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Lebsack v. Rios et al. - How Do Workers' Compensation Liens Affect Plaintiff's tort claims and damages

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16-cv-02356-RBJ (D. Colo. Nov. 14, 2017)

Jurisdiction: U.S. District Court, District of Colorado (federal)

  • Based on diversity jurisdiction (therefore applying Colorado law).
  • Because the CO Supreme Court has not yet addressed this issue, the federal court in this ruling attempted to predict how the COSC would interpret this issue.
  • This is important for two reasons: (1) this ruling is, so far, the only Colorado-specific guidance available on this specific legal question; and (2) the issue still could arise in Colorado state court.

Two issues were before the court:

  1. Which claims Plaintiff had standing to bring in light of a settlement between Defendants and Plaintiff’s workers’ compensation (“WC”) carrier; and
  2. What medical expense evidence was admissible in light of the collateral source rule and Colorado WC law.

Facts: Plaintiff and Defendant were both driving their employers’ vehicles at the time of the car accident. Plaintiff was injured and missed some work. Plaintiff claimed and received WC benefits from her employer, through her employer’s insurer, PMI. PMI covered Plaintiff’s medical treatment costs, lost wages, and physical impairment claims. Plaintiff’s medical treatment was billed at $152,000, but PMI satisfied these bills by paying the healthcare providers $67,000. PMI also paid Plaintiff $19,000 for lost wages and physical impairment.

  • Upshot: WC carrier paid for P’s medical bills AND for lost wages and physical impairment.

Litigation: Plaintiff sued Defendants (the driver and his employers) for damages including medical expenses, wage loss, permanent impairment, and non-economic losses. Among other things, Plaintiff sought to recover the billed amount of medical expenses ($152,000). One week later, PMI sued Defendants for recovery of the full amount of all benefits it paid to Plaintiff ($90,000). PMI and Defendants settled these claims. Plaintiff them requested that the court in her case decide the effect of the settlement between PMI and Defendants on Plaintiff’s case against Defendants.

  • Upshot: P sued D for the same categories of damages she’d already received from WC, plus “non-economic losses.”

Subrogation: When a WC carrier pays an injured employee’s covered expenses, it is subrogated for the amount of the benefits paid. One option for the carrier is to place a lien on any settlement or judgment obtained by the employee from the tortfeasor.

  • Upshot: after the employee obtains a settlement/judgment, the employee must reimburse the WC carrier for benefits paid.

Collateral Source Rule (C.R.S. § 13-21-111.6): A plaintiff’s damage claim must be reduced by the amount by which she has been compensated by a third party unless the third-party payment was the result of a contract entered into and paid for by the plaintiff.

  • Under this rule, if plaintiff’s medical expenses were paid by her own health insurance carrier, her claim against the tortfeasor is not reduced by her insurer’s payment of those expenses.
    • However: Lebsack held that, to the extent PMI paid benefits on Plaintiff’s behalf, PMI effectively “stepped into Plaintiff’s shoes” and retained the right to attempt to recover directly from Defendants.
      • So, when the subrogation claim was settled between PMI and the Defendants, Plaintiff’s claim for those same amounts was extinguished.
    • To the extent Plaintiff was asking that she be entitled to recover the difference between the amounts billed by her providers and the amount paid to them by PMI, the Lebsack court disagreed, for 2 reasons:
      • 1. Settlement of the PMI subrogation claim extinguished Plaintiff’s claim for amounts resolved by her WC carrier (PMI).
      • 2. Healthcare providers may not recover more than what is allowed in the WC fee schedule. See C.R.S. § 8-42-101(3)(a)(1). PMI’s acceptance of liability for Plaintiff’s medical payments permanently prohibited Plaintiff’s medical providers from seeking those costs from her.
        • Plaintiff cannot recover amounts that her providers could not lawfully charge and that she had no obligation to pay.

Resolution of Issue 1: Plaintiff cannot claim any benefits already paid on her behalf by WC carrier, because they are no longer hers to claim. Plaintiff only has standing to seek to recover damages in excess of the compensation available under the WC statute.

Resolution of Issue 2: Evidence of amounts billed by medical providers is irrelevant and therefore inadmissible, because, under Colorado WC law, a billed amount in excess of the fee schedule is unlawful and unenforceable. Thus, according to Lebsack, the collateral source rule does not apply to this situation.

  • Reasoning: there is an unjustified risk that the jury might hold the Defendants liable for medical bills that are void and unenforceable under Colorado law and that never constituted a loss to Plaintiff.

Lebsack Rule – Twofold:

  • 1. A Plaintiff whose WC lien is purchased/settled lacks standing to claim the damages and otherwise recover them.
  • 2. Workers’ compensation law only permits paid amounts (versus amounts billed) to be presented at trial where costs become otherwise relevant to another issue/claim in the case.

Importance of Lebsack:

  • To WC carriers: Workers’ compensation carriers need not wait until after an employee obtains a settlement/judgment from the tortfeasor to seek recovery of the benefits paid on behalf of the employee. They may attempt to recover directly from the tortfeasor pursuant to their subrogation right.
  • To insurers: If the underlying subrogation lien has been settled, a Plaintiff may only recover from an insured tortfeasor any amounts in excess of the compensation available under the WC statute (i.e., “non-economic losses”).

Unresolved issue:

  • Whether WC benefits are treated like one’s own health insurance benefits for purposes of the collateral source rule (the Lebsack court “assumed, without deciding, that this is so”).
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