Erie Insurance Co. v. Curtis

KARWACKI, Judge. We issued a writ of certiorari in this case to determine whether a workers’ compensation insurer may assert its statutory lien for compensation paid to an injured worker against a recovery made by that worker under the unin ¹⁶² sured motorist coverage of his employer’s automobile liability insurance policy. I. Appellee, Zesco F. Curtis, was injured in an automobile accident while in the course of his employment with Entec Technicom, Inc. (“Entec”) on October 30, 1987. The accident occurred when a motorist who was operating a stolen vehicle collided head-on with Curtis’s vehicle.

The driver of the stolen vehicle was never apprehended. At the time of the accident, Curtis was operating a vehicle owned by Entec which it had insured through Nationwide Mutual Insurance Company (“Nationwide”). The insurance policy covering Entec’s vehicle provided uninsured motorist coverage with limits for bodily injury of $50,000.00 per person, per accident. The parties concede that the unidentified motorist whose vehicle collided with Curtis’s vehicle was operating an uninsured motor vehicle within the meaning of both Nationwide’s policy and Maryland Code (1957, 1986 Repl.Vol., 1990 Cum.Supp.), Article 48A, § 541, mandating that every policy of motor vehicle liability insurance provide uninsured motorist coverage.

As a result of his work-related injuries, Curtis applied for workers’ compensation benefits with the Workers’ Compensation Commission. Entec maintained workers’ compensation coverage through Erie Insurance Company (“Erie”). As a result, Erie paid $14,259.10 in workers’ compensation to Curtis. On August 15, 1990, Curtis brought a breach of contract action in the Circuit Court for Prince George’s County against Nationwide to recover the uninsured motorist benefits due him under his employer’s policy.

After Nationwide filed its answer, Erie was permitted to intervene as a plaintiff. In its Intervenor’s Complaint, Erie stated in relevant part: 12. Pursuant, to Maryland Annotated Code, Article 101, Section 58, the plaintiff intervenor has a lien on any ¹⁶³ judgment or settlement on this case for benefits paid to or on behalf of the plaintiff, pursuant to the Workers’ Compensation Act above-referenced. 13. The plaintiff intervenor, Erie Insurance Company, has a subrogated interest in the amount recovered, if any, by the plaintiff against the defendant in this proceeding.

Erie and Curtis each filed motions for summary judgment. In his motion for summary judgment and at the motions hearing, Curtis asserted that Erie was not entitled to a lien against the amount payable to him under the uninsured motorist coverage provided by Nationwide. Erie contended that it had a right to assert a lien against the uninsured motorist benefits provided by Nationwide, notwithstanding that Nationwide was entitled by statute to reduce the uninsured motorist benefits payable to Curtis by any amount awarded him as workers’ compensation. Nationwide simply took the position that by statute it was entitled to offset the uninsured motorist benefits to the extent that Curtis was awarded compensation under any workers’ compensation laws.

In a well reasoned opinion, Judge James P. Salmon concluded that Erie, the workers’ compensation carrier, was not entitled to assert its statutory lien for workers’ compensation benefits paid to Curtis against money due him under an uninsured motorist policy. Judge Salmon reasoned “that the legislature did not intend that [workers’] compensation carriers should have a lien against third parties, such as uninsured motorist carriers, who are liable in contract but not in tort.” Consequently, having determined that Erie had no right to assert a lien against the uninsured motorist benefits, the court denied Erie’s motion for summary judgment, granted Curtis’s motion for summary judgment, and dismissed Erie as a party to the suit. Erie noted an appeal to the Court of Special Appeals. We issued our writ of certiorari prior to consideration of the case by the intermediate appellate court, and we shall affirm. ¹⁶⁴ II.

Erie’s argument that it is entitled to assert a lien for the compensation awarded to Curtis is based on its construction of Md.Code (1957, 1985 Repl.Vol., 1990 Cum. Supp.), Article 101, § 58. 1 This section of our workers’ compensation law gives the employer or its workers’ compensation carrier the right to recover from a third party who causes an injury to its employee any workers’ compensation which the employer or its insurance carrier has been required to pay to its employee because of that injury. Anne Arundel County v. McCormick, 323 Md. 688, 692 , 594 A.2d 1138, 1140 (1991). For two months after compensation is awarded or paid, the employer or insurance carrier has the exclusive right to sue the third party.

Id. Thereafter, the employee may do so. Id. It is well settled that Article 101, § 58 “does not create a cause of action in the employer but rather subrogates it to the claim of its injured employee against the responsible third party.” McCormick, 323 Md. at 693 , 594 A.2d at 1140 ; Smith v. Bethlehem Steel Corp., 303 Md. 213, 222 , 492 A.2d 1286, 1290 (1985); Johnson v. Miles, 188 Md. 455, 460 , 53 A.2d 30, 32 (1947); Baltimore Transit Co. v. State, 183 Md. 674, 678 , 39 A.2d 858, 860 (1944); Western Md. Ry.

Co. v. Employer's Liab. Assurance Corp., 163 Md. 97, 102 , 161 A. 5, 7 (1932). In Smith v. Bethlehem Steel Corp., we stated that Article 101, § 58 ¹⁶⁵ “ ‘is for the benefit of the employer or insurer and the injured employee or his dependents; it is not for the benefit of the negligent third party. The statute does not create the right of action, but merely creates or preserves the right of subrogation for the benefit of the employer and employee as their interests may appear.

The procedural priorities established are for the protection of those interests alone.’ ” 303 Md. at 222 , 492 A.2d at 1290 (quoting Johnson v. Miles, 188 Md. at 460 , 53 A.2d at 32 ). Although Article 101, § 58 has been amended numerous times since its original enactment by Ch. 800 of the Acts of 1914, the pertinent language for purposes of this decision has remained unchanged since its original enactment. As originally enacted, Article 101, § 58 provided in its entirety: “Where the injury or death for which compensation is payable under this article was caused under circumstances creating a legal liability in some person, other than the employer, to pay damages in respect thereof, the employe or, in case of death, his personal representative or dependents as hereinbefore defined, may proceed either by law against that other person to recover damages or against the employer for compensation under this article, or in case of joint tort feasors against both; and if compensation is claimed and awarded or paid under this article any employer may enforce for the benefit of the insurance company or association carrying the risk or the State Accident Fund, or himself, as the case may be, the liability of such other person; provided, however, if damages are recovered in excess of the compensation already paid or awarded to be paid under this article, then any such excess shall be paid to the injured employe or, in case of death, to his dependents, less the employer’s expenses and costs of action.” 2 ¹⁶⁶ There is no legislative history of the original enactment, but, with regard to the relevant language of Article 101, § 58 at issue in this case, our predecessors stated: “It will be seen that where injury or death for which compensation is payable under this act was caused under circumstances creating a legal liability in some person other than the employer to pay damages in respect therefor, the section gives to the parties specifically designated therein, under the conditions therein set forth, a right of action against a third party, the tort-feasor. The clear meaning of the language, ‘under circumstances creating a legal liability in some person other than the employer,’ is that the circumstances under which the injury was received created a liability resting upon the tort-feasor outside of the provisions of section 58, which means that if the injury did not result in death the injured party would have had a right of action at common law against the wrongdoer for such injuries, or in case injury resulted in death, that the dependents would have had a right of action by reason of the liability then existing under Lord Campbell’s Act.

In other words, section 58 of article 101 does not create any new liability, but simply designates in what manner the liability theretofore existing, under the common law and Lord Campbell’s Act, should be enforced, and changes the parties who might be benefited by such enforcement. Section 58 provides, in cases where there was an existing liability on the part of a third person, other than the employer, that in case of death the ¹⁶⁷ dependents, as defined in article 101, may proceed either by law against the tort-feasor or against the employer for compensation under the act, and that if they elect to proceed under the act and compensation is awarded against an employer, where he is self-insured, or against the insurer, the employer in such case, or the insurer, may bring an action to enforce for their benefit the liability of the tort-feasor, and that if the employer who is self-insured, or the insurer, fails to start proceedings to enforce the liability of the tort-feasor within two months from the date of the award of the Industrial Accident Commission, the injured employee, or his dependents in case of death, may enforce the liability of such wrongdoer....” Clough & Molloy, Inc. v. Shilling, 149 Md. 189, 195 , 131 A. 343, 345 (1925). We have repeatedly held that Article 101, § 58 “is a[n] ... authorization for suit against a third party tort-feasor.” Hubbard v. Livingston Fire Protection, Inc., 289 Md. at 585, 426 A.2d at 903; see also Johnson v. Miles, 188 Md. at 460 , 53 A.2d at 32 (“Section 5[8] ... is for the benefit of the employer or insurer and the injured employee or his dependents; it is not for the benefit of the negligent third party.”); Baltimore Transit Co. v. State, 183 Md. at 678 , 39 A.2d at 860 (“By amendments, in 1920 and 1922, the ... right was given to the employee ... to sue the negligent third party at law____”); Hurt v. Pennsylvania Thresherman & Farmers Mut. Casualty Ins.

Co., 175 Md. 403, 410 , 2 A.2d 402, 405 (1938) (“Section 58, provides] for suits against third party tort feasors.”); Storrs v. Mech, 166 Md. 124, 128-29 , 170 A. 743, 745 (1934) (“Section 58 provides ... that in case of death the dependents ... may proceed either by law against the tort-feasor or against the employer for compensation under the act____”); Western Md. Ry. Co. v. Employers’Liab. Assurance Corp., 163 Md. at 101 , 161 A. at 7 (“As the law stands now, the one paying compensation has the exclusive right within two months of an award where the injury or death of the employee has been caused by a third party, to bring suit ... against the ¹⁶⁸ tort-feasor.”); Barrett v. Indemnity Ins. Co. of N. Am., 152 Md. 253, 259 , 136 A. 542, 544 (1927) (“The statute gave [the dependent] the right to elect whether she would proceed at law against the tort feasor to recover damages, or against the employer to recover compensation under article 101----”); Maryland Casualty Co. v. Union Bridge Elec.

Mfg. Co., 145 Md. 644, 651 , 125 A. 762, 764 (1924) (“The right of the employer ... under section 58, to enforce for their benefit the liability of the tort feasor is established ‘if compensation is claimed and awarded or paid under this act/ ”); Bethlehem Steel Co. v. Variety Iron & Steel Co., 139 Md. 313, 325-26 , 115 A. 59, 63 (1921) (“The liability which the employer is thus authorized to enforce is the ‘liability of such third person,’ and the only liability of ‘such third person’ referred to in the act is the liability for ‘damages,’ which the injured employee could have enforced had he elected to do so. This liability is not limited by the act to the compensation awarded or paid, but, on the contrary, ... it seems clear that the Legislature intended the same measure of recovery to apply as would have applied had the injured employee elected to pursue his remedy against the negligent third person.”). Similarly, in the Second Report of the Commission to Study Maryland’s Workmen’s Compensation Laws and the Operation of the State Industrial Accident Commission submitted to Governor McKeldin in 1957, it was recognized that Article 101, § 58 referred to actions against third party tort-feasors.

The report stated in relevant part: “The Study Commission believes that the fact that disability or death resulted under circumstances giving rise to an action against a third party tortfeasor, should not operate, under any circumstances, to decrease the benefits properly allowable under Article 101. To this end we recommend the repeal of Section 59 [now Section 58] and its reenactment with amendments____” Id. at 24 (emphasis added). It is pellucid that the language “[w]here injury or death for which compensation is payable under this article was ¹⁶⁹ caused under circumstances creating a legal liability in some person other than the employer to pay damages in respect thereof,” provided by Article 101, § 58 refers solely to an action against a third party tort-feasor. In contrast, we have held that “[a]ctions by insureds or persons covered under insurance policies, against their insurers, for benefits under so-called first party coverages such as PIP or uninsured motorist, are contract actions and are generally controlled by principles applicable to contract actions.” Ward v. Nationwide Mut.

Auto. Ins. Co., 328 Md. 240, 246 , 614 A.2d 85, 87 (1992); Lane v. Nationwide Mut. Ins.

Co., 321 Md. 165, 169-70 , 582 A.2d 501, 503 (1990); Reese v. State Farm Mut. Auto. Ins. Co., 285 Md. 548, 553 , 403 A.2d 1229, 1232 (1979).

Speaking for the Court in Reese v. State Farm Mut. Auto. Ins. Co., Judge Eldridge stated that “uninsured motorist coverage is in insurance parlance ‘first party coverage’ like collision, comprehensive, medical payments or personal injury protection, and not ‘third party coverage’ such as personal injury or property damage liability insurance.

A suit based upon the insured’s allegations that he is entitled to payment under one of the first party coverage clauses in the contract he entered into with his insurance carrier, and that the carrier has refused payment thereby breaching its promise, is clearly a contract action.” 285 Md. at 552 , 403 A.2d at 1231-32 . Thus, under the plain language of Article 101, § 58, Erie, as a workers’ compensation carrier, has no claim against the proceeds of Curtis’s contract action against Nationwide. ANA Towing, Inc. v. Prince George’s County, 314 Md. 711, 715 , 552 A.2d 1295, 1297 (1989); Washington Nat’l Arena v. Comptroller, 308 Md. 370, 375 , 519 A.2d 1277, 1280 (1987). Furthermore, it is immaterial whether the injured employee’s uninsured motorist coverage is provided under an insurance policy issued to the employee or one issued to his ¹⁷⁰ employer.

The jurisdictions that have addressed the question of whether a workers’ compensation carrier that has paid compensation benefits should have a lien upon the proceeds of the claimant’s recovery under an uninsured motorist policy have almost unanimously held that the carrier is not entitled to such a lien. 2A Arthur Larson, The Law of Workmen’s Compensation § 71.23(a) (1993). These courts have reached this result whether the uninsured motorist coverage was provided under an insurance policy issued to the employer, Knight v. Insurance Co. of N. Am., 647 F.2d 127, 128-29 (10th Cir.1981) (applying Kansas law); Bogart v. Twin City Fire Ins. Co., 473 F.2d 619, 629 (5th Cir.1973) (applying Texas law); Holmes v. Washington Metro. Area Transit Auth., 731 F.Supp. 1115, 1118-19 (D.D.C.1990); State Farm Mut.

Auto. Ins. Co. v. Cahoon, 287 Ala. 462, 468-69 , 252 So.2d 619, 623-24 (1971); Sun State Equip. Corp. v. Industrial Comm’n, 135 Ariz. 477, 479-80 , 662 P.2d 152, 154 (Ariz.Ct.App.1983); State Comp.

Ins. Fund v. Gulf Ins. Co., 628 P.2d 182, 183-84 (Colo.Ct.App.1981); State Farm Mut. Auto.

Ins. Co. v. Board of Regents, 226 Ga. 310, 311-12 , 174 S.E.2d 920, 922 (1970); State Farm Mut. Auto. Ins.

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