ROE v. Aerojet General Corporation, and Transport Indemnity Company, Real Parties in Interest.

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Court of Appeal, Third District, California.

Harold H. ROE, Petitioner, v. WORKMEN'S COMPENSATION APPEALS BOARD, Respondent, and Aerojet General Corporation, and Transport Indemnity Company, Real Parties in Interest.

Civ. 14018.

Decided: February 07, 1974

William H. Whittington, Jr., Sacramento, for petitioner. Sheldon St. Clair, and William J. O'Neil, Jr., San Francisco, Cal., for respondent Workmen's Compensation Appeals Board. Mullen & Filippi, Sacramento, for real parties in interests.

Roe, an employee, received severe industrial injuries in an accident featured by the negligence of a third party. He received temporary disability workmen's compensation benefits and also filed a damage action against the third party. The employer/carrier knew of the lawsuit but stayed out of it. Roe and the third party settled the lawsuit without reference to the employer's status. Roe's net recovery was over $16,000.

Roe then applied to the Workmen's Compensation Appeals Board for permanent disability benefits. The compensation insurance carrier asserted that Roe's net settlement should be credited against its own liability for permanent disability. Roe's attorney sought to raise the employer's concurrent negligence as a bar to the credit. The referee to inquire into the employer's concurrent negligence, awarded Roe a permanent disability rating of 96 1/2 percent and ordered that Roe's net settlement be credited against the insurance carrier's liability for permanent disability. The Workmen's Compensation Appeals Board refuses reconsideration. Roe is here on a writ of review.

Various provisions of the Labor Code1 subrogate an employer (or his workmen's compensation insurer) to the common law tort recovery of an injured employee, permitting the employer/carrier to recover its workmen's compensation outlays from a negligent third party through an independent, lawsuit, or by joining the employee's lawsuit or by claiming a lien on the employee's recovery. (§§ 3852, 3853, 3854, 3856, subd. (b).) Witt v. Jackson (1961) 57 Cal.2d 57, 17 Cal.Rptr. 369, 366 P.2d 641, attaches a substantive condition to the employer's recovery; holds that the employer may not recover from the third party if his own negligence has contributed to the accident; reduces the employee's recovery of third party damages by the amount of workmen's compensation payments he has received from the employer/carrier.

The Witt v. Jackson indemnification cycle requires the settlement or adjudication of claims in two forums—the Workmen's Compensation Appeals Board and the courts. Workmen's compensation benefits which have been paid before resolution of the lawsuit provide a mathematical factor for allocating monetary responsibility. Accidental or manipulated time relationships may obstruct fulfillment of the indemnification cycle. Quantification is not possible when the lawsuit culminates in a settlement or award before the workmen's compensation benefits are fixed, or when the lawsuit is concluded without resolving the issue of employer negligence.

In This case the employee had received only temporary disability benefits benefits before settlement of the lawsuit; the employer/carrier stayed out of the litigation; the third party settled without asserting any deduction for employer negligence; the employer/carrier then turned to the appeals board, seeking to deduct the settlement from future workmen's compensation benefits. The board's grant of credit was based on section 3861, which declares: ‘The appeals board is empowered to and shall allow, as a credit to the employer to be applied against his liability for compensation, such amount of any recovery by the employee for his injury, either by settlement of after judgment, as has not theretofore been applied to the payment of expenses or attorneys' fees, pursuant to the provisions of Sections 3856, 3858, and 3860 of this code, or has not been applied to reimburse the employer.’

In Nelsen v. Workmen's Comp. Appeals Board (1971) 11 Cal.App.3d 472, 89 Cal.Rptr. 638, this court held that the subrogation provisions of the Labor Code (including section 3861) were not designed to permit a negligent employer to take advantage of his own wrong; hence, where the employer's negligence had been established in a prior lawsuit, the employee could assert this adjudication as a bar to the employer's claim of credit before the appeals board.2 Other courts have followed suit. (Serrano v. Workmen's Comp. Appeals Board (1971) 16 Cal.App.3d 787, 94 Cal.Rptr. 511; Maillet v. Workmen's Comp. of Appeal, Fourth District, Division Two. 99 Cal.Rptr. 925.)

In fairly direct conflict with these decisions is Corley v. Workmen's Comp. Appeals Board (1971) 22 Cal.App.3d 447, 99 Cal.Rptr. 242, a split decision of the Court of Appeal, Fourth District, Division Two. In Corley, as here the lawsuit culminated in damage recovery from the third party without inquiry into the employer's concurrent negligence. The court sustained the appeals board, which had credited the employee's third party damage recovery against the employer's compensation liability without inquiry into the employer's negligence. By dictum, the majority opinion in Corley expressed doubt that the appeals board could decide the issue of employer negligence consistently with the constitutional provision for establishment of a workmen's compensation system irrespective of fault. (Cal.Const., art, XX, § 21.)

In Witt v. Jackson, denial of the concurrently negligence employer's recover from the third party was premised on the law's policy to prevent the former from taking advantage of his own wrong; while the latter's credit for workmen's compensation payments against his own tort liability was grounded on the policy of denying the employee double recovery. (57 Cal.2d at pp. 72–73, 17 Cal.Rptr. 369, 366 P.2d 641.) Cases like this require selection or reconciliation between these policies. In Nelsen this court implied that the policy of preventing the employer from reaping financial benefit from his own negligence outweighed the policy against the employee's double recovery. (11 Cal.App.3d at pp. 476–479, 89 Cal.Rptr. 638.) In Corley the court embraced the inhibition against double recovery even at the cost of permitting a negligent employer to reduce his workmen's compensation liability. (22 Cal.App.3d at pp. 453–454, 99 Cal.Rptr. 242.) The State Supreme Court denied petitions for hearing in both Nelsen and Corley.

We continue in our preference for the Nelsen rationale. The majority opinion in Corley overemphasizes the employer's interest in preventing the employee's double recovery. The policy against double recovery primarily protects the third party tort-feasor, not the employer. In De Cruz v. Reid (1968) 69 Cal.2d 217, 225, 70 Cal.Rptr. 550, 555, 444 P.2d 342, 347, the Supreme Court declared that Witt v. Jackson was not ‘a sweeping interdict against double recovery . . ..’ It explained that the inhibition against double recovery is designed to allow the third party a protanto reduction of a liability which he shares with a concurrently negligent employer. (Cf. Sanstad v. Industrial Acc. Comm. (1959) 171 Cal.App.2d 32, 39, 339 P.2d 943.) Nelsen too points to the third party, rather than the employer, an beneficiary of the policy against double recovery. (11 Cal.App.3d at pp. 479–480, 89 Cal.Rptr. 638.)

Especially if he is vulnerable to the charge of negligence, the employer may avoid participation in the third party lawsuit; the third party, as defendant, may litigate or settle seeking credit for the workmen's compensation payments. When the employer/carrier then goes before the appeals board protesting the employee's double recovery, one asks: ‘What's Hecuba to him or he to Hecuba, that he should weep for her?’ If the employer's negligence contributed to the accident, the double recovery was gained not from him but from the third party, who did not claim a deduction for employer negligence. If the employer was free of negligence, he gained (but did not assert) a subrogated right to recover his compensation payment as damages. It is doubtful, in any event, whether a double recovery is created by a settlement which does not cover the totality of claims, including those of the employer. (Van Nuis v. Los Angeles Soap Co. (1973) 36 Cal.App.3d 222, 230, 111 Cal.Rptr. 398; LaBorde v. McKesson & Robbins, Inc. (1968) 264 Cal.App.2d 363, 370, 70 Cal.Rptr. 726, approved in Brown v. Superior Court (1970) 3 Cal.3d 427, 432, 90 Cal.Rptr. 737, 476 P.2d 105, and disapproved in unspecified respects, id., at p. 433.)

Opportunities for conceptual error multiply by exaggerating the substantive effect of the Labor Code subrogation provisions. These are primarily procedural, substantive only in isolated aspects. (Van Nuis v. Los Angeles Soap Co., supra, 36 Cal.App.3d et p. 228, fn. 2, 111 Cal.Rptr. 398.) Literally, section 3852 declares that the employee's compensation claim shall not affect his damage action against a third person; yet decisional law, primarily Witt v. Jackson, imposes a substantive limitation on his double recovery of damages and workmen's compensation. literally, sections 3852, 3854, and 3860, subdivision (b), permit the employer's unqualified recovery of compensation payments from the negligence third party; yet substantive law rejects his claim if he has been concurrently negligent.

Section 3858, relieving the employer from ‘further compensation’ up to the amount of the employee's damage recovery, is more substantive than procedural.3 It is qualified by Civil Code section 3517, which provides that ‘No one can take advantage of his own wrong.’ (Witt v. Jackson, supra, 57 Cal.2d at p. 72, 17 Cal.Rptr. at p. 377, 366 P.2d at p. 649.) Its procedural implementation is section 3861, which designates the appeals board as a forum for adjudicating the employer's untried claim for reimbursement or credit. As Witt v. Jackson construes these sections, ‘there is nothing in the Labor Code to suggest that the Legislature contemplated that a negligent employer could take advantage of the reimbursement remedies that those sections provide.’ (57 Cal.2d at p. 72, 17 Cal.Rptr. at p. 377, 366 P.2d at p. 649.) The appeals board erred here in viewing section 3861 as substantive authority for reducing the employer/carrier's compensation liability regardless of the employer's concurrent negligence. The employer's concurrent negligence will defeat his claim of credit.

From a procedural standpoint, any rule precluding the appeals board from adjudicating the employer's concurrent negligence is bound to engender undesirable gamemanship. The Corley approach permits a concurrently negligence employer to stand aside from the third party lawsuit, then capitalize on the third party's damage payment in the form of a credit from the appeals board. The Nelsen doctrine, it is said, stimulates the employee to race to the courthouse and vigorously pursue the third party lawsuit, delaying the pursuit of his workmen's compensation remedy. (Corley v. Workmen's Comp. Appeals Board, supra, 22 Cal.App.3d et p. 457, 99 Cal.Rptr. 242; 12 Santa Clara Lawyer 2, 25–26.)

The latter criticism ignores that part of Nelsen which views the appeals board as an alternate forum for resolution of the employer's concurrent negligence. In Nelsen (11 Cal.App.3d at page 478, 89 Cal.Rptr. at page 641) we pointed out: ‘Thus, where particular workmen's compensation benefits have not been awarded by the [workmen's compensation appeals] board by the time a third party tortfeasor satisfies the injured employee's judgment against him, but an award of such benefits is later sought, sections 3858 and 3861 permit the employer to achieve the same result (in terms of net compensation outlay) as would have been possible by the employer's joinder, intervention or lien if the payment of such benefits had been made before the third party suit. (See, Sanstad v. Industrial Acc. Comm., supra, 171 Cal.App.2d pp. 39–40, 339 P.2d 943; Lab.Code, § 3857.)’

Construed in relation to the Witt v. Jackson rule, which denies reimbursement to a concurrently negligent employer, section 3861 is a delegation of procedural authority for appeals board inquiry into the employee's of employer negligence. (Nelsen v. Workmen's Comp. Appeals Board, supra, 11 Cal.App.3d at p. 478, 89 Cal.Rptr. 638.) The appeals board has expressed doubt as to the delegation's constitutionality. (See Corley v. Workmen's Comp. Appeals Board, supra, 22 Cal.App.3d at pp. 457–459, 460, 99 Cal.Rptr. 242; Pearce v. Blackwell & Sunde (1968) 33 Cal.Comp.Cases 243, 249.) The doubt stems from two clauses in article XX, section 21, of the State Constitution. One speaks of purpose to compensate workmen ‘irrespective of the fault of any party.’ The other expresses an objective to ‘accomplish substantial justice in all cases expeditiously, inexpensively, and without incumbrance of any character. . . .’

Granting the employer an automatic credit for the employee's damage recovery manifests more solicitude for the employer/carrier than for the employee. The injured workman is the prime object of constitutional solicitude. By entertaining the workman's Witt v. Jackson defense, the appeals board violates neither constitutional letter nor spirit. To classify the employee's damage recovery as a workmen's compensation benefit at the outset of the hearing begs a question yet to be determined. At that point the employee stands before the board with an achieved recovery of damages. If the employer has been negligent, the recovery is unalloyed tort damages; none of it belongs to the employer, none of it is available to offset the employer's compensation liability. If the employer is freed of fault, he is entitled to the offset; to that extent the employee's recovery is the equivalent of workman's compensation benefits (received from the third party in lieu of the latter's liability to the fault-free employer).

To decide whether the employee may keep his entire damage recovery does not inject fault into the adjudication of disability benefits; neither does it frustrate the injured workman's need for immediate sustenance. Article XX, section 21, supplies no ground for the board's refusal to hear the employee's defense to the employer's claim of credit.

The appeals board's lack of experience in adjudicating fault issues is a policy objection of little weigh. Sections 4551 and 4553 require the board to alter the amount of the award when either employee or employer has been guilty of serious and willful misconduct. Serious and willful misconduct decisions may be complex and difficult. (See, e. g., Hawaiian Pineapple Co. v. Industrial Acc. Comm. (1953) 40 Cal.2d 656, 255 P.2d 431; Grason Elec. Co. v. Industrial Acc. Comm. (1965) 238 Cal.App.2d 46, 47 Cal.Rptr. 439.) The board may decide a claim of employee negligence with no more and probably less difficulty than the issue of serious and willful misconduct.

Adroit twisting of the Witt v. Jackson indemnification cycle is reduced (although not avoided by a statutory-decisional system in which both trial court and workmen's compensation agency are bound to accept the other's prior adjudication of employer negligence but free to adjudicate the issue if it is yet unsettled. Generally, the employer may absent himself from the employee's lawsuit without waiving his right to maintain an independent lawsuit against the third party and without waiving his claim of credit at the appeals board's hands. (See Van Nuis v. Los Angeles Soap Co., supra; Pacific Gas & Elec. Co. v. Industrial Acc. Comm. (1935) 8 Cal.App.2d 499, 47 P.2d 783.) Perhaps the courts are better suited than the board to adjudicate the employee's counterthrust of employer negligence. If so, the legislature may consider appropriate amendments. The present statutes, at any rate—particularly sections 3858 and 3861—impose on the board the task of adjudicating the negligence issue when no court has done so and it is raised as a bar to the employer's claim of offset.

The Workmen's Compensation Appeals Board is directed to vacate its order granting the employer/carrier's claim of credit and to reconsider the claim in the light of this opinion.


1.  Statutory reference are to the Labor Code unless otherwise specified.

2.  This case differs from Nelsen in an important respect—here the third party suit terminated without a determination of employer negligence.

3.  Section 3858 provides: ‘After payment of litigation expenses and attorneys' fees fixed by the court pursuant to Section 3856 and payment of the employer's lien, the employer shall be relieved from obligation to pay further compensation to or on behalf of the employee under this division up to the entire amount of the balance of the judgment, if satisfied, without any deduction. No satisfaction of such judgment in whole or in part, shall be valid without giving the employer notice and a reasonable opportunity to perfect and satisfy his lien.’

FRIEDMAN, Acting Presiding Judge.

REGAN and JANES, JJ., concur.

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