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The Injured Worker: Recognizing and Maximizing Other Sources of Recovery by the Worker's Compensation Attorney

by BRUCE RASMUSSEN

Benefits to the worker and his compensation attorney are lowest in Virginia among the 50 states. The worker with no dependents who is killed on the job, is entitled to the tremendous benefit of a free funeral. Due to the workers' compensation bar, no one is held accountable, regardless of how gross their negligence was. Compensation carriers are now alleging willful violations in all cases. Carriers are appealing all adverse decisions, attempting to create as much of a burden on the claimant's attorney as possible. Today, more than ever, it is imperative that the workers' compensation attorney pursue all avenues of recovery, in an attempt to get his client a sufficient recovery, and for the attorney himself to be adequately compensated.

PRODUCTS LIABILITY
We believe the single most overlooked avenue of recovery is the products liability action. We have successfully pursued such cases involving a crimper used for repairing high voltage power lines; the explosion of an industrial circuit breaker; a defectively manufactured relief valve; a failed coupler; an inadequately labeled flammable adhesive; and a short circuit in a welding machine; paying back hundreds of thousands of dollars in liens.

Many industrial injuries result from electrocutions, explosions, and burns and can be traced directly back to a defective product; whether the defect be from a faulty part, product design or inadequate warning or instructions to the worker. Many times the attorney may simply assume the worker or his employer was at fault, and he will forget to analyze the circumstances from a products liability point of view.

IF YOU HAVE A POTENTIAL PRODUCTS LIABILITY CASE IT IS IMPORTANT TO ACT QUICKLY WHETHER YOU HANDLE THE CASE OR REFER IT OUT:

1. Secure the defective product as soon as possible and take pictures of the product and the scene as soon as possible.

2. The statute of limitations is 2 years from the date of the accident.

3. Meet with the employer or carrier and reduce the adversarial relationship. The carrier will end up with a tremendous lien at stake that they will hope to recover, and this can be used to gain the cooperation of the employer in the case, which will be crucial.

4. You must work with the doctors and nurses and attempt to reduce the adversarial relationship with them as well. Getting the carrier off their back and explaining that a third party case is being pursued can help to initiate some real treatment versus "go back to work, you're fine."

THREE TYPES OF PRODUCT DEFECTS:

1. DESIGN DEFECT. In a design defect case, the product in question performs exactly as designed by the manufacturer. The claim questions the safety of the design itself, because the product was not designed/engineered to withstand normal foreseeable uses in the real world.

An illustration of a case like this would be a circuit breaker, where the material used actually absorbed water, causing an explosion.

Another case would involve an industrial tool that was designed without a "deadman switch" so that when the user dropped it, it continued to operate, harming him or a fellow worker.

2. MANUFACTURING DEFECT. The defect is that the product was not made as intended, a manufacturing flaw. Perhaps the product is missing parts, or the parts were machined incorrectly.

An illustration of this case would be a pressure relief valve that exploded due to a metallurgical defect.

3. DEFECTIVE WARNINGS AND INSTRUCTIONS. This defect alleges inadequate information concerning the safe use of the product.

An illustration of this case would be the inadequate warning on an industrial adhesive that caught fire during use, horribly burning several workers, or the failure to warn that a device used for crimping electrical lines that was advertised as insulation to protect the worker, was not insulated properly, resulting in severe burns.

DEFENSES: Again, cooperation of the employer is critical. Two defenses used by manufacturers rely on the testimony of the employer. An employer can intentionally or unintentionally, ruin your case. The defenses are:

(1) Plans and specifications defense: In the law of products liability, the only defense similar to the comp bar that may come into play is the "plans and specifications" defense. A manufacturer is usually not liable for harm caused by the product when it was manufactured according to plans and specifications furnished by the employer. See Spangler v. Kranco, Inc., 481 F.2d 373, 375 (4th Cir. 1973). This is also true where the manufacturer assembles components into a complex product, pursuant to specifications furnished by a third party. See Marshall v. H.K. Ferguson Co., 623 F.2d 882 (4th Cir. 1980).

(2) Sophisticated user defense: This line of cases holds that a manufacturer is not liable where the injured party or his employer was knowledgeable of the risks posed by the product's use. See Beale v. Hardy, 769 F.2d 213 (4th Cir. 1985), where employees injured by handling silica could not recover from the manufacturer where their employer had extensive knowledge about the dangers of contact with silica.

OTHER THIRD PARTY ACTIONS
1. Automobile accidents.
2. Premises liability accidents. The confusion and immunity continues.

Right to pursue a third party claim
Va. Code Ann. § 65.2-307 and § 65.2-309 provide that a person injured in an accident covered by Workers' Compensation may still pursue an action against the third party, so long as that person is a "stranger to the employment." However, just because an injured person is employed by a company other than the potential defendant does not mean that a third party suit is possible. Va. Code Ann. § 65.2-302 provides that if a statutory employment relationship exists between the parties, the suit is barred.

THE STATUTORY EMPLOYER RULE

1. Pursuant to Va. Code Ann. § 65.2-302(A), an owner becomes liable for compensation to employees of the subcontractor, as if the employees were his own, when the owner undertakes to perform any work that is part of his trade, business or occupation and contracts with another person, such as a subcontractor for the performance of the whole or any part of the owner's work. Subsequently, the worker's sole remedy would be a workers' compensation claim for benefits.

2. Va. Code Ann. § 65.2-302(B) provides that when a general contractor undertakes by contract to perform work for another, such as the owner, and such work is not part of the owner's trade, business or occupation, but is part of the trade, business or occupation of the contractor, then the contractor becomes liable for compensation to the employees of the subcontractor as if they were his own. Subsequently, the worker's sole remedy would be a workers' compensation claim for benefits.

3. This statutory employer status also extends to employees of subcontractors if they are engaged in the same trade, business or occupation of the owner or contractor. Va. Code Ann. § 65.2-302(C). Subsequently, the worker's sole remedy would be a workers' compensation claim for benefits.

"The issue of whether a person is a statutory employee presents a mixed question of law and fact which must be resolved in light of the facts and circumstances of each case." Cooke v. Skyline Swannanoa, Inc., 226 Va. 154, 156 (1983).

CASELAW

1. The "normal work" test. The primary question in the analysis of these cases, is whether the employee was involved in the "trade, business, or occupation" of the owner or contractor. The Supreme Court of Virginia has relied upon the analysis of Shell Oil Co. v. Leftwich, 212 Va. 715 (1972) to determine statutory employers. In Shell Oil, the Court stated: The test is not one of whether the subcontractor's activity is useful, necessary, or even absolutely indispensable to the statutory employer's business, since, after all, this could be said of practically any repair, construction or transportation service.

The test (except in cases where the work is obviously a subcontracted fraction of a main contract) is whether this indispensable activity is, in that business, normally carried on through employees rather than independent contractors. Shell Oil Co. v. Leftwich, 212 Va. 715, 722 (1972).

2. The "subcontracted fraction" test. In Cinnamon v. International Bus. Mach., 238 Va. 471, 476(1989), the Court described the "subcontracted fraction test."

In the context of the construction business, [the subcontracted fraction prong] relates to a general contractor, the party obligated by the main contract with the owner to complete the whole project. If the work out of which the accident arose was, in the language of Shell Oil, "obviously a subcontracted fraction of [that] contract" and, in the language of the statute, "not a part of the trade, business or occupation of" the owner, the general contractor who engaged the subcontractor to perform that fraction is the statutory employer of the injured worker, whether directly employed by the primary subcontractor or by a secondary subcontractor.

3. The "stranger to the work" test. The third test is the stranger to the work test. This test is derived from Va. Code Ann. § 65.2-309(A) and is the test that was applied in Whalen v. Dean Steel Erection Co., 229 Va. 164 (1985), where the Court determined that the "normal work" test was not applicable when an employee of a general contractor made a personal injury claim against a subcontractor. As stated in Whalen, "in order to maintain a common law action the defendant had to be a stranger to the trade, occupation, or business in which the plaintiff was involved." Id. at 167.

a. This test was recently applied in Stone v. Door-man Manufacturing Co., et al., -Va. -, 537 S.E.2d 305 (2000) by the Court, even though the injured party in Stone was an employee of the owner, and the injured party in Whalen was an employee of a general contractor. In Stone, the plaintiff was an employee of the Ford assembly plant. Id. at 306. He was paralyzed from the waist down, when he was operating a tow motor vehicle through a doorway of the bodyshop where he worked. Id. The overhead door unexpectedly closed and struck him in the head and chest. Id. The accident took place in a warehouse that had been remodeled and enlarged so that Ford could manufacture the redesigned F-150 truck. Id. Ford had spent 18 months preparing a layout of the shop with "global specification." Id. These specifications showed how the building was to be shaped; how the toolings were to fit inside, how the material was to be brought in; arranged together and shipped from point A to B. Id. Stone sued the architect and all contractors involved in the installation of the door.

Ford was involved in the day to day construction of the project and there was evidence that they normally performed work at their plant similar in all respects to the construction work on this project. Id. at 308. Ford employed personnel trained to design buildings as well as 250 skilled tradesmen, including carpenters, electricians, pipefitters, millwrights, welders, plumbers and others. Id. With respect to the door, Ford produced and required adherence to a detailed six page specification with respect to door design and operation. Id.

Ford dictated the size of the door, where it was to be placed, the location of the inductive loop used to operate the door as well as the location of the guard post adjacent to the door. Id. Ford electricians had removed and replaced door loops, relocated electric panels and worked on timing and sequence of doors. Id. After the accident Ford employees added a second inductive loop on the inside of the door in question. Id.

In spite of all of this, the Virginia Supreme Court ruled that Ford was in the business of manufacturing and selling motor vehicles, and that the defendants were strangers to the business. Id. at 311. The Court also stated that they would have reached the same result even if they had applied the "normal work" test. Id. The Court determined that the renovation project was the type of "major work" that Ford "historically contracted out." Id. at 312. While the magnitude of the project was not conclusive, the Court stated that it was entitled to consideration in determining whether the construction of the project was the normal work of Ford. Id.

B. See also Fowler v. International Cleaning Serv., Inc., -Va.-, 537 S.E.2d 312 (2000). This case was decided the same day as Stone, and held that employees of Sears Homelife Furniture Store and the cleaning company were both involved in cleaning Sears' premises and, because both were engaged in combined efforts to keep the store clean, attractive and safe, the cleaning company was not a stranger to the business and could not be sued for negligence. Id. at 315-316.

SO YOU HAVE A CASE . . . MAINTAINING COMMUNICATION BETWEEN THE COMP AND TORT ATTORNEYS

It is important for the workers' comp attorney and the tort attorney to work together and maintain communications as to the status and progress of the case. This is important for several reasons:

1. The comp carrier has a lien on the third party claim and the claimant (plaintiff) may not settle his case without consent or approval of the carrier. Settlement without approval can terminate the claimant's future workers' comp benefits.

2. If the comp claim is settled and the carrier fails to expressly preserve the lien in the settlement documents, the carrier may forego any further workers' compensation lien on a subsequent personal injury recovery. Tomlin Vance Intern, Inc., 22 Va. App. 448 (1996). If the comp attorney and the tort attorney have been in communication, they should know the status of the case and this may be something the comp attorney may want to bargain for. Likewise, the comp attorney should forward these documents to the tort attorney so that the tort attorney does not reimburse the carrier any more than he has too. Unfortunately, many tort attorneys simply request a statement evidencing that the expenses were paid from the carrier and nothing else.

3. If the tort attorney gives the comp attorney unfavorable medical reports, the comp attorney must turn the documents over to the carrier. This situation could arise where the tort attorney seeks a second opinion or specialized treatment not covered by the carrier.

Likewise, bad medicals/statements can kill the third party case. This is particularly true when the comp attorney begins to build his social security case. By rendering the client completely disabled, any future lost wage claim evaporates. Similarly, some of the psychiatric evaluations for social security can be absolutely devastating to the third party case.

4. Due to the involvement of "comp doctors," the claimant may not be getting the appropriate medical attention and treatment he needs. The tort attorney can speak with the treating physicians in an attempt to get the doctor to agree to a referral for specialized treatment or tests. If this fails, the tort attorney may still select an expert and send the claimant there for an evaluation.

5. The preservation of lifetime medicals may or may not be important to the claimant. The tort attorney and comp attorney should discuss this together. Depending on the client's health, average annual medical expenses and the availability of health insurance, this benefit may not be important to the client.

6. The Social Security offset. Depending on the client's cap or ceiling for Social Security Disability benefits and the amount of settlement, the client's disability benefits may pick up some or all of the lost comp payments.

7. Settling the comp claim and lien at the same time may result in very favorable results for the claimant. The lump sum settlement of the workers' comp case prior to the completion of the third party case, gives up all leverage when attempting to get a lien reduction from the carrier. The claimant is now "locked in" to a definite figure, which the carrier will not want to compromise. Contrarily, awaiting settlement presents a united front to the comp carrier and only strengthens your chances of a favorable resolution on all counts. The adjuster will be more than willing to tie up all the loose ends and get the whole thing over with.

8. The comp carrier must pay its share of attorney's fees and pro-rata costs. Va. Code Ann. § 65.2-310 and § 65.2-311. Some of the carrier's expenses are not reimbursable, such as job searches or medical management by a rehabilitation group. See Washington v. Miller & Rhoads, 68 O.I.C. 219 (1984). The comp carrier will still remain responsible for all future benefits at the rate calculated for the attorney fees and expenses, until the net third party recovery is exhausted. Va. Code Ann. § 65.2-313. Many comp carriers fail to realize this. This can be used as leverage to help reduce the carrier's lien. Using this as an option of course depends on your client's tort recovery, average annual medical expenses, their personal health status and the availability of health insurance. A goal and strategy session between the comp and tort attorney is recommended prior to settling either case.

9. Should the comp carrier fail to cooperate, disagree with your calculations, or fail to reduce their lien in the case where the client would fail to realize a recovery or realize a minimal recovery after paying costs, attorneys fees and liens, the circuit court may intervene and effectively force a reduction by allocating a larger portion of the attorney's fees and costs to the carrier. See Va. Code Ann. § 65.2-311.

10. Working with the comp attorney can also help the tort attorney in that it can provide access to an uncooperative employer through the insurance carrier. In some cases, the comp attorney may have a good rapport with the treating comp doctor. Both attorneys can then meet with the physician and explain the pending third party case and, if necessary, the potential need for a referral to specialists.

11. Early communication among the comp attorney, tort attorney and comp carrier is crucial. The traditional "blame the worker" attitude hurts the employee, the employer, and in the end, the carrier, who fails to make the subrogation recovery.

LIENS: CALCULATION OF PRORATED ATTORNEY'S FEES AND COSTS

EXAMPLE CALCULATION:

Settlement $900,000
Lien $180,000
Total fee $350,000 (attorney fees $300,000 + $50,000 costs)

Methods for Determining Share of Attorney Fees/Costs: