On Sept. 19, 2024, in one of the most pro-subrogation decisions in a generation, the Nevada Supreme Court overnight turned Nevada into one of the most favorable states for workers’ compensation subrogation. With the stroke of a pen, the court has done the following:
- Abandoned the “Breen Formula”—which it declared was “unworkable” and “no longer good law”;
- Ruled that workers’ compensation carriers no longer have to pay any portion of employees’ third-party attorneys’ fees and litigation costs;
- Confirmed the importance of a carrier intervening and participating in a third-party action;
- Acknowledged the societal and economic importance of workers’ compensation subrogation and the importance of protecting it;
- Reinstated a carriers’ subrogation rights against both economic damages and non-economic damages;
- Reaffirms that the employee’s attorney, the employee, and the third-party liability carrier are all jointly and severally liable to the workers’ compensation carrier for its lien;
- Continues to codify and
- Simultaneously overruled Breen v. Caesars Palace, 715 P.2d 1070 (Nev. 1986) and Poremba v. Southern Nevada Paving, 388 P.3d 232 (Nev. 2017), to the extent that either of them conflict with this decision.
The facts underlying this landmark decision are rather simple. Ramon Vasquez, Jr. was working at a restaurant and slipped and fell in a puddle of liquid, injuring himself. His worker’ compensation carrier, AmTrust North America, Inc., paid workers’ compensation benefits in the amount of $177,335.59. Vasquez filed a third-party action against multiple defendants, and AmTrust intervened in the lawsuit in order to protect its statutory rights of reimbursement and subrogation on its workers’ compensation lien. After nearly two years of litigation, Vasquez settled his third-party case for $400,000. Without consulting AmTrust, Vasquez and the defendants gerrymandered the settlement, allocating the $400,000 as follows:
- $83,577.22 in special damages (past medical)
- $316,422.78 in general damages (non-economic damages, namely, pain and suffering)
After Vasquez’s costs and attorney fees were subtracted from the settlement amount, Vasquez was left with a “net recovery” of $193,706.71. Following the settlement, Vasquez filed a motion to adjudicate the workers’ compensation lien and argued that AmTrust was entitled to none of the settlement proceeds or, at most, $83,577.82, pursuant to the Breen Formula and the Supreme Court’s 2016 decision in Poremba v. Southern Nevada Paving. Even though, at the time of the settlement, AmTrust had expended over $50,000 in costs and fees in litigating the matter, the trial court held a hearing and noted that, AmTrust did not “meaningfully participate” in the litigation, and was therefore required to bear a portion of the litigation costs according to the Breen Formula. The Breen Formula was a judicially-created fiction intended to allocate an employee’s litigation costs and fees between a subrogated workers’ compensation carrier and the employee. It has infected Nevada subrogation law for nearly forty years, an offspring of the long-standing Nevada Supreme Court decision in Breen v. Caesars Palace. The trial court also ruled that AmTrust could not recover anything out of the $316,422.78 portion of the settlement which was self-designated by the plaintiffs and defendants as “non-economic damages," as a result of the judicially-created rule set forth in Poremba, limiting a workers’ compensation carrier to subrogating only against “economic damages” which supposedly mirror those benefits which comprise a workers’ compensation lien (i.e., medical expenses, lost wages, etc.).
It should be noted that the trial court in Vasquez did not even pretend to perform a mathematical calculation under Breen. Instead, it just summarily announced that, notwithstanding the application of Poremba, AmTrust’s proportionate share of the litigation expenses in obtaining the settlement exceeded its lien “under any application of the Breen Formula in this matter.” Performing the calculations under the Breen Formula reveal that AmTrust’s share of costs and fees would be $188,858.42—an amount which exceeds its total lien.
Therefore, the trial court ordered that AmTrust recover nothing out of its statutory $177,335.59 workers’ compensation lien. In fact, it owed money.
Nevada Supreme Court Decision
AmTrust appealed to the Nevada Supreme Court, which performed a very statutory, historical, and literal analysis of the statute and its legislative intent—overturning the trial court’s ruling. It considered, from scratch, the subrogation rights of a workers’ compensation carrier and made specific mention of the fact that workers’ compensation serves a vital role in protecting employees and employers. It noted that Nevada was one of the first states to enact workers’ compensation legislation in the early 1900s allowing injured employees to receive financial recovery for medical care as a result of their on-the-job injury without resorting to common-law tort remedies; and noted that part of this bargain was the fact that the workers’ compensation carrier was granted a specific statutory interest in any third-party recovery by the employee.
Because of the importance of the statutory workers’ compensation scheme and the legislature’s directive to refrain from applying common law principles, the Supreme Court announced it was going to shake things up a bit and reconcile the obvious conflicts which had developed between § 616C.215(5) and the horrible decisions in Breen and Poremba. The Supreme Court noted that the Breen Formula was created in direct conflict with the statute and “has proven unworkable.” The decision specifically overruled that decision and decreed that the Breen Formula would be abandoned in favor of a “straightforward lien analysis.”
Beginning on Sept. 19, 2024, (1) a workers’ compensation carrier’s lien applies to ALL elements of damages recovered in ANY third-party recovery without any allocation of the employee’s litigation fees and costs, and (2) a workers’ compensation carrier’s lien applies to all elements of damages recovered in any third-party recovery without any allocation of the employee’s litigation fees and costs. Nevada law is clear that a decision on statutory interpretation is retroactive. Vasquez interprets a statute.
The Supreme Court noted that Poremba was also bad law. This was an understatement. The Poremba decision was a radical departure from the clear language of § 616C.215(5), which clearly provides that the carrier “has a lien upon the total proceeds of any recovery from some person other than the employer, whether the proceeds of such recovery are by way of judgment, settlement or otherwise.” Particularly troubling, not to mention confusing, in the Poremba en banc opinion was the following sloppy statement:
“We agree with the Tobin court and hold that because workers’ compensation insurance never compensates the injured worker for pain and suffering, an insurer is not entitled to reimbursement from any of the settlement funds that were designated for pain and suffering, or any other expense beyond the scope of workers’ compensation defined in NRS 616A.090.”
But you have to travel all the way to Washington State to discover that what the Tobin decision referred to is a Washington Court of Appeals decision that has nothing to do with Nevada. This judicially-created “economic damages” limitation on a workers’ compensation carrier’s reimbursement and subrogation rights appears to have been imported from another state, instead of following its own 1986 Supreme Court decision in Breen v. Caesars Palace, in which the court minced no words when it stated that:
“The prevailing rule in the United States has been to allow an employer to reach an entire award or settlement even where the non-economic damages have been segregated and identified…In interpreting their state workers' compensation statutes, other courts have been influenced by language in the statute permitting the employer a subrogation right in the “total” proceeds. The Arizona Supreme Court held that an insurer’s lien extended to the employee’s entire third-party recovery, including items not covered by workers' compensation, because the statute speaks of “total recovery.”… We similarly conclude that we are bound by the statutory language which gives an insurer a subrogation interest in the “total proceeds.” It is the legislature’s prerogative, not this court’s, to correct any injustice occasioned by a literal reading of the statute. The rules of statutory construction which enabled us to liberally construe NRS 616.560 with respect to the payment of pre-malpractice medical expenses and attorney’s fees and costs are not applicable here. With respect to this issue, there is no room for statutory interpretation; the language of the statute is plain and no legislative purpose would be served by deviating from the literal language.”
The Poremba decision does not even contain a reference to the court’s clear ruling on this issue in Breen. However, from the date of the Vasquez decision forward, § 616C.215(5) now “mandates” that a workers’ compensation carrier is entitled to collect its lien from the “total proceeds” of any third-party recovery, including any portion allocated to non-economic injuries. Both Breen and Poremba are specifically overruled to the extent that they contradict this new decision, and are no longer good law.
This new decision has turned Nevada workers’ compensation subrogation on its ear, and transformed Nevada into one of the most favorable states in which to pursue workers’ compensation subrogation claims. As a result of judicial activism, Nevada had literally become an anti-subrogation state, the cost of which was being passed on to Nevada’s small businesses as an increased cost of doing business. Nevada is very proactive about holding down workers’ compensation premiums. It stands alone as the only state which codifies the requirement that, in the calculation of an employer’s premium, the carrier must give the employer credit for any amounts recovered by the carrier through subrogation (up to the amount of the past lien and future reserves). For years, carriers have watched their liens disintegrate and employers have seen their experience modifiers (X-mods) detrimentally affected, leading to dramatically increased workers’ compensation insurance premiums—something subrogation was designed to prevent. This decision reverses that trend.
This article originally appeared on Matthiesen, Wickert & Lehrer, S.C. https://www.mwl-law.com/
About the Author:
Gary L. Wickert is a shareholder at Matthiesen, Wickert & Lehrer, S.C. gwickert@mwl-law.com