Credit For Third-Party Recovery Protected

Samuelsen, Gonzalez, Valenzuela and Sorkow brought this action which produced a favorable result for defendants in compensation cases involving third-party litigation.

Mr.Hagadom suffered an admitted industrial injury. Mr. Hagadorn sued a third party. American Home Assurance, the workers compensation carrier, filed a lien in the third-party action. A complaint in intervention was not filed.

The third parry earner settled with Hagadorn on condition that the third-party action be dismissed with prejudice before American filed a complaint in intervention. The purpose was to defeat American’s lien claim.  The third-party action was dismissed with prejudice without a complaint for intervention on file, and American’ hen claim was defeated. Mr. Hagadorn and his attorneys received a check for $650.512. Our firm then brought this action alleging that the applicant was receiving a double recovery and that the tactics that applicant used were unfair.

The appellate court looked to the statutes involving third party causes.  Labor Code section 3852 allows the applicant to bring the action but gives the employer a first lien against the judgment or settlement.

American relied on sections 3859 and 3860. The appellate court stated that the issue is whether Hagadorn had the right to settle his third-party action without notifying the employer of the settlement.  The court held he did not and made some other interesting comments.  The court reviewed a school district case involving the Public Employees Retirement System (PERS). The applicant settled without notifying PERS of the settlement. The Supreme Court indicated that PERS had no cause of action against the settling defendant in the third-party action. The employer’s remedy was against the employee, not the third-party tortfeasor.  Thus, American’s cause of action was against Hagadorn and not the settling third-party insurance carrier.  Applicants beware! If the applicant settles without notifying the compensation carrier he or she does so at his/her own risk.

The court also discussed third party allegation of employer negligence. The filing of a lien in third-party actions is insufficient when employer negligence is alleged. A complaint in intervention must be filed when there is the allegation of employer negligence.  However, the employer must be put on notice that such a defense is being raised. That duty falls on the applicant.  Thus, if the applicant does not notify the employer of the defense the employer has a right to maintain an action against the employee to recover the money it has expended on the compensation case.

Case: American Home Assurance V. Hagadorn

Harvey Brown
3501 Jamboree Rd. Suite 602
Newport Beach, CA 92660

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