled by payment of $100,000 to the wife as guardian of her husband, and $140,000 to the wife for her loss of consortium claim. After deduction of sums previously paid by the employer and attorney fees, the claimant received $37,200. The trial court ruling would have allowed the claimant to retain the $37,200 and continue to receive compensation benefits.

This Court interpreted the legislative mandate of Art. 101, secs. 37 and 58 (now Md.Code Ann. LE § 9-901 to § 9-903) to preclude “double recovery” by the injured employee, and to prevent his receiving less in benefits from a third party than he would have received under Art. 101. Thus, the Court held, when third-party proceeds are distributed, future payments by the insurer are suspended until such time, if it occurs, that the net amount received by the injured party is exceeded by the benefits that would have been payable in the absence of third-party liability. As applied to the Brocker case, benefits would resume when the total benefits payable exceeded $37,200. Stated differently, the insurer’s