When an employee is injured during the course of employment due to the negligence of a third party, the worker may file a workers’ compensation claim against the employer and a civil claim for damages against the responsible third party. An employee is entitled to workers’ compensation benefits regardless of whether he or she or the employer was negligent in causing the injury. In the civil courts, however, comparative negligence applies, “the fundamental purpose of which shall be to assign responsibility and liability for damage in direct proportion to the amount of negligence of each of the parties.” (Li v. Yellow Cab Co. of California (1975) 13 Cal. 3d 804, 829.)
Pursuant to Labor Code § 3858 and § 3861, the employer has the right to obtain a credit toward its future liability for workers’ compensation equal to the amount of the employee’s third-party recovery, after payment of litigation expenses and attorney fees. But the employer’s right to such credit can be significantly affected by its own negligence in causing the injury.
In Associated Construction & Engineering Co. of California v. WCAB (Cole) (1978) 22 Cal. 3d 829, 847, the California Supreme Court held that when an employer is partially negligent in causing an injury, it must fully satisfy its share of tort liability before it is entitled to any credit. It stated that “an employer may be allowed credit or reimbursement under the Labor Code, based on an employee’s recovery from a third party, but only to the extent the employer’s liability in workers’ compensation exceeds its share of responsibility for the employee’s full tort damages.” In footnote 10, the Supreme Court provided this example:
Assume an employee receives $20,000 in workers’ compensation benefits. He later sues a third party to recover for the same injury, which suit is settled without the consent of the employer. Out of the settlement, the employee actually receives, after the payment of “expenses or attorneys’ fees” within the meaning of section 3861, the sum of $25,000. The employee then seeks further benefits from the board and his employer claims a credit in the amount of the $25,000 settlement recovery. Under the principles announced herein, the board would then determine the employer’s degree of fault and the employee’s total damages. Should the board find the employer free of negligence, of course, the employer would receive the benefit of the entire $25,000 settlement as a credit against future payments. Were the board, however, to determine that the employer was 50 percent negligent, and that the employee is entitled to $100,000 in damages, then the employer could not claim a credit until he contributed an additional $30,000 in benefits. The employer would then have contributed a total of $50,000 to the employee’s recovery, or 50 percent of the employee’s total damages of $100,000, and the ratio of his contribution to the employee’s damages would correspond to his degree of fault.
The Supreme Court added, “When an employer claims a credit before the board after an employee’s independent third-party settlement, section 3861 operates as a delegation of authority to the board to make the necessary determinations to apply this rule.” So, the appeals board is empowered to determine issues of credit for an employee’s third-party recovery, and thus determine issues of negligence.
In Martinez v. Associated Engineering & Construction. Co. (1979) 44 CCC 1012, the appeals board en banc established the proper procedure and the type of evidence to be utilized in appeals board proceedings when an employer claims a credit for an applicant’s third-party settlement and the employee contends that the employer’s negligence bars or diminishes any credit.
First, the employer has the burden of proof to establish its right to claim a credit. It must show that there was a third-party settlement and that it has paid out compensation benefits or probably will have to pay such benefits in the future. That can be done by production of certified copies of the Superior Court documents reflecting a settlement or judgment, or a stipulation as to the applicant’s net recovery.
Second, once a prima-facie case has been made to show entitlement to credit, the applicant has the burden of proof to establish that the employer was negligent in any degree. If there is no employer negligence, it is entitled to full credit.
Third, the burden shifts to the employer to show comparative negligence of the third-party defendant(s) and any negligence by the applicant.
Fourth, the burden then shifts to the applicant to establish his total civil damages, which is the amount of the judgment or, if the lawsuit was concluded by settlement, the amount the appeals board determines that the trier of fact would have awarded.
Those principles recently were applied in the case of Lopez Romero v. Pierre Landscape, 2024 Cal. Wrk. Comp. P.D. LEXIS 423. In that case, the applicant was driving a company vehicle to work when he struck a vehicle and a person standing next to it. The police report found that the applicant was driving at an unsafe speed and failed to observe a vehicle stopped in his lane. The applicant received a net recovery of $66,081.67 in a civil claim against the decedent’s insurance, and the defendant sought credit for that recovery.
The appeals board first found that because the defendant’s petition for credit attached evidence of the gross third-party settlement as well as the applicant’s net proceeds from it, the defendant made a prima-facie showing entitlement to credit, and the burden shifted to the applicant to show that the defendant was negligent in any degree. The applicant asserted that the defendant was partially at fault in causing the accident because it knew he would pick up co-workers on the way to work. He asserted that the defendant “did not implement remedial measures to prevent [a co-worker] from being late and causing or contributing to the Applicant’s need to speed beyond the legal speed limit in order to be punctual and avoid getting fired.”
The appeals board explained that foreseeability of the risk is a primary consideration in establishing the element of duty. The board found no persuasive argument that the defendant should have foreseen the series of events that resulted in the applicant’s injuries, including traffic conditions on an interstate highway outside of the employer’s control, or a disabled vehicle in traffic lanes. It also found no evidence that the defendant directed the applicant to exceed the speed limit or to conduct his vehicle in an unsafe fashion. The board concluded that the defendant did not abrogate a duty of care and that it was not negligent in causing the injury. So, it granted the defendant credit in the net amount of the applicant’s recovery from a civil lawsuit arising out of the industrial injury.
So when an employer seeks credit for an employee’s third-party recovery and the employee asserts that the employer was partially negligent in causing the accident, the appeals board must determine issues of comparative negligence. Those normally are outside the scope of workers’ compensation, and the board potentially must perform complex calculations to determine the amount of credit. In Lopez Romero, the appeals board assessed the comparative negligence of both parties, and because it determined that the defendant was zero percent negligent in causing the accident, it avoided the need to determine the total civil damages and the money the defendant needed to pay before it could obtain credit.
This case, however, is a reminder that both parties must be prepared to present appropriate evidence to meet their burdens when the issue of credit for an employee’s third-party recovery is disputed. California Code of Regulations 10555 states that a petition for credit for an employee’s third-party recovery pursuant to LC 3861 “shall” include: (1) a copy of the settlement or judgment, if available; and (2) an itemization of any credit applied to expenses and attorney fees. The defendant in Lopez Romero did just that in its petition for credit, which shifted the burden to the applicant to prove that the defendant was partially negligent. Because the applicant could not meet that burden, the analysis ended and the defendant was awarded credit for the applicant’s net recovery.
If the defendant had been found to be negligent in any degree, it would have been required to present evidence regarding the comparative negligence of the applicant and/or the third party. The applicant then would have been required to establish the total civil damages. Because those issues generally are outside the scope of workers’ compensation practice, parties might need to present testimony from civil court experts as evidence. (See White v. WCAB (2014) 80 CCC 60 (writ denied).)
About the Author
A thought leader in the field, Mr. Log regularly develops seminar materials and co-authors influential white papers on critical workers’ compensation topics. His publications include “An Analysis of the New Regulations Regarding Disputes Over Medical-Legal Expense and Medical Treatment,” “Special Report: A First Look at SB 863” detailing the 2012 reforms to California’s workers’ compensation system, and “SB 863: Five Years Later.”
Mr. Log is also the co-author of Sullivan on Comp
