SAN ANTONIO COURT OF APPEALS FINDS WORKERS COMPENSATION INSURER MUST BEAR PROPORTIONATE SHARE OF INJURED WORKER’S EXPENSES INCURRED LITIGATING AGAINST THIRD PARTIES

August 8, 2011

Also last week, in Morales v. Michelin N. Am., Inc., – S.W.3d –, 2011 WL 3328792 (Tex.App. – San Antonio Aug. 3, 2011, no pet. h.), the court of appeals in San Antonio modified a judgment to reduce a workers compensation carrier’s subrogation recovery of settlement proceeds from third parties by a proportionate share of the worker’s litigation expenses.

Bairon Morales worked for K & K Repair Service, LLC on September 12, 2005, when he was riding as a passenger in a company truck and a rear tire blew out.  The vehicle then rolled over and Morales was injured.  Texas Mutual Insurance Company, K & K’s workers’ compensation insurance carrier, paid Morales $177,729.31 in medical and income benefits.  Among others, Morales sued the tire manufacturer, Michelin North America, Inc., and the tire seller, Discount Tire Company of Texas.  Texas Mutual intervened and asserted its subrogation rights.  Morales subsequently settled with Michelin and Discount Tire for $375,000.  After Morales offered Texas Mutual $15,000 as payment in full of its subrogation lien, Texas Mutual moved for summary judgment to recover the $177,729.31 it paid Morales, less the statutory maximum of one-third for Morales’s attorney’s fees.  The trial court granted the motion and ordered Morales to pay Texas Mutual $118,486.21, which was the subrogation lien amount less one-third for Morales’s attorney’s fees.

On appeal, Morales asserted that the Texas Labor Code requires the trial court to award not only his attorney a reasonable fee but also a proportionate share of the litigation expenses.  Texas Mutual agreed to pay Morales’s attorney the statutory maximum attorney’s fee, but denied that it owed Morales’s attorney a proportionate share of expenses.  The applicable statute allows apportionment of litigation expenses if an attorney representing the insurance carrier actively participates in obtaining a recovery.  Morales asserted that because Texas Mutual was not actively represented in his third-party action, his attorney should get a reasonable fee and a proportionate share of litigation expenses.  In response, Texas Mutual asserted that the attorney should not recover a proportionate share of litigation expenses because Morales resisted paying first money as he was required to do.

The court found that the relevant activities to determine active representation were the steps Texas Mutual took in its joint action with Morales against the third-party defendants, not the steps in its internecine conflict with Morales.  Texas Mutual intervened, but the only other steps Texas Mutual took were not directed towards the third-party defendants; instead, they were steps to secure payment of its subrogation lien from Morales.  Thus, Texas Mutual failed to satisfy the statutory requirement for the carrier to actively participate in obtaining a recovery from the third-parties and was thus required to share in the expenses.  Because Texas Mutual was not actively represented in the third-party action, the court of appeals modified the trial court’s judgment and reduced the defendant’s payment of $118,486.21 of the settlement proceeds to Texas Mutual in satisfaction of its lien by $27,754.17, which was Texas Mutual’s proportionate share of expenses, for a modified payment amount of $90,732.04.