BOARD OF ADMINISTRATION PUBLIC EMPLOYEES RETIREMENT SYSTEM v. GLOVER (1982)

The Board of Administration of the State Public Employees' Retirement System (System) sued Phillip Glover, an alleged third party tortfeasor, to recover by right of subrogation one-half of the actuarial equivalent of benefits payable to Irene Lavallee, an employee-member of the System injured in an automobile collision with defendant.¹  (Gov.Code, § 21450, et seq.)   Plaintiff appeals from judgment entered against it and in favor of defendant.²

The record shows the following facts: ³  On January 25, 1972, Irene Lavallee sustained severe personal injuries when her car was struck by defendant's car, which had crossed a center divider.⁴  As a member of plaintiff System, Lavallee applied for a disability retirement on account of such injuries.   On November 29, 1972, plaintiff sent a notice to Lavallee informing her that any settlement she might reach with any person responsible for her injuries required plaintiff's consent.   Lavallee was granted a disability retirement which obligated plaintiff to pay her the actuarial equivalent of $22,172.99 in benefits;  said disability retirement became effective February 28, 1973.   Meanwhile, on January 18, 1973, Lavallee settled with defendant (through his insurance carrier) for $15,000 a claim for personal injuries against defendant and executed a general release in his favor.   Plaintiff had no knowledge of the settlement and did not participate in it.   At the time of the settlement, neither defendant nor his insurance carrier knew that Lavallee was entitled to retirement benefits through plaintiff System for her injuries resulting from the accident, nor did they know of plaintiff's claim herein.   They entered into the settlement in good faith, believing they had effected a full and complete settlement of all claims arising out of Lavallee's injuries.   Plaintiff did not learn the identity of defendant or his insurer until the first week of March 1973;  on March 5 it gave them notice of its subrogation rights.

The subrogation provisions of the state employee's retirement law are contained in Government Code sections 21450–21456.   Section 21451 gives the System the right to recover from a third party a maximum of one-half of the actuarial equivalent of benefits which become payable due to the injury or death of a member proximately caused by an act of the third party.   Section 21452 authorizes the System's board of administration to contract with the Attorney General or the state fund for recovery of subrogated claims.   Section 21453 provides in pertinent part:  “Under such contract, the [System] ․ may, to recover such amounts ․, commence and prosecute actions, file liens, or intervene in court proceedings all in the same manner and to the same extent, provided in Chapter 5 (commencing with Section 3850) Part I, Division 4 of the Labor Code for the state fund or employer ․”

The designated provisions of the Labor Code include section 3852,⁵ which gives the employer a separate cause of action against the third party tortfeasor, and section 3859, which, as amended in 1971, provides:  “(a) No release or settlement of any claim under this chapter as to either the employee or the employer is valid without the written consent of both.   Proof of service filed with the court is sufficient in any action or proceeding where such approval is required by law.  [¶] (b) Notwithstanding anything to the contrary contained in this chapter, an employee may settle and release any claim he may have against a third party without the consent of the employer.   Such settlement or release shall be subject to the employer's right to proceed to recover compensation he has paid in accordance with Section 3852.”

Under Government Code section 21453 and Labor Code section 3859, the System is subrogated to the right of the employee in the same manner as the employer and, like the employer, its cause of action may not be foreclosed by a settlement to which it has not consented.  (Board of Administration v. Kuppens (1975) 49 Cal.App.3d 758, 761, 122 Cal.Rptr. 856.)  “The need to protect the employer from collusive or ill-advised settlements between the employee and the third party has long been recognized.  ‘The purpose of section 3859 ․ is of course to protect the rights and interests of employee and employer and to prevent or discourage either of them from obtaining a recovery from the third party at the expense or disadvantage of the other.’  [Citations.]  Prior to 1971, this was accomplished by barring either employer or employee from settling without the other's consent.   By the 1971 amendment to section 3859 of the Labor Code, the Legislature determined that the same result could be reached by allowing each party to settle separately but without prejudice to the rights of the other.”   (Board of Administration v. Kuppens, supra, 49 Cal.App.3d at p. 761, 122 Cal.Rptr. 856.)

In denying plaintiff recovery, the trial court apparently reasoned that because defendant did not know of Lavallee's application for disability retirement benefits before he settled with her, he had no duty to give notice of the prospective settlement to plaintiff and therefore is entitled to offset against plaintiff's claim the amount of the settlement payment which exceeds the amount of the claim.

In support of this rationale, the court cited Ventura County Employees' Retirement Association v. Pope (1978) 87 Cal.App.3d 938, 151 Cal.Rptr. 695.   There, a county employees' retirement association brought an action against an alleged third party tortfeasor for one-half of the disability benefits payable to an employee-member of the association injured in an automobile collision with defendant.   The employee settled a personal injury claim against defendant;  plaintiff was not a party to the settlement and was unaware of any settlement proceedings.   Two months before settlement was made, plaintiff received a letter from defendant's insurance adjusters indicating they had heard of the employee's application for disability benefits and requesting information about plaintiff's action on the application.   Judgment for plaintiff was reversed because the trial court failed to make findings of fact on the issue of defendant's liability for personal injuries of the employee.   The court then discussed other issues which might become relevant on remand, including the credit, if any, to be given defendant for his settlement with the employee.   In this regard the court stated:  “Under subrogation procedure in worker's compensation no settlement or release between an employee and a third party is binding on the employer without notice to the employer and opportunity for the latter to recover the damages to which he has become subrogated.   [Citations.]  Nevertheless, an employee is entitled to settle his claim against a third party without the consent of the employer, and the proceeds of the settlement are free from the employer's lien.  [Citations.]  The gist of the present subrogation scheme in worker's compensation seems to be that the tortfeasor or employee must give notice to the employer of a prospective settlement, which thereafter can go forward free from any claim or lien by the employer.   Presumably, an employer or compensation carrier which receives notice of a prospective settlement can make timely demands and take appropriate steps to protect its own interests.  [¶] We construe Government Code sections 31820–31822 as assimilating the procedure for subrogation under county employees' retirement to that for subrogation under worker's compensation.   Therefore, for purposes of subrogation we identify a county employees' retirement association as an employer-insurer (Lab.Code, §§ 3211, 3850), and conclude it is entitled to notice of any settlement and release entered into by a tortfeasor with a member-employee.   Absent such notice the settlement is not binding on it, and need not be taken into account in future litigation against the tortfeasor.  [Citation.]  If [defendant's] insurance adjusters proceeded with the settlement and release without giving notice to the Association, they affected the settlement at their peril, and their principals are not entitled to credit for the amounts paid to [the employee], even though a portion of those payments represented compensation for permanent disability and loss of future earning power.”  (Ventura County Employees' Retirement Association v. Pope, supra, 87 Cal.App.3d at pp. 956–957, 151 Cal.Rptr. 695;  emphasis added.)

Labor Code section 3860 provides:  “(a) No release or settlement under this chapter, with or without suit, is valid or binding as to any party thereto without notice to both the employer and the employee, with opportunity to the employer to recover the amount of compensation he has paid or become obligated to pay ․”  (Emphasis added.)   The statute neither expressly nor impliedly imposes a duty on either party to a settlement to give notice thereof.   The Pope court nevertheless concluded that such a duty exists on the part of the tortfeasor or his insurance carrier, a conclusion which perhaps was justified under the facts of that case.   Here, unlike the situation in Pope, neither defendant nor his insurer knew of Lavallee's application for disability retirement before defendant entered into the settlement with Lavallee.   Inasmuch as plaintiff (who here stands in the shoes of the employer (Board of Administration v. Kuppens, supra, 49 Cal.App.3d 758, 762, 122 Cal.Rptr. 856)) received no notice and was unaware of the settlement between defendant and/or his insurance carrier and Lavallee, and in this context the settlement is not valid or binding under section 3860, subdivision (a), we are not here concerned with upon whom the duty to give notice of the settlement falls.   Further, we are unwilling to indulge in judicial legislation by engrafting onto the statute provision for imposition of a duty to give notice of settlement.   It is for the Legislature, not the courts, to declare the existence of that duty and upon whom it falls.   Absent such a declaration, and contrary to the trial court's reasoning herein, plaintiff's right of recovery cannot be made to turn upon a duty to give notice of the settlement.   The question of duty aside, the facts remain that plaintiff was given no notice of the settlement between defendant and Lavallee, and did not consent to it.   Accordingly, the settlement does not defeat plaintiff's right by subrogation to recover from defendant a portion of the disability retirement benefits payable to Lavallee.  (See Lab.Code, §§ 3859, 3860;  Pope, supra, 87 Cal.App.3d at p. 957, 151 Cal.Rptr. 695;  Board of Administration v. Kuppens, supra, 49 Cal.App.3d 758, 761–762;  Board of Administration v. Ames (1963) 215 Cal.App.2d 215, 229–230, 29 Cal.Rptr. 917.)

The undisputed facts, and the conclusions to be drawn from those facts, require entry of judgment for plaintiff.   The parties stipulated that if plaintiff were entitled to judgment, the amount recoverable would be $3,171.93; ⁶  plaintiff claimed no interest on this sum.

The judgment is reversed with directions to the trial court to enter judgment in favor of plaintiff and against defendant in the sum of $3,171.93.

I respectfully dissent.   I would affirm the judgment.   My dissent is based on a combination of broad policy considerations and equitable principles.¹

The trial court's findings of fact relevant here, approved by the deputy attorney general and amply supported by the augmented record, are in substance:  (1) That on January 25, 1972, Irene Lavallee (Lavallee) was seriously injured in an automobile accident involving an automobile operated by Phillip Glover (Glover);  (2) that prior to and subsequent to the accident Lavallee was employed as a senior elementary cafeteria manager for the Los Angeles school district, was pursuant to contract a member of the Public Employees' Retirement System (PERS), and as a result of her injuries was entitled to disability retirement which was granted effective February 28, 1973;  (3) that pursuant to existing statutory criteria PERS became obligated to the injured employee, Lavallee, for the actuarial equivalent of $22,127.99;  (4) that PERS on or about November 29, 1972, sent a notice to Lavallee informing her that any settlement or compromise she might reach with any responsible third party required the consent of PERS; ²  (5) that subsequent thereto on January 18, 1973, the State Farm Mutual Automobile Insurance Company (State Farm), Glover's liability carrier, on behalf of Glover settled with Lavallee, who was represented by counsel, for its policy limit of $15,000 in consideration of a full release; ³  (6) that “the settlement was entered into by Phillip Glover and his insurance carrier [State Farm] in good faith believing they had effected a full and complete settlement of all claims arising out of the accident and resultant injuries sustained” by Lavallee and “had no actual knowledge” Lavallee was entitled to any retirement benefits from PERS nor of PERS' claim;  (7) that PERS had no knowledge of the settlement and was not a party to it and did not obtain the identities of Glover or his carrier, State Farm, until early March 1973 at which time it mailed notices of subrogation rights to these parties in the calculated sum of $11,063.99.

The case of Ventura County Employes' Retirement Association v. Pope (1978) 87 Cal.App.3d 938, 151 Cal.Rptr. 695, relied on by PERS ⁴ is inapplicable being factually distinguishable.   In Pope the insurance carrier for the tortfeasor had actual knowledge of the application for disability benefits that the injured employee therein had filed with her County Retirement Association and thus the court reasonably held that Pope's insurance carrier acted at its peril in settling without notice to the Association.   In the instant case neither Glover nor State Farm had actual knowledge or notice of nor can reasonably be charged with the duty to discover what other claims plaintiff may have in mind involving one with PERS.

In the case at bench State Farm (Glover's liability carrier) promptly and in good faith settled Lavallee's claim against its insured Glover for the policy limits in exchange for a full release without the necessity of Lavallee filing a lawsuit.   State Farm's conduct was in accordance with the sound public policy of prompt settlement of claims.   I am aware of no statutory or case law authority, and none has been supplied, which places on a third party tortfeasor (such as Glover) or on his liability insurance carrier (such as State Farm) the affirmative duty of ascertaining if there is or will be a claim made by an injured employee to PERS.   Nor am I aware of any statutory or case law, and none has been supplied me by counsel, which abrogates the fundamental requirement of “NOTICE ” to Glover or State Farm of actual or potential PERS claims.   Such “Notice” is not only an essential element of due process but is bottomed on basic concepts of fair play and equity.

Accordingly, in the instant case, as a matter of law, absent timely “NOTICE” to State Farm or Glover by Lavallee, her attorney or PERS of Lavallee's proposed or actual claim against PERS, I would affirm the trial court judgment in favor of defendant Glover.   To hold otherwise would in a real sense penalize Glover and State Farm for moving promptly to settle claims by subjecting them to a partial “double payment” of claim while rewarding Lavallee, who was represented by counsel, with a partial “windfall” in a sum to which she was not legally entitled according to the overall statutory scheme in such cases.

Does this leave PERS out in the cold?   Not necessarily.   While PERS apparently may not sue the injured employee Lavallee directly to recoup the money owed the retirement fund, it is not entirely without recourse.   The augmented record seems to indicate that PERS sued Glover for an actuarially calculated sum of $11,063.99 which PERS will be obligated to pay.   The record appears to indicate that PERS has been or is paying a monthly disability retirement allowance to Lavallee.   In the interest of equity, I see no reason why PERS could not recoup that portion of the settlement moneys due it which constitute a “double payment” or “windfall” to Lavallee by deducting from her monthly disability retirement checks an amount to be actuarially determined sufficient to replenish the retirement fund the moneys owed it under the overall statutory scheme.

In my view clarification of and the establishment of the rights and responsibilities of the parties in the legal scenario, presented in the instant case, in respect to “Notice” should be determined by legislative enactment as part of the overall statutory scheme.   In my opinion since an injured employee has knowledge of and controls the filing of claims to all potential sources of compensation, logic and common sense would seem to indicate that the burden of giving such notice to alleged third party tortfeasors and PERS should statutorily be placed at that hub of the wheel.   Such a statutorily established requirement would dispel confusion, reduce litigation, prevent a “windfall” to the injured employee and protect alleged third party tortfeasors and their liability insurance carriers from “double payment” of claims, and protect the integrity of the employees' retirement fund from being raided by injured employees of sums in excess of those to which they are legally entitled.

FOOTNOTES

1.   Plaintiff also sued State Farm Mutual Automobile Insurance Company, the carrier which provided liability insurance on the car driven by defendant Glover at the time of the accident.   At plaintiff's request the action was dismissed without prejudice as to State Farm.

2.   The judgment further ordered that defendant take nothing by reason of his cross-complaint against Lavallee for indemnity.   No appeal was taken from that portion of the judgment.

3.   The facts recited herein are taken from the stipulated statement of facts as augmented by the trial court's findings of fact.

4.   At a hearing, the apparent purpose of which was to define the issues, defendant's attorney stipulated that defendant was liable for Lavallee's injuries.

5.   Labor Code section 3852:  “The claim of an employee for compensation does not affect his claim or right of action for all damages proximately resulting from such injury or death against any person other than the employer.   Any employer who pays, or becomes obligated to pay compensation, or who pays, or becomes obligated to pay salary in lieu of compensation, may likewise make a claim or bring an action against such third person.   In the latter event the employer may recover in the same suit, in addition to the total amount of compensation, damages for which he was liable including all salary, wage, pension, or other emolument paid to the employee or to his dependents.”

6.   The complaint sought $11,063.99 as one-half the actuarial equivalent of benefits payable to Lavallee.   The sum recoverable by plaintiff does not include the amount of the retirement benefit plaintiff is obligated to pay Lavallee regardless of injury and disability resulting from the accident.  (See Ventura County Employees' Retirement Association v. Pope, supra, 87 Cal.App.3d 938, 946–947, 151 Cal.Rptr. 695.)   The sum of $3,171.93 reflects such adjustment.

1.   Pursuant to rule 12a of the Rules of Court I have augmented the record on appeal by ordering up the superior court file (case No. C 104193) for review.

2.   The notice sent to employee Lavallee at her home address under a PERS letterhead and dated November 29, 1972, in pertinent part stated:“The Public Employees' Retirement System has received information regarding the injuries which you sustained in an accident on or about exact date not known, 19_ medical report states you were involved in an auto accident and information is required for our files.“As you know, in the event that your injuries result in your retirement from service for disability, the System may become obligated to you for benefits payable under the Public Employees' Retirement System.   In the event that your injuries were the proximate consequence of the act of some person other than your employer and in the event that the System becomes obligated to pay benefits under the Retirement Law, the System has the right to recover one-half the actuarial equivalent of the benefits for which it becomes liable from the persons responsible for the injuries or from any amounts which you recover from such person or persons for such injuries.   The System may bring an action against the responsible person directly, or in the event that you file an action against such person the System may intervene in that action or it may file a lien against any judgment which you may recover from such person.   Any settlement or compromise of a claim which you may have against any responsible party requires the written consent of the Retirement System.   Accordingly, immediate notice of any action filed or any proposed settlement or compromise must be given to the System.”  (Original italics.)

3.   The settlement agreement executed by Lavallee contained the following language:“For the Sole Consideration of Fifteen Thousand and no/100 Dollars, the receipt and sufficiency whereof is hereby acknowledged, the undersigned hereby releases and forever discharges Alfred, Sidney J. and Glover, Phillip D., their heirs, executors, administrators, agents and assigns, and all other persons, firms or corporations liable or who might be claimed to be liable, none of whom admit any liability to the undersigned but all expressly deny any liability, from any and all claims, demands, damages, actions, causes of action or suit of any kind or nature whatsoever, and particularly on account of all injuries, known and unknown, both to person and property, which resulted or may in the future develop from an accident which occurred on or about the 25th day of January, 1972, at or near Chatsworth, California.“Undersigned hereby declares that the terms of this settlement have been completely read and are fully understood and voluntarily accepted for the purpose of making a full and final compromise, adjustment and settlement on account of the injuries and damages above mentioned, and for the express purpose of precluding forever any further or additional claims arising out of the aforesaid accident.“Undersigned hereby accepts draft or drafts as final payment of the consideration set forth above.”(It is noted that the notice mailed to Lavallee on November 29, 1972, contains the same address of Lavallee appearing on the bottom of this release adjacent to her signature.)

4.   Lavallee is not a defendant to the original complaint herein by PERS.   She appears only as a cross-defendant to the cross-complaint for indemnity filed by defendant Glover.

LILLIE, Associate Justice.

SPENCER, P. J., concurs.