ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Robert D. Brown Philip E. Kalamaros
Merrillville, Indiana South Bend, Indiana
ATTORNEYS FOR AMICUS CURIAE, David M. Mattingly
THE INSURANCE INSTITUTE OF David J. Mallon, Jr.
INDIANA, INC., THE AMERICAN Christopher S. Sears
INSURANCE ASSN., THE NATIONAL Brent W. Huber
ASSN. OF INDEPENDENT INSURERS, Indianapolis, Indiana
THE INDIANA SELF-INSURERS ASSN.,
INC., AND THE INDIANA
Robert A. Fanning
Julia Blackwell Gelinas
SUPREME COURT OF INDIANA
SPANGLER, JENNINGS )
& DOUGHERTY P.C., )
Appellant (Plaintiff Below ), ) in the Supreme Court
v. ) 71A03-9603-CV-89
) in the Court of Appeals
INDIANA INSURANCE CO., )
Appellee (Defendant Below ). )
APPEAL FROM THE ST. JOSEPH SUPERIOR COURT
The Honorable Jeanne M. Jourdan, Judge
Cause No. 71D02-9401-CP-72
May 25, 2000
SHEPARD, Chief Justice.
What fee must an employer or its worker's compensation insurance carrier pay the
attorney who represents an injured employee in a suit against third-party tortfeasors?
The Indiana law firm of Spangler, Jennings & Dougherty appears to desire one-third
of the amount already paid by the carrier, plus one-third of the amount
collected from third-party tortfeasors but not reimbursed to the carrier, plus one-third of
future medical expenses the carrier would have paid but for the tort recovery.
We conclude otherwise.
I. Factual Background and Procedural History
In December 1988, Kirk Weidenaar was rendered a quadriplegic during the course
of his employment at Korellis Roofing. The worker's compensation carrier for Korellis,
Indiana Insurance Company, paid Weidenaar's medical expenses and weekly wage replacement until Weidenaar
filed a claim for worker's compensation benefits. After he claimed benefits, Weidenaar
and Indiana Insurance stipulated that the carrier was obligated to pay Weidenaar 500
weeks of worker's compensation benefits and "any additional medical as pursuant to the
provisions of the Worker's Compensation Act." (R. at 25, 98.) They
presented this stipulation to the Worker's Compensation Board, which approved and incorporated it
into the Board's award on July 6, 1992.
Weidenaar thereafter hired Spangler, Jennings & Dougherty, P.C. to sue Amoco Oil Company
and Northern Indiana Public Service Company (NIPSCO) as tortfeasors who contributed to his
injury. The suit resulted in a jury verdict against both companies.
Spangler then negotiated a post-judgment settlement. Indiana Insurance paid Weidenaar's medical expenses
until it received notice of the settlement.
In dispersing the proceeds of the settlement with Amoco and NIPSCO, Weidenaar paid
one-third of the settlement to Spangler as attorney's fees.
He also reimbursed
Indiana Insurance for the benefits it had already paid him.
does not make clear the order of these payments.
(Compare Appellee's Trans.
Br. at 2-3 n.5 with Appellant's Trans. Br. at 2-3.) It is
likewise unclear whether a Spangler fee was deducted from the lien the carrier
held against Weidenaars tort recovery.
In any event, Spangler sued Indiana Insurance for attorney's fees, claiming the carrier
owed the law firm one-third of the amount of the medical expenses Indiana
Insurance would have paid but was saved due to Spangler's work on the
third-party suit. (R. at 7-8; Appellant's Br. at 7.)
On cross-motions for summary judgment, the trial court granted judgment to Indiana Insurance,
and Spangler appealed. The Court of Appeals reversed and remanded, with instructions
to grant summary judgment in Spangler's favor instead. Spangler, Jennings & Dougherty
v. Indiana Ins. Co., 685 N.E.2d 705 (Ind. Ct. App. 1997). We granted
II. Indiana's Worker's Compensation System
Indiana's present worker's compensation system was "essentially established [by] the Workmen's Compensation Act
Evans v. Yankeetown Dock Corp., 491 N.E.2d 969, 971 (Ind.
1986). Prior to worker's compensation, workers were faced with harsh common law.
Frampton v. Central Indiana Gas Co., 297 N.E.2d 425, 427 (Ind. 1973).
The employee's only remedy was an action in tort against the employer[,]
. . . which w[as] rarely successful" due to employer-friendly common law defenses.
A. Purpose of Worker's Compensation. With the enactment of the worker's
compensation system, "workers who were previously precluded from recovery under common law theories
are [now] guaranteed compensation." Walker v. State, 694 N.E.2d 258, 268 (Ind.
1998). Employers must "provide limited compensation to workers whose injuries arise out
of and in the course of [their] employment, regardless of fault." Note,
Charles Richard O'Keefe, Jr., The Guides to the Evaluation of Permanent Impairment and
Worker's Compensation in Indiana, 27 Ind. L. Rev. 674, 649 (1994). "In return
for the employer's payment of benefits, the employer is given immunity from civil
litigation with his employee." Stephen E. Arthur, 11 Ind. Practice § 119.01
at 241 (Supp. 1999) (citations omitted). "The scheme is . . .
social legislation designed to aid workers and their dependents and 'shift the economic
burden for employment related injuries from the employee to the employer and consumers
of its products [and services].'" O'Keefe, supra, 27 Ind. L. Rev. at
649-50; see also Collins v. Day, 604 N.E.2d 647, 648 (Ind. Ct. App.
1992), aff'd on other grounds, 644 N.E.2d 72 (Ind. 1994).
B. Third-party Actions. In addition to shifting the cost of injuries
from worker to employer to achieve social policy goals, the Worker's Compensation Act
also provides a way to seek compensation from third-parties who caused injuries.
"The concept underlying third party actions is the moral idea that the ultimate
loss from wrongdoing should fall upon the wrongdoer." Arthur Larson & Lex
K. Larson, 6 Larson's Workers' Compensation Law § 71.10 at 14-1 (1999).
Historically, some states required workers to elect at the outset whether to seek
compensation benefits or pursue a third-party action. If an employee thought his
injury arose in the course of his employment, and applied for compensation, but
was incorrect, he was precluded from suing the third-party. Now, however, an
employee can accept compensation benefits while pursuing a third-party action; at the completion
of that action, the employee may, in effect, keep whichever is worth more.
In worker's compensation third-party actions, as in other tort settings, the comparative fault
of the injured employee-plaintiff is factored into the final judgment or settlement.
And, while the employee is generally required to repay the workers compensation carrier
for benefits and expenses paid while the employee pursued the third-party action, the
amount of that reimbursement is likewise reduced by the amount of the employee's
comparative fault. Ind. Code Ann. § 22-3-2-13 (West 1991); Ind. Code Ann. §
34-51-2-19 (West 1999).
C. The Interplay Between Compensation and Third-party Actions. The worker's compensation
system does not necessarily provide the kind of complete recovery an injured employee
might receive in a third-party action. On the other hand, it provides
compensation even when the tort system would give no recovery at all (as
in cases whether no one has acted negligently). It is also reasonably
prompt. While it could take years to reduce a third-party claim to
judgment, the Worker's Compensation Act requires that the employer provide medical treatment before
the adjudication of permanent impairment. Ind. Code Ann. § 22-3-3-4 (West Supp.
In some instances, as in this case, a worker's compensation insurance carrier begins
to pay benefits to the injured employee before he even files a claim.
(Appellant's Br. at 4 (citing Dep. of David E. Peiffer at 29-3).)
Worker's "compensation legislation has evolved from efforts to ameliorate the inequitable and
often devastating effects of industrial accidents on the labor force. . . .
Work[er]'s compensation is intended to provide an
expeditious remedy which will guarantee
the injured employee some recovery for an industrial accident." Arthur, supra, 11
Ind. Practice § 119.01 at 246 (emphasis added) (citations omitted).
Of course, compensation under the workers comp scheme is calculated on a different
basis than the damages awarded in a third-party action. Compensation benefits are
not awarded as "damages for pain, suffering or other monetary loss."
at 247 (citations omitted). The "benefits are intended to replace the future
wages that the employee would earn if he were able to continue to
Leisure v. Leisure, 605 N.E.2d 755, 758-59 (Ind. Ct. App. 1993).
The amount of this compensation is not determined by jury, but rather
and may well be less than what the injured could receive
from the guilty tortfeasor.
This compensation may, however, be the most
complete recovery a plaintiff can obtain if, for example, there is no third-party
tortfeasor to sue, or the plaintiff's injury resulted primarily from his own fault.
The workers compensation provision governing claims against third persons, Ind. Code § 22-3-2-13,
provides a plaintiff the opportunity to choose between worker's compensation and third-party judgments
in some situations, so that he might maximize the recovery. If
the final judgment in a suit brought by an injured employee is
than the amount of the worker's compensation benefits and medical expenses, the employee
can choose to accept the judgment and reimburse the worker's compensation payor, or
to assign all rights to the judgment to the worker's compensation payor, and
continue to accept the benefits as prescribed by the Board. Ind. Code
Ann. § 22-3-2-13 (West 1991).
If through settlement or litigation an employee obtains an amount that is
than the worker's compensation benefits, then the employee must reimburse the worker's compensation
payor and keep the remainder of the judgment or settlement, thereby relinquishing all
right to the compensation benefits. Id.
Because an injured employee must
choose between the third-party judgment and the worker's compensation benefits and medical expenses,
or in some instances, because the legislature makes that choice for the employee,
there is no reason an attorney should recover a percentage of the whole
of both awards.
Of course, a carrier must pay a fee to the injured employees lawyer
for collecting on its lien by conducting the third-party litigation. Whether it
must pay fees on anything else is the subject of this litigation.
III. Attorney's Fees in Third-party Actions
A. The Statute. Indiana Code § 22-3-2-13 discusses the fee to
which an attorney is entitled when retained by an injured employee to sue
a third-party tortfeasor, saying:
The employer or the employer's compensation insurance carrier shall pay its pro rata
share of all costs and reasonably necessary expenses in connection with asserting the
third party claim, action or suit, including but not limited to cost of
depositions and witness fees, and to the attorney at law selected by the
employee or his dependents, a fee of twenty-five per cent (25%), if collected
without suit, of the amount of benefits which benefits shall consist of the
amount of reimbursements, after the expenses and costs in connection with the third
party claim have been deducted therefrom, and a fee of thirty-three and one-third
per cent (33 1/3%), if collected with suit, of the amount of benefits
after deduction of costs and reasonably necessary expenses in connection with the third
party claim[,] action or suit.
We think the term "benefits" discussed in the "with suit" situation in Ind.
Code § 22-3-2-13 has the same meaning as the "benefits" defined earlier in
that very same sentence (in the "without suit" situation). Ind. Code Ann.
§ 22-3-2-13 (West 1991). Whether the claim is resolved with or without suit,
the benefits are the same: reimbursements.
Our Court has already spoken on the meaning of the term reimbursements, in
Indiana State Highway Commn v. White, 259 Ind. 690, 694, 291 N.E.2d 550,
553 (1973). In White, a widow had been collecting weekly worker's compensation
benefits from the insurance carrier of her deceased husband's employer, pursuant to a
Workers Compensation Board award. She also pursued a third-party tortfeasor, with whom
she settled before trial. She reimbursed the worker's compensation carrier the sum
it had paid her prior to the settlement. The carrier was thus
required to pay her attorney his percentage (25% of the "reimbursements," according to
Ind. Code § 22-3-2-13). The insurance carrier contended that it owed fees
only for the amounts it actually paid to White, that is, on the
amount of its lien.
Justice DeBruler, writing for the Court, disagreed. After deciding that the term
"reimbursements" was ambiguous, necessitating judicial interpretation, id. at 553, he concluded that "in
a case such as this" the term is to be construed as the
entire award, not just the sum already paid out by the employer or
its insurance carrier at the time the third-party settlement became final. See
id. at 554.
We held, therefore, that the term reimbursements meant the
entire workers compensation award.
Spangler argues that
White supports its claim of entitlement to a fee on
the future medical expenses. We disagree.
The distinguishing factor between the future medical expenses in the present case and
the future workers compensation benefits in
White is that the benefits in White
were readily ascertainable. White died while acting within the scope of his employment.
His death effectively fixed the amount of medical and funeral expenses and
weekly wage benefits. Because Weidenaar was gravely injured, however, his medical expenses
will be ongoing. To receive a fee on those unascertained expenses, Spangler
would have to prove their value. Litigating that value would be a
task of some consequence; the briefs before us demonstrate that the present parties
disagree how such expenses should be measured, let alone what the facts might
be. Spangler is unlikely to expend its resources to make such a
showing because, as we will explain, there is no way to pay the
firm a fee for doing so without paying it twice for delivering the
same dollar to the client.
B. One Complete Fee. The fact that the insurance carrier must
pay fees on the whole workers compensation award does not mean that the
injured employees attorney may keep a fee on the award in addition to
the percentage of the third-party judgment he should receive. The attorney's entire
fee for a third-party action should be no more than a percentage of
the whole third-party judgment or settlement.
Limiting Spangler's recovery from Indiana Insurance to a percentage of the carriers lien
provides Spangler one complete fee for its part of the work: the
third-party action that benefits both Weidenaar and Indiana Insurance. If an attorney
could keep a percentage of both the entire third-party judgment and a percentage
of the future medical expenses the carrier would have been paid but for
the third-party tort action, that lawyer would be paid twice for the same
dollar recovered. When an attorney sues for an injured employee, he has
only one chance to sue the third parties for his client's injury and
must necessarily seek compensation for all of the client's damages, economic (such as
lost future wages and medical expenses) and non-economic (such as pain and suffering).
Ordinarily, whatever the attorney obtains for his client, the client uses to
reimburse the worker's compensation carrier and pay attorney's fees. The client then
keeps the remainder.
Both economic and non-economic damages are subject to the reimbursement/lien of the worker's
Dearing v. Perry, 499 N.E.2d 268, 270 (Ind. Ct. App.
1986). An injured employee cannot sue a third-party for non-economic damages and
then try to avoid the carriers lien on the ground that the lien
is meant to reimburse the carrier for the economic damages of wage loss
and medical expenses. Id. If an attorney does not sue for
all types of damages, economic and non-economic, when the lien is finally paid,
his client will be left with an incomplete recovery. Cf. Wedel v. American
Elec. Power Service Corp., 681 N.E.2d 1122, 1131 (Ind. Ct. App. 1997), trans.
Because we presume that Spangler did its job, we assume that the future
medical expenses were part of the verdict that Spangler won for Weidenaar, and
upon which it negotiated a settlement. If Spangler could collect one-third of
the entire third-party settlement and also keep one-third of the future medical expenses
that should have been included in that settlement, Spangler would indeed be "double
C. Channeling the Excess Fees to the Client. Spangler should have
already received one-third of the third-party judgment, in part from Weidenaar, and in
part from Indiana Insurance.
Any fee Indiana Insurance pays the law firm
on future medical expenses must, therefore, be forwarded to the client. We
explained the reason for this in White:
[T]he purpose the Legislature had in mind [when it enacted § 22-3-2-13] .
. . was to free the injured workman . . . from paying
attorney['s] fees for legal services for recovering the equivalent of the employer or
compensation insurance carrier subrogation claim. In effect, the Legislature intended that the
ultimate recovery of the employee should not be diluted by having to pay
that portion of the attorney['s] fees required to collect that, which the injured
employee . . . [is] entitled to collect under a compensation award, without
any suit or settlement.
White, 259 Ind. at 695-96, 291 N.E.2d at 553-54. In other words,
the injured employee should not have to pay attorneys fees on the workers
compensation award, because the employee should get those fixed benefits without doing anything
Weidenaars workers compensation award included a segment of fixed-value, weekly payments, upon which
Indiana should pay an attorneys fee under the rule of White. If
Spangler has not yet received the fee to which it was entitled under
its agreement with Weidenaar and Ind. Code § 22-3-2-13, then this amount goes
to Spangler. Otherwise, it goes to the client.
We affirm the decision of the trial court insofar as medical expenses are
concerned and remand the case for proceedings concerning fees that relate to weekly
workers compensation payments.
Dickson, Sullivan, Boehm, Rucker, JJ. concur.
Pursuant to their contingency fee agreement. (R. at 82-83.)
Pursuant to the Worker's Compensation Act. Ind. Code Ann. § 22-3-2-13
Did Weidenaar reimburse Indiana and then pay Spangler one-third of the remainder,
or did he pay Spangler first, and then reimburse the carrier out of
Indiana Insurance asserts that it paid Spangler one-third of the reimbursement it
received from Weidenaar as its pro-rata share of the attorney's fees. (Appellee's
Trans. Br. at 2-3 n.5 (citing R. at 138-40).) Spangler claims that
the assertion is "absolutely false," (Appellant's Trans. Br. at 2), and that there
is nothing in the record to indicate it "double dipped" in the manner
of the carriers "false accus[ation,]" (see id. at 2-3).
The injured employee may also collect medical expenses. See Ind. Code
Ann. § 22-3-3-5 (West Supp. 1999).
"The schedule of benefits recoverable under the work[er]'s compensation act is set
forth at [Ind. Code Ann. §] 22-3-3-10." Stephen E. Arthur, 11 Ind.
Practice § 119.01 at 246 (Supp. 1999).
Most states "give the employer so much of the negligence recovery as
is necessary to reimburse him for his compensation outlay, and to give the
employee the excess. This is fair to everyone concerned: the employer,
who, in a fault sense, is neutral, comes out even; the third person
pays exactly the damages he would normally pay, which is correct, since to
reduce his burden because of the relation between the employer and the employee
would be a windfall to him . . . ; and the employee
gets a fuller reimbursement for actual damages sustained than is possible under the
compensation system alone." Arthur Larson & Lex K. Larson, 6 Larson's Workers
Compensation Law § 71.20 at 14-7 - 14-13 (1999) (footnote omitted).
Footnote: The statute provides in relevant part:
In the event any injured employee . . . shall procure a final
judgment against the [third-party] other than by agreement, and the judgment is for
a lesser sum than the amount for which the employer or the employer's
compensation insurance carrier is liable for compensation and for medical . . .
services and supplies, as of the date the judgment becomes final, then the
employee . . . shall have the option of either collecting the judgment
and repaying the employer or the employer's compensation insurance carrier for compensation previously
drawn . . . and for medical . . . services and supplies
previously paid, . . . or of assigning all rights under the judgment
to the employer or the employer's compensation insurance carrier and thereafter receiving all
compensation and medical . . . services and supplies to which the employee
. . . would be entitled if there had been no action brought
against the other party.
Ind. Code Ann. § 22-3-2-13 (West 1991) (emphasis added).
The statute provides in relevant part:
[I]f the action against the [third-party] is brought by the injured employee .
. . and judgment is obtained and paid, and accepted or settlement is
made with the other person, either with or without suit, then from the
amount received by the employee . . . there shall be paid to
the employer or the employer's compensation insurance carrier, subject to its paying its
pro-rata share of the reasonable and necessary costs and expenses of asserting the
third[-]party claim, the amount of compensation paid to the employee . . .
, plus the medical . . . expenses paid by the employer or
the employer's compensation insurance carrier and the liability of the employer or the
employer's compensation insurance carrier to pay further compensation or other expenses shall thereupon
Ind. Code Ann. § 22-3-2-13 (West 1991) (emphasis added).
The entire award was $818.85 medical and hospital expenses, $768.00 funeral expenses,
and $19,440.00 weekly compensation benefits, totaling $21,026.85. White, 259 Ind. at 692,
291 N.E.2d at 552.
The percentage the employee-client must pay is determined by the contingency fee
agreement between attorney and client, and the percentage the employer or its compensation
insurance carrier must pay is determined by Ind. Code § 22-3-2-13. Often
these two percentages are the same, as in this case. Contingency fee agreements
frequently state a fee of one-third of a judgment or settlement if collected
with suit, and one-quarter of the judgment or settlement if collected without suit;
Ind. Code § 22-3-2-13 provides for the same fractions in those same situations.
An injureds attorney who has pursued a third-party tort claim may not, however,
receive both a contingent fee on the carriers subrogation lien and a similar
contingent fee on the whole of the tort recovery, absent an explicit permissible
arrangement with the client. Had the legislature intended for the in[j]ureds attorney
to retain an additional amount on top of the agreed contingent fee, it
would not have identified the insurers cost sharing obligation as a pro-rata share
of the cost of representation resulting in settlement. In re Lehman, 690
N.E.2d 696, 703 (Ind. 1997); see also Erie Ins. Co. v. George, 681
N.E.2d 183, 194 n.17 (Ind. 1997) (discussing possible double recovery under Ind. Code
The client can choose to continue receiving the worker's compensation benefits only
if he did not settle with the third parties and if the judgment
is less than the worker's compensation benefits. Ind. Code Ann. § 22-3-2-13
(West 1991). In all other instances, the client must keep the third-party
judgment or settlement and use it to reimburse the entity that paid his
worker's compensation benefits (the employer or its compensation carrier) and to cover all
of his future expenses. Id.
Such would not be the case when an attorney receives a fee
under Ind. Code § 22-3-4-12 for litigating an insureds case before the Board
and then performs the separately productive duty of pursuing a third-party tort claim
for the benefit of the injured and/or carrier.
Disregarding, for the purposes of this footnote, any fee on the future
medical expenses, and to ensure that both Weidenaar and Indiana Insurance pay their
shares and no more, we illustrate the proper payment procedure in the ordinary
workers compensation third-party judgment situation: First, the injured employee is paid by
the third-party. The insurance carrier's lien against that third-party judgment/settlement attaches to
it. If a jury has determined the employee's percentage of comparative fault,
the third-party settlement of the judgment and the lien are reduced by this
percentage. Weidenaar v. Indiana Ins. Co., 874 F. Supp. at 236-37.
Next, the employee pays the carrier's lien out of the third-party judgment, holding
out a fee (determined by Ind. Code § 22-3-2-13) for the work his
attorney did in collecting the funds being reimbursed. Then, the employee pays
his attorney a percentage of what remains of the third-party judgment or settlement
(determined by their written contingency fee agreement). The employee and the carrier
thus join in paying the attorney a percentage of the entire third-party settlement:
in this case, one third of the settlement minus the lien from
Weidenaar, plus one third of the lien from Indiana Insurance.
The parties disagree as to whether Spangler has received one third of the
reimbursement. (Compare Appellee's Trans. Br. at 2-3 n.5 with Appellant's Trans. Br.
at 2-3.) On remand, we direct the trial court to determine this
issue. It is additionally unclear when Spangler received its one-third of the
third-party settlement. (See R. at 82-83 ("The Weidenaars did pay as compensation a
contingent fee of one-third of the monies actually collected [from the third parties].").)
If Weidenaar paid Spangler before Indiana Insurance's lien was satisfied as the
record on appeal suggests, Weidenaar may have paid Spangler a cut of the
entire third-party judgment, which we hold should be paid by both Weidenaar and
Indiana Insurance. In this instance, Weidenaar would have paid more than his
share of Spangler's fee. Moreover, once Spangler also collects a cut of
the reimbursement from Indiana Insurance, it will be overpaid. If this occurred,
to rectify Weidenaar's overpayment and Spangler's overcompensation, we direct the trial court to
order that Indiana Insurance's payment to Spangler be paid to Weidenaar.