| IN RE: JOHN CLOYD | ) | DOCKET NO. 87 0203 |
| ) | ||
| CLAIM NO. S-714041 | ) | DECISION AND ORDER |
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- APPEARANCES
- Claimant, John Cloyd, by
- Jardine, Foreman & Apple, per
- Dale Foreman, John Hutson and Roland Cole
- Self-Insured Employer, Gilbert Corporation, by
- Rolland & O'Malley, per
- James L. Rolland, Thomas O'Malley and Wayne Williams
- and by Hall and Keehn, per
- Gary D. Keehn
- The Department of Labor and Industries, by
- The Attorney General, per
- Thornton Wilson, Assistant
This is an appeal filed by the self-insured employer, Gilbert Corporation, on January 22, 1987 from an order of the Department of Labor and Industries dated November 26, 1986. The order adhered to the provisions of an order dated April 30, 1986 which corrected and superseded an order dated April 25, 1986 and provided:
"WHEREAS, the claimant has recovered $ 523,748.94, and RCW 51.24.060 requires distribution of the settlement proceeds as follows: 1) Net share to attorney for fees and costs $ 179,954.46; and 2) Net share to claimant $ 381,146.05;
WHEREAS, the Self-Insured Employer declares a statutory lien against the claimant's third party recovery for the sum of $ 51,240.01;
The Self-Insured Employer is hereby ordered to remit to the claimant $ 37,351.57 pursuant to RCW 51.24.060(c)(1); [2]
IT IS FURTHER ORDERED, no benefits or compensation will be paid to or on behalf of the claimant until such time the excess recovery totaling $ 206,605.85 has been expended by the claimant for costs incurred as a result of the condition(s) covered under this claim.
The order dated November 26, 1986 is affirmed.
DECISION
Pursuant to RCW 51.52.104 and RCW 51.52.106, this matter is before the Board for review and decision on timely Petitions for Review filed by the self-insured employer and jointly by the claimant and the Department of Labor and Industries to a Proposed Decision and Order issued on November 30, 1987 in which the order of the Department dated November 26, 1986 was reversed and the claim remanded with orders to recalculate the proportionate share of attorneys' fees and costs and the net shares for distribution in accordance with the provisions of the Proposed Decision and Order.
The Board has reviewed the evidentiary rulings in the record of proceedings and finds that no prejudicial error was committed and said rulings are hereby affirmed.
John Cloyd was injured during the course of his employment with the Gilbert Corporation. His injury was caused by a third party, and Mr. Cloyd made a structured recovery with a present cash value of $ 523,748.94 (Exhibit 2).
The Gilbert Corporation had paid $ 51,240.01 in benefits as of April 30, 1986. Mr. Cloyd's litigation costs were $ 179,954.46. Given these figures, the Department calculated the distribution of the recovery pursuant to RCW 51.24.060 as follows: [3]
- From the $ 523,748.94 recovery, the attorney for Mr. Cloyd was paid his fees and costs. The remainder was $ 343,794.48.
- From the $ 343,794.48, Mr. Cloyd received 25%, or $ 85,948.62. The remainder was $ 257,845.86, the "balance" amount.
- From the $ 257,845.86, the Gilbert Corporation was able to be paid its lien of $ 51,240.01 in full. After subtracting the lien, $ 206,605.85 remained.
- The $ 206,605.85 was paid to John Cloyd "subject to offset" against future benefits and compensation to which Mr. Cloyd will be entitled under his workers' compensation claim.
The Department next calculated the Gilbert Corporation's share of the attorneys' fees and costs. Because Mr. Cloyd had been very seriously injured, the sum of the benefits paid and payable in the future -- in other words, the "entitlement '-- exceeded $ 257,845.86, which was the amount available to the Gilbert Corporation to lessen its liability under the claim. This amount reflects the total benefit the Gilbert Corporation will obtain from the recovery, including both the lien and the future benefits it will not be required to pay on Mr. Cloyd's claim.
$ 257,845.86 is 49.23% of the $ 523,748.94 recovery. Thus, the Department required the Gilbert Corporation to bear 49.23% of the $ 179,954.46 attorneys' fees and costs. This is equal to $ 88,591.58.
The order under appeal thus required the Gilbert Corporation to pay to Mr. Cloyd $ 37,351.57, which is the $ 88,591.58 minus the [4] $ 51,240.01 lien the Gilbert Corporation had on the recovery. Gilbert Corporation appealed the Department's distribution order.
The Proposed Decision and Order reversed the Department's order, but not on any ground raised or argued by Gilbert Corporation or any party. It did so because the Industrial Appeals Judge believed that Exhibit 2, the Worksheet showing the Department's calculations, was erroneous on its face because it did not show a calculation for Mr. Cloyd's future entitlement.
In its Petition for Review, the employer renews its legal argument as presented in its opening and rebuttal briefs. The employer's contentions can best be summarized as follows: (1) that the employer's proportionate share of attorneys' fees and costs should be computed in a manner consistent with the dissenting opinion of Board Member Phillip T. Bork in In re Steven J. McGee, BIIA Dec., 70,119 (1987) and In re Edward D. Herrin, BIIA Dec., 85 3448 (1987); (2) that because this is a structured settlement, and payments will come to the claimant in the form of "spikes" or lump sum payments at five year intervals, the employer should be permitted to suspend payments for the period covered by each spike payment; and (3) that in any event the employer should not have to pay any sum to the claimant at this time, but rather, that the amount it is liable for as its proportionate share of costs and attorneys' fees should be deducted from the remainder subject to offset, resulting in the resumption of the payment of benefits to the claimant at an earlier point in time.
Since the employer has not directly raised the question of whether it should be required to pay attorneys' fees and costs on the $ 206,605.85 remainder subject to offset, that question is not, [5] strictly speaking, before us. However, because we disagree with language in the Proposed Decision and Order which seems to relieve the employer of its obligation to pay attorneys' fees and costs to the extent it benefits from the third party recovery, we will address that question briefly.
At first consideration, it would appear that the self-insured employer is being required to pay costs and attorneys' fees greatly in excess of the amount of benefit it will receive from the third party recovery. However, because additional workers' compensation benefits are payable to Mr. Cloyd and because the amount of these future payments has not been challenged by the self-insured employer, the employer will eventually have the benefit of payment of its lien for amounts already paid plus a right of offset against future benefits payable in the amount of $ 206,605.85. No future workers' compensation benefits will be payable until the amount to be paid exceeds that sum. While at the time the Department computed the proportionate share of costs and attorneys' fees, there was a third party recovery by the claimant which exceeded the lien of the self-insured employer, it is also clear, considering sound insurance and actuarial principles, that at some point in the future the benefits to which Mr. Cloyd is entitled will exceed the present excess recovery subject to offset.
This Board has considered the statutory requirements applicable to proportioning attorneys' fees and costs among the parties in three prior Decisions and Orders which validated the method applied in this claim. In re Steven J. McGee, BIIA Dec., 70,119 (1987); In re Edward D. Herrin, BIIA Dec., 85 3448 (1987); In re Bruce Wilson, Dckt. No. 86 4043 (December 21, 1987). In each of these cases the majority of [6] the Board determined that the method used by the Department in determining the proportionate share of costs and attorneys' fees was consonant with the provisions of RCW 51.24.060. Because the Department's calculation method in this case as set forth above, is consistent with the method which we approved in McGee, Herrin and Wilson, we conclude, once again, that the Department's method of computing the parties' proportionate shares of attorneys' fees and costs is correct.
In Ravsten v. Department of Labor and Industries, 108 Wn.2d 143 (1987) the Supreme Court dealt with the effects of a structured settlement on the determination of the proportionate share of costs and attorneys' fees to be borne by the parties. While Ravsten dealt with the application of a statute which has been repealed to a substantially different fact pattern, it does set forth the Court's opinion that in computing proportionate shares of costs and attorneys' fees in a case involving a structured settlement, the present value of the settlement is to be used rather than the gross amount of future payments. This method was employed by the Department in this case in determining the claimant's twenty-five percent share, the amount of benefits subject to offset, and the parties' proportionate shares of costs and attorneys' fees.
It is also incongruous for the self-insured employer to argue that considering the structured settlement at present cash value is somehow unfair and imposes a greater liability to pay benefits, when under RCW 51.24.090(1) the self-insured employer had to provide written approval of the settlement. Any questions which the self-insured employer had regarding its future liability to pay benefits to Mr. Cloyd occasioned [7] by the effect of a structured settlement, should have been resolved prior to giving written approval of the structured settlement as required by RCW 51.24.090(1).
In its Petition for Review, the self-insured employer contends that it should not be required to pay the $ 37,351.51 difference between its lien ($ 51,240.01) and its proportionate share of attorneys' fees and costs ($ 88,591.58) in cash to the claimant at the present time. Rather, the employer asks that this amount be deducted from the excess recovery which is subject to offset, which would result in the reinstitution of benefits at an earlier time. Because RCW 51.24.060(1)(a) places costs and reasonable attorneys' fees as the first charge against the third party recovery, this amount must be paid at the time the award is distributed. RCW 51.24.060(1)(c) provides that the self-insured employer shall bear its proportionate share of the costs and reasonable attorneys' fees to the extent of "the benefits paid or payable under this title...." (RCW 51.24.060(1)(c)(i)) and that the balance of the recovery after payment of costs and reasonable attorneys' fees and the claimant's twenty-five percent shall be distributed to the self-insured employer "but only to the extent necessary to reimburse the . . . self-insurer for compensation and benefits paid." (Emphasis added.) Because the self-insured employer's proportionate share of the costs and reasonable attorneys' fees is based upon benefits paid and payable, it may be, as it was in this case, a different and larger amount than the amount payable to the self-insured employer from the recovery for compensation and benefits paid. In order to assure the present determination and distribution of the third party recovery, RCW 51.24.060 requires that the costs and [8] reasonable attorneys' fees be paid -- at the time of distribution -- proportionally by the claimant and the self-insured employer. Since the employer's share of attorneys' fees and costs is greater than the payment allowed to the self-insured employer under RCW 51.24.060(c), this represents a remaining obligation which must be paid by the employer to the injured worker.
We note, in passing, that the employer seems to feel that the $ 37,351.51 will be added to the remainder subject to offset, so that workers' compensation benefits will not be resumed until $ 206,605.85 plus $ 37,351.51 has been expended by the claimant. RCW 51.24.060(1)(c)(ii) and (1)(e) specifically preclude such a result. Thus the employer must resume payment of workers' compensation benefits once Mr. Cloyd has expended $ 206,605.85, not $ 243,957.36.
Although much is made in the Proposed Decision and Order of the absence in Exhibit No. 2 of entries in section B-1 "Entitlement", it is clear from consideration of the entire document and the testimony of Alga Gabriel that the claimant's "entitlement' exceeded the "balance". As noted in the claimant's and the Department's joint Petition for Review, Exhibit No. 2 is a "Third Party Recovery Worksheet" and, as such, is simply a tool to assist Department personnel in calculating the appropriate distribution of the third party recovery. There is no legal requirement that all portions of the form be completed, particularly as in this case where the completion of a particular portion of the form would not add, in any way, to the calculations required. While at the time the distribution of the third party recovery was made, there were funds in excess of the costs, attorneys' fees, and the self-insured employer's lien which were distributed to [9] the claimant, ultimately this amount will be offset, to the self-insured employer's advantage, against workers' compensation benefits which it would otherwise have had to pay to the claimant. Ultimately if this claim continues on its actuarially predicted path, the self-insured employer will have benefited in the amount of $ 257,845.86, including reimbursement for benefits paid and a reduction of the future amounts that it will have had to pay over the course of the claim, less, of course, its $ 88,591.58 share of the costs and attorneys' fees. When this benefit to the self-insured employer is compared to the monetary benefits received by the claimant, the proportionate shares of costs and attorneys' fees assessed to the parties by the Department of Labor and Industries appear to be appropriate and reasonable.
After consideration of the Proposed Decision and Order, the self-insured employer's Petition for Review, the joint Petition for Review filed by the claimant and the Department of Labor and Industries, and a careful review of the entire record before us, we are persuaded that the Department order dated November 26, 1986 providing for the distribution of third party settlement proceeds is correct and must be affirmed.
FINDINGS OF FACT
1.On January 25, 1984, the Department of Labor and Industries received an accident report from the claimant alleging an industrial injury on December 14, 1983, to the claimant's head and chest while in the employment of Gilbert Corporation, a self-insured employer under the industrial insurance laws. A Department order was issued on March 30, 1984, granting time loss compensation and allowing the claim for medical treatment and such other benefits as may be authorized or required by law. [10]
On April 25, 1986, a Department order was issued which held that the claimant had recovered $ 526,234.80 by means of third party litigation, and that RCW 51.24.060 required distribution of settlement proceeds as follows: (1) net share to attorney for fees and costs $ 74,106.99; (2) net share to claimant $ 448,642.34; (3) net share to self-insured employer $ 3,485.47. The order further declared that the self-insured employer had a statutory lien against the claimant's third party recovery for the sum of $ 51,240.01, made demand upon the claimant to reimburse the self-insured employer in the amount of $ 3,485.47 and further ordered that no benefits or compensation would be paid to or on behalf of the claimant until such time as the excess recovery totaling $ 287,855.85 had been expended by the claimant for costs incurred as a result of the conditions covered under this claim.
Thereafter on April 30, 1986 a Department order was issued which corrected and superseded the Department order of April 25, 1986 and stated that the claimant had recovered $ 523,748.94 and RCW 51.24.060 required distribution of the settlement proceeds as follows: (1) net share to attorney for fees and costs $ 179,954.46; and (2) net share to claimant $ 381,146.05. The order further declared that the self-insured employer had a statutory lien against the claimant's third party recovery for the sum of $ 51,240.01, directed the self-insured employer to remit to claimant $ 37,351.57 pursuant to RCW 51.24.060(c)(i) (sic) and ordered that no benefits or compensation would be paid to or on behalf of the claimant until such time as the excess recovery totaling $ 206,605.85 had been expended by the claimant for costs incurred as a result of conditions covered under this claim.
On November 26, 1986, a Department order was issued, in response to a request for reconsideration, adhering to the provisions of the Department order of April 30, 1986. A notice of appeal was received by the Board on January 22, 1987, from the employer, in which it appealed the Department order of November 26, 1986. On February 19, 1987 the Board entered an order granting the appeal and directing that proceedings be held.
2. As of April 30, 1986, the self-insured employer, Gilbert Corporation, had provided $ 51,240.01 in industrial insurance compensation benefits to claimant. [11]
3. Claimant commenced an action at law against the third parties responsible for his injury of December 14, 1983 and recovered, as a result of a structured settlement entered into on or about January 15, 1986, an amount which as of April 30, 1986, had a present cash value of $ 523,748.94.
4. Attorneys' fees of $ 160,148.27 and costs of $ 19,806.19 were incurred by the claimant in pursuing his third party action.
5. The gross third party recovery ($ 523,748.94), less attorneys' fees ($ 160,148.27), less litigation costs ($ 19,806.19), and less claimant's twenty- five percent share of the net recovery under RCW 51.24.060(1)(b) ($ 85,948.62), leaves a remainder of $ 257,845.86. From this amount, the employer is entitled to the satisfaction of its lien of $ 51,240.01. Claimant is entitled to the remaining balance of $ 206,605.85, subject to offset against future benefits payable under this claim and the employer is not required to reinstitute workers' compensation benefits until that amount ($ 206,605.85) has been expended.
6. The self-insured employer, Gilbert Corporation, has benefited or will benefit from the claimant's third party recovery to the extent of $ 257,845.86, and its proportionate share of attorneys' fees and costs is, therefore, 49.23% ($ 257,845.86 divided by $ 523,748.94) of the total attorneys' fees and costs incurred in making the third party recovery. The self-insured employer's proportionate share of the $ 179,954.46 in attorneys' fees and costs is $ 88,591.58.
CONCLUSIONS OF LAW
- The Board of Industrial Insurance Appeals has jurisdiction over the subject matter and parties to this appeal.
- The Department order of November 26, 1986, which adhered to the provisions of an order dated April 30, 1986, constituted a correct application of the provisions of RCW 51.24.060 and correctly ordered the distribution of the funds received as the result of the third party recovery herein.
- The November 26, 1986 Department order, which adhered to the provisions of a Department order dated April 30, 1986, which corrected [12] and superseded an order dated April 25, 1986, is correct and should be affirmed.
It is so ORDERED.
Dated this 5th day of July, 1988.
BOARD OF INDUSTRIAL INSURANCE APPEALS
/s/
SARA T. HARMON Chairperson
/s/
FRANK E. FENNERTY, JR. Member
DISSENTING OPINION
In this case, the Board majority has again determined, as it did in In re Steven J. McGee, BIIA Dec., 70,119 (1987) and In re Edward D. Herrin, BIIA Dec., 85 3448 (1987), that the method used by the Department is determining the self-insured employer's proportionate share of third-party-suit attorney fees and costs was proper under the provisions of RCW 51.24.060(1). I dissented in those cases, and I do so again here.
It is clear to me that RCW 51.24.060(1) contemplates a one-time and final distribution of a third-party-suit recovery, and a one-time and final percentage allocation of shares of attorney fees and costs, based on the known amounts of both the third party recovery (in this case the present value of the structured settlement, Ravsten, supra, at 158-159) and the benefits paid under the Act at the time of distribution of the recovery. Subsection (c)(ii). [13]
In order to explain my view of the proportional allocation of attorney fees and costs, it is necessary to briefly note the legislative history of RCW 51.24.060(1).
The statute as it existed from 1977 to 1983 provided that (1) third-party-suit attorney fees and costs were a "first charge" against, and deduction from, the gross recovery; (2) claimants were guaranteed 25% of the net recovery, after that deduction of litigation expenses; and (3) proportionate sharing of attorney fees and costs between the claimant and the benefit providers was not allowed. These observations were confirmed by our Supreme Court in Rhoad v. McLean Trucking Company, 102 Wn.2d 442 (1984).
In 1983, the proportionate sharing of litigation expenses was restored to the distribution formula. But it is reasonably clear to me that the 1983 amendments were intended to do more than that, namely, to remove the attorney fees and costs as a "first charge", and deduction from, the gross third-party recovery. The pre-1983 wording of RCW 51.24.060(1)(a) simply said that these litigation costs, as the first step in distribution, "shall be paid." If this was not to be changed, no amendment to (1)(a) was necessary. However, it was amended, by adding further language that these costs be paid "proportionately" by the claimant and the benefit provider. Reasonable effect must be given to this change. To do so, we must look to all the rest of RCW 51.24.060(1) to determine both the distribution of the gross recovery, and allocation of the proportionate shares of attorney fees and costs to that distribution, to arrive at the parties' net "in hand" shares. By viewing all subsections, treated as a whole, the statute can be reasonably harmonized and applied. [14]
Per (1)(b) and (c), the claimant's 25% guaranteed share (measured against the gross recovery, since the litigation costs are no longer a mandatory "first charge") is $ 130,937.24; and the self-insurer's share is $ 51,240.01, since that sum is the extent of the total compensation benefits which were paid at the time of the third party action recovery. The remaining balance of the gross recovery, $ 341,571.69 is distributed to the claimant per subsection (1)(d). However, this sum cannot be utilized in figuring the respective parties' proportionate share of attorney fees and costs, because to do so would alter the self-insurer's proportionate share in contravention of subsection (1)(c)(ii). Thus, the distribution of the gross third party recovery utilized to allocate the attorney fees and costs between the parties is $ 130,937.24 to the claimant, and $ 51,240.01 to the self-insurer. This is a proportionate distribution of 71.87% to the claimant, and 28.13% to the self-insurer. Obviously, this is also the proportion by which costs of obtaining that recovery should be borne.
71.87% of the attorney fees and costs of $ 179,954.46 is $ 129,333.27. Therefore, claimant's proper net recovery is $ 130,937.24 less $ 129,333.27 or $ 1,603.97, plus his $ 341,571.69 remaining balance, for a total of $ 343,175.66. 28.13% of the attorney fees and costs is $ 50,621.19. Therefore, the self-insurer's proper net recovery is $ 51,240.01 less $ 50,621.19, or $ 618.82.
Therefore, I would reverse and remand the Department's order of November 26, 1986, to provide for distribution of the $ 523,748.94 gross third-party-suit recovery as follows:
- $ 179,954.46 to the attorneys for John Cloyd for attorney fees and costs; [15]
- $ 343,175.66 to John Cloyd, constituting his 25% share less his proportionate share of attorney fees and costs, plus his remaining balance under RCW 51.24.060(1)(d).
- $ 618.82 to the self-insurer as its net lien share after bearing its proportionate share of attorney fees and costs.
Further, the requirements of RCW 51.24.060(1)(e) should be applied against claimant's remaining balance of $ 341,571.69.
Dated this 5th day of July, 1988.
/s/
PHILLIP T. BORK Member