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Kennedy v. Workers' Compensation Appeal Board (Henry Modell & Co., Inc.)

Commonwealth Court of Pennsylvania

August 1, 2013

Clyde Kennedy, Petitioner
v.
Workers' Compensation Appeal Board (Henry Modell & Co., Inc.), Respondent

Submitted May 17, 2013

BEFORE HONORABLE DAN PELLEGRINI, President Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge

OPINION

MARY HANNAH LEAVITT, Judge

Clyde Kennedy (Claimant) petitions for review of an adjudication of the Workers' Compensation Appeal Board (Board) granting the request of Henry Modell & Co., Inc. (Employer) to recover the workers' compensation benefits it paid to Claimant by way of a subrogation lien against Claimant's third party recovery. In doing so, the Board affirmed the Workers' Compensation Judge's (WCJ) determination that Employer is entitled to subrogation because Claimant's tort damages arose from his work injury. Finding no error, we affirm.

The following facts are not in dispute. On May 3, 1989, Claimant sustained a crush injury to his right hand while using a conveyor belt at work. Employer, through its workers' compensation insurance carrier Liberty Mutual, paid total disability benefits and medical bills.

The conveyor belt had been manufactured and installed by Keystone Spray Equipment, Inc. Claimant's counsel informed Employer that Claimant intended to pursue a product liability action against Keystone. Employer asserted a subrogation lien against any third party recovery for the compensation benefits it paid Claimant. Claimant's counsel agreed to protect the subrogation lien and to withhold disbursement of any proceeds obtained in the product liability action until Employer was reimbursed for its lien.

Claimant filed a complaint against Keystone in the Court of Common Pleas of Philadelphia County (trial court) alleging negligence, breach of implied warranties and strict liability. Keystone's insurance carrier, Regis Insurance Company, refused to defend the action, claiming that Claimant's action fell within the "products hazard" exclusion found in Keystone's policy. Reproduced Record at 69a, 72a (R.R.__). Keystone itself was financially insolvent and was unable to pay a judgment or settlement to Claimant or pursue Regis for indemnification.

In June 1996, the trial court approved a consent judgment against Keystone and in favor of Claimant in the amount of $426, 723.44. R.R. 83a. The parties stipulated that Keystone was liable for Claimant's injury due to, inter alia, negligent manufacture and installation of the conveyor belt and failure to warn of its dangers.[1] Claimant agreed not to pursue Keystone for the judgment. Instead, with an assignment from Keystone of its rights under its liability policy, Claimant pursued Regis for collection of the judgment.

Claimant filed a complaint against Regis for breach of contract and bad faith refusal to defend and indemnify Keystone. The trial court ruled in Claimant's favor, concluding that Regis had a duty to defend Keystone in Claimant's product liability action and that Regis must indemnify Keystone for the amount of the 1996 consent judgment. In doing so, the trial court determined that Keystone's negligence included conduct that went beyond the "product" exclusion, and, therefore, was covered under its policy with Regis. Regis appealed and the Superior Court affirmed. Keystone Spray Equipment, Inc. and Clyde Kennedy v. Regis Insurance Company, 767 A.2d 572 (Pa. Super. 2001).

Employer wrote to Claimant's counsel, asserting a subrogation lien for disability and medical benefits it had paid in the amount of $81, 095.09. When it did not receive payment, Employer filed a review offset petition seeking subrogation against Claimant's third party recovery. Claimant filed an answer asserting that Employer was not entitled to subrogation because the money Claimant received from Regis was for breach of contract, not negligence.

The matter was assigned to a WCJ, who received documentary evidence from the parties.[2] The WCJ granted Employer's review offset petition. The WCJ found that Employer had a lien in the amount of $81, 095.09 for workers' compensation paid and that Claimant obtained a judgment against Keystone by stipulation in the amount of $426, 723.44. Although further legal action was required to obtain payment, the WCJ concluded that Employer was entitled to subrogation because the judgment arose out of Claimant's 1989 work injury. Claimant appealed and the Board affirmed. Claimant then petitioned for this Court's review.[3]

Claimant raises one issue for our consideration. Claimant argues that the Board erred in concluding that Employer is entitled to subrogation when Claimant's judgment did not come from a third party tortfeasor, but from the tortfeasor's liability insurer.[4]

Section 319 of the Workers' Compensation Act (Act), Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §671, gives an employer an absolute right to subrogation. Thompson v. Workers' Compensation Appeal Board (USF&G Co. and Craig Welding Equipment Rental), 566 Pa. 420, 432-33, 781 A.2d 1146, 1153-54 (2001). Section 319 states, in relevant part, as follows:

Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employe … against such third party to the extent of the ...

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