DODDS v. LIBERTY MUT INS CO (1946)

This is an appeal from two orders made in ancillary proceedings in the above entitled matter which will be referred to herein as the ‘damage action.’ A judgment of affirmance in the latter cause has this day been filed, appeal number 15,220, 175 P.2d 607, to which reference is made for a knowledge of such facts as are not fully stated herein.

Prior to receiving an X-ray burn through the negligence of defendant, plaintiff was a workman at the yards of the California Shipbuilding Corporation where he received his original injury. Upon his suffering an industrial injury his employer became liable for such sums as might be awarded by the Industrial Accident Commission according to law applicable in such cases, and the Liberty Mutual Insurance Company, herein referred to as Liberty, became liable as the insurance carrier for the employer.

On February 28, 1945, Liberty served upon plaintiff a notice of claim of a lien in the sum of $4,494.81 claiming to be entitled to lien ‘by reason of an award made by the Industrial Accident Commission on November 28, 1944, * * * in favor of Harold Dodds and against the said Liberty Mutual Insurance Company as insuance carrier for the * * * California Shipbuilding Corporation.’ On April 11, 1945, judgment was entered in the damage action in the sum of $14,942.05, based upon a verdict which had awarded $10,000 general damages and $4,942.05 special damages. June 12, 1945, Liberty served and filed its notice of motion for order allowing to it a lien against the judgment of plaintiff in the sum of $4,494.81, paid out as insurance by reason of the injuries sustained by plaintiff arising out of his employment and pursuant to the award of the industrial Accident Commission on November 28, 1944, in accordance with the provisions of the Labor Code.

On June 18, 1945, plaintiff served and filed his notice of motion for an order allowing counsel fees to his attorneys ‘on that part of the judgment heretofore entered * * * upon which Liberty * * * is granted a lien * * * on the ground that the above entitled action was a representative suit brought by the plaintiff on his own behalf and on behalf of the Liberty * * * to obtain a common fund.’ June 28, both motions having been argued and submitted, the court made its order allowing Liberty a lien in the sum of $4,494.81, and denied plaintiff's motions for attorneys' fees. July 3, 1945, plaintiff filed two notices of motions: (1) For an order setting aside the order of June 28 on the ground that subsequent to the latter date the Supreme Court had affirmed a judgment in the case of Heaton v. Kerlan, 27 Cal.2d 716, 166 P.2d 857 establishing that a workmen's compensation insurance carrier cannot assert a lien in an action by an employee against a physician for an aggravation of an injury sustained in the course of employment; (2) for an order reopening the application of Liberty for a lien, on the ground that the latter's application ‘for a lien has failed to segregate and itemize all the moneys claimed to have been expended by them for which they claim a lien.’

Both of such motions having been denied, plaintiff has appealed from such denial as well as from the order denying him attorneys' fees and the order granting Liberty a lien.

Plaintiff now contends that the trial court erred in allowing Liberty a lien for any sum in excess of $3,668.08. He asserts that it was error to include in such lien any sums expended by Liberty which were not recovered by plaintiff in the damage action, or medical expenditures for the treatment of ailments wholly disconnected with the injuries sustained by a person as a result of the acts of defendant Stellar, or medical expenses paid by Libery solely for its benefit to aid it in determining the extent of its liability for future medical or disability payments.

Plaintiff's contention appears to be well founded. Included in the lien are (1) moneys paid to a medical examiner appointed by the Industrial Accident Commission to determine the extent of plaintiff's continued disability, (2) payments made to Doctor Burke for treating a low back pain, (3) $75.72 paid by Liberty for telephone calls and guest trays, (4) hospital bills from March 25 to April 12, 1943, recovery of which was denied by the court in the damage action, and (5) payments made by Liberty to other physicians for advice as to any liability it owed plaintiff for his injury. The foregoing items total $823.01 and in any view of the matter do not constitute a lien upon plaintiff's judgment.

An employer who pays or becomes obligated to pay compensation for an industrial injury may have his action against a third party who is liable in damages for the aggravation of such injury, and he may recover from the subsequent tort feasor in addition to the total compensation and other special damages for which such tort feasor is liable all items of damages to either employer or employee proximately resulting from such injury. Labor Code, sections 3852, 3854, 3855; State Compensation Ins. Fund v. Matulich, 55 Cal.App.2d 528, 531, 131 P.2d 21. Where the employee makes recovery from the person who has aggravated his industrial injury he shall first apply out of the entire amount of any judgment for any damage recovered a sufficient amount to reimburse the employer for his expenditures and compensation which the court shall allow as a first lien against the entire amount of any judgment for any damages recovered by the employee. Labor Code, sec. 3856.

While the Labor Code thus authorizes the employer to recover the amount of his obligation to his employee from the third party in addition to the total amount of compensation, yet he cannot recover against a doctor for alleged malpractice the moneys paid for treatment of a condition not appearing to be connected with the industrial injury (Hartford Accident & Indemnity Co. v. Sprague, 6 Cal.App.2d 61, 44 P.2d 361), or with the injuries caused by such malpractice. In an action by an employee such as the one at bar the employer's lien is limited to the amount actually paid by him or for which he has become liable because of the malpractice. Heaton v. Kerlan, supra. The employer or his insurance carrier is invested by the doctrine of subrogation with the right of action of the employee. Eckman v. Arnold Taxi Co., 64 Cal.App.2d 229, 234, 148 P.2d 677; American Mutual Ins. Co. v. Otis, 23 S.W.2d 245.

In view of the foregoing the order awarding Liberty a lien in the sum of $4,494.81 should be modified by deducting therefrom the sum of $823.01.

After judgment had been entered in the damage action plaintiff applied to the court for an order that out of the portion for which Liberty would be allowed a lien upon the judgment a reasonable fee should be paid to plaintiff's counsel. His motion was based upon the ground that the damage action was a representative suit prosecuted on behalf of plaintiff for the damages he had suffered by reason of the malpractice of defendant's agent. The supporting affidavit avers that the Industrial Accident Commission had awarded plaintiff a judgment against his employer and Liberty as its insurance carrier for loss of earnings and medical care made necessary by the original injury and the aggravation thereof by defendant's agent; that as a result of such award Liberty had paid plaintiff $4,094.81 for compensation and medical care, and that in the damage action plaintiff had recovered $4,942.05 as his special damages including his loss of earnings; that Liberty had refused to file an independent action against defendant Stellar for the sums it had paid to plaintiff pursuant to the Commission's award but had filed notice of its claim of lien upon such judgment as plaintiff might obtain; that Liberty had rendered no services to plaintiff or to any of his agents or counsel in the prosecution of the damage action to recover the amounts Liberty had paid for loss of earnings, medical and hospital expenses, but that plaintiff's counsel had subpoenaed the witnesses and introduced the proof of such outlays of Liberty without its assistance in any respect. The affidavit further recites the nine days' duration of the trial, the judgment, the motion for a new trial, the voluminous brief (150 pages) of defendant's counsel, the study thereof, the reply thereto, and the argument; that $300 had been paid for expert fees and for the reporter's transcript not taxable as costs; that recovery was had solely by virtue of the legal services of plaintiff's counsel and that Liberty had benefited by the judgment in that its lien will be paid, whereas it would have no value but for the services of plaintiff's counsel; that during the pendency of the damage action Liberty gave notice of its intention to assert a lien upon the judgment and to demand payment thereof; that plaintiff has agreed to pay his own counsel 30 per cent of recovery for the prosecution of the damage action; that it would be equitable to order Liberty to pay plaintiff's counsel for all legal services rendered by them in recovering the sums expended by Liberty a sum equivalent to 30 per cent of the amount of Liberty's lien, and that the court should reserve jurisdiction to allow additional counsel fees for services in the event of appeal.

Liberty filed no counteraffidavit, and on this appeal has filed no brief.

It is a rule of ancient origin and long enforced in chancery that where a lawyer has rendered services of such value as will make available a fund for a class, even though he appeared for only one claimant, ‘it is equitable that his compensation and expenses should come from the entire fund saved for all classes concerned before it is distributed.’ Winslow v. Harold G. Ferguson Corporation, 25 Cal.2d 274, 277, 153 P.2d 714; Estate of Marre, 18 Cal.2d 191, 192, 114 P.2d 591. By section 3854 of the Labor Code the employer may prosecute an action to recover for the aggravation of an industrial injury of his employee, and from the recovery he may deduct not only the sums he may have laid out in payment of special damages but also a reasonable attorney's fee to be fixed by the court. The latter provision is nothing more than a statutory enactment of the doctrine upheld by the last mentioned authorities and does not enlarge the employer's right in equity to attorneys' fees out of the amount recovered. But if the employer, or his insurance carrier, refrains from instituting an action to recoup his losses or refuses to join in a suit by the employee to recover the employer's lien, the employee acts at his peril if he fails to include in his suit the claim of his employer for all loses suffered as a result of the industrial injury or of its aggravation. Should he fail to recover the full amount of the employer's lien the employer may collect his claim out of the amount recovered by the employee as general damages. Labor Code, secs. 3854, 3855, 3856; Heaton v. Kerlan, supra. If the employer may recover counsel fees out of such fund as he might recover from the tort feasor who has aggravated an industrial injury, there is no reason why he should not compensate the attorney of the injured employee for recovering the lien of the employer or of his insurance carrier.

It is therefore ordered (1) that the order granting Liberty a lien in the sum of $4,494.81 be and it is hereby modified by reducing the amount thereof to $3,671.80 and as thus modified it is affirmed; (2) that the order denying plaintiff's application for attorneys' fees be and it is hereby reversed.

MOORE, Presiding Justice.

McCOMB and WILSON, JJ., concur.