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Kenney v. Workers' Compensation Appeal Board (Lower Pottsgrove Township and DelawareValley Workers' Compensation Trust)

Commonwealth Court of Pennsylvania

August 2, 2019

James Kenney, Petitioner
Workers' Compensation Appeal Board (Lower Pottsgrove Township and DelawareValley Workers' Compensation Trust), Respondents

          Argued: June 5, 2019




         James Kenney (Claimant), a police officer for Lower Pottsgrove Township (Employer), petitions for review of an adjudication of the Workers' Compensation Appeal Board (Board) that reversed, in part, the decision of the Workers' Compensation Judge (WCJ). In so doing, the Board held that Delaware Valley Workers' Compensation Trust (Trust), a group self-insurance fund, was entitled to subrogate against Claimant's third-party tort recovery. Claimant argues that because he was paid only Heart and Lung benefits, the Trust had no right of subrogation. We reverse the Board.


         The facts of this case are not in dispute. On September 22, 2014, Claimant was injured in a work-related motor vehicle accident when his police cruiser was struck by another vehicle. Claimant was out of work until March 16, 2015, when he returned to light duty. He returned to full duty on July 25, 2015.

         After his injury, the Trust issued a Notice of Compensation Payable (NCP) accepting liability for wage loss compensation in the amount of $932 per week. Reproduced Record at 226 (R.R.). However, Employer continued to pay Claimant full wages. The Trust sent Claimant's workers' compensation disability checks to Employer, and Claimant signed them over to Employer. Employer did not advise Claimant that its payment of his full wages constituted Heart and Lung Act[1]benefits.

         On January 21, 2015, a union member advised Claimant that he should apply for Heart and Lung benefits. Claimant did so on January 28, 2015, by emailing the police chief a document titled "Application for Heart and Lung Act Benefits." R.R. 230. By a letter dated March 2, 2015, Employer acknowledged receipt of Claimant's request for Heart and Lung benefits and "agreed to accept the claim in accordance with applicable law." R.R. 231. On April 9, 2015, Employer issued Claimant a check in the amount of $5, 198.94 to reimburse him for taxes that had been deducted from his paychecks.[2]

         Claimant filed a tort action against the driver of the vehicle involved in the accident. The Trust asserted a workers' compensation lien in the amount of $85, 237.63, which was comprised of $25, 375.86 in wage loss compensation and $59, 861.77 in medical compensation.

         On January 14, 2016, Employer filed a petition to review compensation, seeking a determination "with respect to Employer/Insurer's worker[s'] compensation lien rights." Certified Record (C.R.), Item No. 2, at 1. Claimant responded that he "has not settled any personal injury action against any third party[, ]" and, in any event, Employer cannot subrogate Heart and Lung benefits. C.R., Item No. 4, at 1. On June 1, 2016, Employer filed a second petition to review compensation benefits requesting a determination as to "whether benefits were properly paid under the Workers' Compensation Act[.[3]" C.R., Item No. 6, at 1. Claimant responded that all benefits should have been paid pursuant to the Heart and Lung Act.

         The WCJ consolidated Employer's petitions. Claimant presented his deposition testimony and a transcript of his testimony at a hearing before the Lower Pottsgrove Board of Commissioners[4] that established the above-recited facts. Employer presented the deposition testimony of Richard Lee, the administrator of the Trust, who explained the Trust and its operations.

         Lee testified that the Trust was established by "a group of homogeneous employers to pool their liabilities [for] Workers' Compensation[.]" Notes of Testimony (N.T.), 9/13/2016, at 4-5; R.R. 323-24. The Trust is an approved group self-insurance fund that provides workers' compensation coverage to municipal employers, townships and boroughs. The Trust's premium rates are regulated by the Bureau of Workers' Compensation and are set at the level needed to cover all claims and expenses of the group. The Trust uses the same payroll classifications as the Pennsylvania Compensation Rating Bureau, which sets workers' compensation rates for the insurance industry. Lee stated that "excess funds that are not needed" are refunded by the Trust to members in various forms such as cash dividends or premium reductions. Id. at 11; R.R. 330.

         According to Lee, a member of the Trust does not apply to the Bureau of Workers' Compensation to become an approved self-insurer; a member simply notifies the Bureau that it "has agreed to join [the] [T]rust." Id. at 10; R.R. 329. Each member has the right to appoint a trustee to the Trust's board of trustees, which further elects five executive committee members to "direct and operate" the Trust. Id. at 12; R.R. 331. Lee stated that subrogation "is referenced in the trust agreement as something that the [T]rust can pursue." Id. at 31; R.R. 350. Since its inception, the Trust has asserted workers' compensation lien rights "when appropriate[.]" Id. at 33; R.R. 352.

         Employer also offered the deposition testimony of Linda Bengera, an employee of the Trust, who managed Claimant's workers' compensation claim. According to Bengera, the Trust paid wage loss and medical benefits to Claimant in accordance with the Workers' Compensation Act. The workers' compensation checks were set up on "auto pay" and sent to Employer because they "ha[d] something to do" with Claimant's Heart and Lung benefits. N.T., 4/13/2016, at 29-30; R.R. 299. The Trust's "protocol" is to send the checks to the employer. Id. at 30; R.R. 299.

         The WCJ found the testimony of Claimant, Lee, and Bengera credible. The WCJ granted Employer's second review petition, concluding that Claimant's workers' compensation benefits were paid as required by the Workers' Compensation Act. The WCJ denied Employer's first review petition, concluding that Employer could not subrogate against Claimant's tort recovery. The WCJ reasoned Claimant received Heart and Lung benefits and, thus, could not plead those benefits as an item of damages in his tort action. Accordingly, the Trust could not subrogate the same from Claimant's tort recovery. The WCJ held this outcome was required by this Court's holding in Stermel v. Workers' Compensation Appeal Board (City of Philadelphia), 103 A.3d 876 (Pa. Cmwlth. 2014). The WCJ noted that Employer was not "a single self-insured entity" but, rather, a member of a self-insurance group fund. WCJ Decision at 7, Conclusion of Law No. 3; C.R., Item No. 10, at 7. Nevertheless, the WCJ concluded that this fact did not distinguish the present case from Stermel.

         Employer appealed to the Board, arguing that the WCJ's reliance on Stermel was misplaced because Employer "has all of the attributes of an insured employer and none of the attributes of a self-insured." C.R., Item No. 11, at 1. Accordingly, Employer asserted that the Trust can subrogate its payment of workers' compensation benefits from Claimant's third-party tort recovery.

         The Board affirmed the WCJ's decision granting Employer's second review petition but reversed the WCJ's decision on Employer's first review petition. The Board distinguished Stermel, which involved a self-insured employer that paid only Heart and Lung benefits. By contrast, the Trust, acting in the same manner as an insurance carrier, paid Claimant workers' compensation benefits that were "completely separate from [Employer's] payment of Heart and Lung benefits." Board Adjudication at 8; C.R., Item No. 15, at 10. The Board reasoned, "while [Employer] may not be eligible for subrogation in terms of its payment of Heart and Lung benefits, [the Trust] itself, acting as [Employer's] workers' compensation insurer, is entitled to subrogation in terms of the ...

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