Roxanne Kerperien, Plaintiff/Respondent v. Lumberman's Mutual Casualty Insurance, Defendant/Appellant.

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion Missouri Court of Appeals Eastern District Case Style: Roxanne Kerperien, Plaintiff/Respondent v. Lumberman's Mutual Casualty Insurance, Defendant/Appellant. Case Number: ED79296 Handdown Date: 06/18/2002 Appeal From: Circuit Court of the City of St. Louis, Hon. David C. Mason Counsel for Appellant: James W. Reeves Counsel for Respondent: Todd N. Hendrickson Opinion Summary: Roxanne Kerperien was injured severely in a work-related accident. After receiving $116,192.53 in workers' compensation benefits, she filed a negligence action against a third party. The jury fixed her damages at $2,500,000 but found her 25 percent at fault. The court entered judgment against the defendant for $1,875,000. The defendant moved for a new trial. While the motion was pending, the parties settled. According to the terms of the settlement, Kerperien received $1,175,000 in full discharge of the defendant's obligation. Kerperien then tendered $31,064.92 to the workers' compensation insurer in full settlement of its subrogation rights under section 287.150.3, RSMo 2000. The tender was refused, and the insurer claimed it was owed $66,105.61. Kerperien filed a declaratory judgment action, asking the court to determine the appropriate subrogation payment. The court accepted her position and ordered her to pay the insurer $31,064.92. The insurer appeals. REVERSED. Division Two holds: (1) The court's initial judgment on the jury verdict was not final because the court could have ordered a new trial, remittitur or a judgment for the defendant notwithstanding the verdict. (2) The original judgment for $1,875,000 and the jury finding of 25-percent fault were annulled when the parties settled for $1,175,000. (3) The insurer's subrogation entitlement therefore should be based on the settlement amount of $1,175,000.

Citation: Opinion Author: Charles B. Blackmar, Senior Judge Opinion Vote: REVERSED. Dowd, C.J., concurs in an opinion filed separately. Simon, J., dissents in separate opinion Opinion: This case involves the subrogation provisions of the Missouri Workers' Compensation Law. The parties have cooperated in an agreed statement of facts, and so the only questions remaining are those of law. The briefs demonstrate diligent research, but no case has been cited which presents a precise answer to the question before us. Employee Roxanne Kerperien was severely injured in an accident arising out of and in the course of her employment. Her employer's workers' compensation insurer paid a total of $116,192.53 in compensation benefits for disability and medical expenses. She then filed a negligence action against a third party. The jury fixed her damages at $2,500,000, finding that the defendant's negligence was responsible for 75% of the damage and that she was 25% at fault. The trial court then entered judgment against the defendant for $1,875,000. The defendant moved for a new trial. While the motion was pending, the parties reached a settlement by reason of which $1,175,000 was paid to the employee in full discharge of the defendant's obligation. The employee then tendered $31,064.92 to the appellant workers' compensation insurer in full settlement of its subrogation rights under Sec. 287.150.3, RSMo 2000. The tender was refused, the insurer claiming that the proper amount was $66,105.61. The employee then filed a declaratory judgment action asking the court to determine the appropriate subrogation payment. The court accepted the employee's position and ordered the employee to pay the insurer $31,064.92 in full satisfaction of the subrogation claim. The insurer appeals. We reverse. The governing statute, Sec. 287.150 RSMo 2000, provides in pertinent part as follows:

1. Whenever recovery against the third person is effected by the employee or his

dependents the employer shall pay from his share of the recovery the proportionate share of the expenses of recovery, including a reasonable attorney fee. After the expenses and attorney fee have been paid, the balance of the recovery shall be apportioned between the employer and the employee or his dependents in the same ratio that the amount due the employer bears to the total amount recovered if there is no finding of comparative fault on the part of the employee, or the total damages determined by the trier of fact if there is a finding of comparative fault on the part of the employee. Notwithstanding the foregoing provision, the balance of the recovery may be divided between the employer or the employee or his dependents as they may otherwise agree... The italicized portions were added to the statute in 1993, no doubt in response to the decision in Rogers v. The Home Indemnity Company, 851 S.W.2d 672 (Mo.App. 1993). The amended statute, in effect, requires a reduction in the

employer's (or insurer's) subrogation entitlement if a percentage of fault is assessed against the employee in a damage suit against a third party. The employee argues that the trial judge was correct in using the gross damage figure determined by the jury as a starting point, and in reducing the insurer's subrogation entitlement by reason of the comparative fault assessed against the employee by the jury. We conclude, however, that the parties to the damage action effectively annulled the verdict of the jury, both as to amount and as to the assessment of comparative fault, when they agreed to a settlement for a figure less than the judgment for the plaintiff employee in the trial court. The precise point is a matter of first impression in Missouri, but our conclusion is supported by Barker v. H.J. Transporters, Inc., 837 S.W.2d 537 (Mo.App. 1992), holding that, in determining subrogation entitlement, the appropriate consideration is the amount actually received by the employee in the third party action, and not the total amount of the judgment in a third party case. (The employee there recovered a very large, but apparently uncollectible, default judgment.) There is also collateral support in Rose v. Falcon Communications, Inc., 6 S.W.3d 429 (Mo.App. S.D. 1999), holding that, in a case in which the employee negotiated a settlement with a third party without the benefit of counsel, the court would not impute a phantom attorney's fee in computing the insurer's subrogation entitlement, but would require a sharing only of expenses actually paid. Id. at 430. The governing principles are reflected in the leading case of Ruediger v. Kallmeyer Brothers Service, 501 S.W.2d 56 (Mo. banc 1973). Worker's Compensation provides a remedy for an employee who suffers injury arising out of and in the course of his employment, without requiring any showing of fault on the part of the employer. The employer is relieved of the open-ended liability of a tort action through limitations on the recovery. The employee, moreover, is free to proceed against third parties, strangers to the employment relationship, whose negligence or fault may have caused or contributed to the injury, and may recover whatever the jury awards. There is, however, an established principle against a double recovery, and so the employer, or insurer paying workers' compensation, is entitled to reimbursement out of the award for the compensation benefits paid. Although the reimbursement at one time may have been total, the governing statutes were amended in 1955 to require the subrogee to bear a proportionate share of the employee's expenses in prosecuting the employee's third party action. We conclude that the insurer's entitlement in this action should be determined by the same calculation that would be applied if the parties had settled before the trial for $1,175,000, or if the jury had returned an unencumbered verdict in that amount which had been paid. The original judgment for $1,875,000 was annulled by the agreement of the parties, and the annulment extended to the finding of 25% contributory fault. The initial judgment was not final and was subject to

the court's subsequent action, which might result in a totally new trial, an order for remittitur, a partial new trial either on liability or damages, or, conceivably, a judgment for the defendant notwithstanding the verdict. Those possibilities would all be present if there were appeals. The parties by their settlement made certain what had been previously uncertain. The use of the settlement figure strictly complies with the statute. The calculus is provided by Ruediger at page 59. (1)The attorney's fees of $470,000 and litigation expenses of $31,505 are deducted from the settlement amount of $1,175,000, leaving a net recovery of $673,495 (the parties' agreed net figure appears to be short by $5,000). (2)The ratio of the insurer's payments of $116,192.53 to the settlement amount is computed, yielding a ratio of .098887. (3)The insurer's entitlement is determined by multiplying the net recovery amount of $673,495 by the ratio of .098887, producing a figure of $66,599.90. The judgment is reversed and the case remanded with directions to enter judgment for the defendant-appellant insurer for $66,599.90. Separate Opinion:

appears to be required by Section 287.150 and Ruediger v. Kallmeyer Brothers Service, 501 S.W.2d 56 (Mo. banc 1973). I write separately to urge the General Assembly to amend the language of section 287.150 to more properly reflect what I believe their original intent must have been. Section 287.150(3) requires a two-step procedure for allocating a third party recovery. First, the employer is required to pay a proportionate share of the expenses of the third party recovery from its share of that recovery. Then the "balance" of the recovery is "apportioned" between the employer and the employee. This is impossible to do because the employer's share of the expenses cannot be known until we know its share of the recovery. The statute is also impossible to follow because its method for apportioning the balance assumes we know "the amount due the employer," which is precisely what the formula is supposed to tell us. Because the statute is incoherent, the Ruediger court urged the General Assembly to reexamine it. Ruediger, 501 S.W.2d at 60. Despite modifying the statute to accommodate Missouri's adoption of comparative fault, the General Assembly has done nothing to alter the basic subrogation formula. Ruediger reduces the section 287.150(3) subrogation principle to the following formula: Subtract the employee's attorneys' fees and expenses (AF) from the total settlement amount or "gross recovery" (GR) to arrive at the "net recovery" (NR). (GR-AF = NR). Divide the total amount of worker's compensation actually paid by the employer (WC) by

the gross recovery realized from the third party. This yields a ratio (R). (R = WC/GR). Then multiply the net recovery by this ratio to arrive at the subrogation payment owed to the employer (S). (R x NR = S). If courts followed the letter of the Ruediger formula, employees who settle or are awarded amounts less than the amount they have received in workers' compensation would owe more to their employer than they received from the third party tortfeasor.(FN1) But the unfairness of the rule has led courts to adjust the formula in these circumstances to avoid unconscionable results. See Barker v. H & J Transporters, Inc., 837 S.W.2d 537, 541 (Mo.App. W.D. 1992)(modifying the Ruediger formula to allow employees to recover when the amount recovered from a third party is less than the workers' compensation benefits).(FN2) The Ruediger formula assumes that until the employee has settled or obtained a judgment for an amount in excess of her workers' compensation benefits any recovery from a third party would be a "double recovery." But the "no double recovery" mantra does not withstand analysis. First, the workers' compensation statute does not purport to make injured employees whole. It provides nothing for pain and suffering. Second, several reasons (having nothing to do with the damages the employee sustained) may explain why the damages actually recovered from a third party may be less than the amount the employee received in workers' compensation benefits. See Allstate Ins. Co. v. Clarke, 527 A.2d 1021, 1025, n.4 (Pa. Super. Ct. 1987); Roger M. Baron, Subrogation on Medical Expense Claims: The "Double Recovery" Myth and the Feasibility of Anti-Subrogation Laws, 96 Dick. L. Rev. 581, 585-98 (1992). Because the workers' compensation statute does not fully compensate the employee for her injuries, the Ruediger formula works to provide employers a windfall paid directly by the pain and suffering of injured employees. See Larson, The Law of Workmen's Compensation section 71.23(h) (1996)("There can be no conceivable policy objection to allowing an injured person to retain two recoveries that, when combined, still do not make him whole."). Several states, recognizing this, have adopted subrogation formulae that more justly reflect the realities of litigation and the limited nature of the workers' compensation award. In Washington the employee receives a minimum of 25% of any third party recovery after deducting costs. RCW 51.24.060 (2001). In Arkansas, Minnesota, Montana, Oregon and Wisconsin the employee receives at least one-third of the recovery after deducting costs. A.C.A. section 11-9-410 (2001); Minn. Stat. 176.061(6) (2000); Mont. Code Anno. 39-71-414 (2001); ORS section 656.593.1(b) (1999); Wis. Stat. section 102.29(1) (2000). And in North Dakota the employee receives at least one-half. N.D. Cent. Code section 65-01-09 (2001). Any one of these would be a dramatic improvement over the rule we presently apply. I urge the General Assembly to reexamine section 287.150 and in so doing eliminate the internal inconsistency and unintended results generated by the statute as presently interpreted.

Footnotes: FN1.Assume that the employer pays $100,000 in workers' compensation benefits but that the employee recovers only $50,000 from the third party tortfeasor, with $17,500 in attorneys' fees and expenses (35%). Applying the Ruediger formula results in the employee actually owing the employer $65,000 in subrogation. But here only $32,500 remains after attorneys' fee and expenses. Strict application of Ruediger would seem to require the employee to come up with the additional $32,500 to pay the employer. FN2.From a mathematical perspective, the Ruediger formula's problem arises because it allows the ratio (R) between the recovery (GR) and the workers' compensation benefits (WC) to be greater than 1 whenever the gross recovery is less than the workers' compensation benefits paid. To avoid the absurd and unfair results of applying the Ruediger formula the Barker court adjusted it. Instead of fixing the ratio by dividing the workers' compensation benefits by the gross recovery, the Barker court arrived at the ratio by dividing the workers' compensation benefits by the sum of the gross recovery and the workers' compensation benefits paid (GR + WC). Because (GR + WC) must be greater than WC, the formula will always produce a ratio less than 1. This allows employees to recover from third parties even when their recovery is less than the workers' compensation benefits paid. The Barker formula may be expressed symbolically as follows: WC/ (GR+WC) = R; GR -- AF = NR; R x NR = S.

interpretation is to ascertain the intent of the legislature from the language used, to give effect to that intent if possible, and to consider the words used in their plain and ordinary meaning. State ex rel. Doe Run Co. v. Brown, 918 S.W.2d 303, 306 (Mo.App. E.D. 1996). The majority, without finding any ambiguity, ignores the plain and clear language of section 287.150.3, which provides that where there has been a finding of comparative fault on the part of an employee, the balance of the employee's recovery from a third party "shall be apportioned between the employer and the employee... in the same ratio that the amount due the employer bears to... the total damages determined by the trier of fact," and instead holds that the parties "effectively annulled the verdict of the jury, both as to amount and as to the assessment of comparative fault, when they agreed to a settlement for a figure less than the judgment for the plaintiff employee in the trial court." The employee recovered $1,175,000 from the third-party manufacturer, at which time the employee's attorney fees totaled $470,000 and expenses $31,505.80. Following payment of the fees and expenses, the balance of the employee's recovery from the manufacturer equaled $673,494.20. Because there was a finding of comparative fault on the part of the employee, under section 287.150.3 the balance of the employee's recovery ($673,494.20) was to be apportioned between the employer and the employee in the ratio that the amount due to the employer ($116,192.53) bore to "the total damages determined by the trier of fact" ($2,500,000). Applying this formula, the final subrogation payment due to the insurer was $31,301.99.

The history of section 287.150.3 bolsters this conclusion. Over the years, section 287.150.3 has been the subject of numerous revisions. Subsection 3 was not enacted until 1955, and was amended as recently as 1993, reflecting a significant change in the law of our state. In Ruediger v. Kallmeyer Brothers Service, 501 S.W.2d 56, 59 (Mo.banc 1973), our Supreme Court rendered a definitive interpretation of the formula in section 287.150.3. However, the Court urged the legislature to amend the statute, stating: We recognize that the statutory formula followed in this opinion is vulnerable to the charge that it is inequitable to the employee because it relieves the employer and insurer of "having to pay a portion of expenses based on the benefit to them of being saved future obligations." However, we cannot read something into a statute that is not there. We urge the General Assembly to reexamine [section 287.150 RSMo (1969)]. Id. at 60. Ten years later, in Gustafson v. Benda, 661 S.W.2d 11 (Mo. 1983), our Supreme Court supplanted the doctrine of contributory negligence with a comprehensive system of comparative fault, thereby creating a significant change in the law. Apparently in response, our legislature amended section 287.150.3 in 1993 to reflect this change. As a result, the 1993 version of section 287.150.3 differs substantially from the formula addressed and applied in Ruediger and the majority's reliance on Ruediger is misplaced. Further, the majority relies upon Barker v. H & J Transporters, Inc., 837 S.W.2d 537 (Mo.App. W.D. 1992), where the employer and the insurer, appellants, argued that the trial judge, by misinterpreting the term "recovery" in section 287.150.3 RSMo (1990), misapplied the formula for determining how much of the insurance proceeds should have been allocated for appellants' subrogation claim under the section. Here, the meaning of the term "recovery" is not in dispute. More importantly, Barker was decided prior to the legislature's addition of the comparative fault language presently found in section 287.150.3. Therefore, Barker, like Ruediger, is not instructive. Further, the majority, relying upon Rose v. Falcon Communications, Inc., 6 S.W.3d 429 (Mo.App. S.D. 1999), states that, in Rose, our colleagues in the Southern District held that "in a case in which the employee negotiated a settlement with a third party without the benefit of counsel, the court would not impute a phantom attorney's fee in computing the insurer's subrogation entitlement, but would require a sharing only of expenses actually paid." Rose is of no precedential value to this case as a "phantom attorney's fee" is not of the moment here. Finally, the majority, in defiance of the plain words of section 287.150.3, effectively treats the total damages determined by the trier of fact ($2,500,000) as irrelevant and declares that the verdict was "annulled" by the settlement. Such rationale not only ignores the plain words of the statute, but the reality of the situation that the total damages found by the trier of fact most likely played a role in the subsequent settlement. Thus, I would interpret section 287.150.3 according to its plain language. To ignore the comparative fault

provision would indicate that the legislature accomplished nothing in its amendment. Kilbane v. Director of the Department of Revenue, 544 S.W.2d 9, 11 (Mo.banc 1976). In its second point on appeal, the insurer claims that the 25% comparative fault finding against the employee still has not been taken into account by the formula or the Court. I disagree. The formula reflects the relationship between the employer as the payor of the employee's medical expenses and compensation, as a result of the employee's injury, and the total damages as determined by the trier of fact in the third party action. Since comparative fault is not applicable in a workers' compensation proceeding, but is applicable in the third party action, the total damages found by the trier of fact are in line with the amount expended by the employer. The ratio of employer payouts over total damages, although producing a lesser fraction, utilizes figures of the same relation. The ratio fraction is applied to the net recovery, i.e., the total damages less the percentage of comparative fault, employee's attorney's fees, and expenses. Thus, the finding of comparative fault is reflected in the gross recovery, i.e., the amount of settlement, which further reflects the employee's fault. The employee's comparative fault therefore permeates the entire computation. An employer payout should not be used with an amount to which it does not relate. The judgment of the trial court should be affirmed as modified, adjusting the amount due to the insurer from $31,064.92 to $31,301.99 to correct the trial court's mathematical error. This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.