On May 27, 2010, the Indiana Supreme Court issued a decision which has redefined the manner in which workers’ compensation liens are handled in third party litigation. In the case The Travelers Indemnity Company of America v. Jarrells. 927 N.E.2d 374 (Ind. 2010), Jarrells sustained a serious injury which arose out of and in the course of his employment with LeMaster Steel Erectors, a subcontractor on a construction site. Travelers, the employer’s worker’s compensation carrier, paid benefits in excess of $66,000 to Jarrells or on his behalf. Jarrells filed a civil suit against another subcontractor and the general contractor on the construction site for the same accident for which he received worker’s compensation benefits.

Pursuant to Ind. Code 22-3-2-13, there was no dispute that Travelers held a statutory lien for worker’s compensation benefits paid. When Travelers learned of Jarrells’ civil suit, it notified Jarrells of the amount of its lien, but it did not intervene into Jarrell’s civil suit. At trial, Jarrells presented evidence of the worker’s compensation benefits paid and testified that if he recovered in the lawsuit, he might have to repay Travelers for payments it made.

The trial court gave the following jury instruction, which closely mirrors the pattern jury instructions:

(Emphasis added). The final instruction on collateral-source payments did not explicitly and unmistakably state that any award will be deemed to include a set-off for worker’s compensation payments, such that Jarrellsneed not make a separate repayment of that benefit to Travelers from his award.

Following trial, a jury returned a verdict of $925,000 for Jarrells, which was reduced to $508,750 for comparative fault. In Indiana, juries issue general verdicts, meaning no explanation or itemization of damages is provided (the exception to this rule occurs where a jury awards punitive damages, and then the jury separates the punitive award from the remainder of the award but does not otherwise itemize the damages awarded). In Jarrells, the jury did not specifically indicate whether its award included the amount Jarrells might be required to repay to Travelers.

After Jarrells notified Travelers of the judgment, Travelers demanded repayment of a reduced amount of worker’s compensation benefits paid (reduced to account for comparative fault), less a pro rata share of Jarrells’ attorney fee. Jarrells refused to pay Travelers, claiming that the jury had already reduced the award by the amount of the worker’s compensation benefits, and that the award should not be further reduced after judgment. Travelers argued that the jury had fixed damages on the assumption that Jarrells would have to repay Travelers out of the proceeds of the judgment.

Travelers then sought relief from the trial court. The trial court determined that requiring Jarrells to repay Travelers for worker’s compensation benefits paid would impose a double set-off on the recovery because the jury had already deducted the worker’s compensation benefits from the gross award. Travelers appealed, and the court of appeals reversed with instructions to enter judgment for Travelers and to determine the value of the lien. The employee then appealed that decision to the Indiana Supreme Court.

In its decision, the Indiana Supreme Court addressed the interplay of the collateral source payment statute (Ind. Code § 34-44-1-1) and the worker’s compensation lien statute (Ind. Code § 22-3-2-13). The collateral source rule places limitations on the type of evidence a plaintiff in a personal injury action may present concerning payments received from sources other than the defendant. The purpose of the rule is to allow the fact finder to make an accurate assessment of the plaintiff’s “pecuniary loss” and to prevent a party from recovering more than once for each item of loss sustained. Id. at 376. At the same time, the collateral source payment rule allows presentation of evidence of worker’s compensation benefits “to establish proof of money that the plaintiff is required to repay.” Id. at 376-77. Repayment, as Travelers’ argued, was required by Ind. Code § 22-3-2-13. Considering the purpose of the collateral source payment rule, the Supreme Court found that “[i]f the jury is to consider evidence of collateral course payments such as worker’s compensation that the plaintiff is required to repay, the only plausible interpretation of these provisions is that the jury should include the amount of any collateral source payments that the plaintiff is required to repay in its award to the plaintiff.” Id. at 377. (emphasis added). Likewise, if there is no obligation to repay, the jury should not include the amount of collateral course payment in its award. Thus, it would appear that the Supreme Court agreed with the decision reached by the court of appeals.

However, the Indiana Supreme Court affirmed the original decision of the trial court in favor of Jarrells and against Travelers. In doing so, the Court acknowledged that it was not apparent from the jury award whether the jury intended for Travelers to be repaid or if the jury reduced the total award by the amount that Travelers had paid in benefits, so that Jarrells would not recover twice.  The Court concluded that the trial court was in the best position to determine the intent of the jury. Further, there was no evidence on the amount Jarrells would be required to repay to Travelers and there was no instruction as to the rules governing the calculation. Thus, the Court found that a jury could not have determined how much to add to the judgment if it wanted to provide for Jarrells’ repayment to Travelers as opposed to “considering” it by eliminating from its award the damages already covered by worker’s compensation benefits. Id. at 379.

In so finding, the Supreme Court also held that the pattern jury instruction used in Jarrells should not be used in future trials. Id. at 377. This decision should not be read to suggest that courts should abandon general verdicts, nor is it likely that the Court is suggesting to further complicate a jury verdict form to determine if jurors factored in certain items in the damage calculation. Instead, the Court appears only to encourage litigants to clarify the current pattern jury instruction. One way clarification can be obtained is to add language that would instruct the jury to include in the total damages awarded those collateral source payments subject to repayment obligations, such as worker’s compensation. Other options are also available to help eliminate the ambiguity in the current instruction. Revised jury instructions should not offer the jury an opportunity to exclude from its award amounts which are subject to a statutory repayment obligation. To do so would allow the jury, rather than the court, to decide what law applies. Further, allowing jurors to decide if a worker’s compensation carrier is entitled to recover repayment could potentially have a punitive effect on carriers providing benefits to injured workers.

The lesson to be learned by this decision is that it is not enough to merely notify counsel pursuing a third party claim of your right to workers’ compensation benefit reimbursement out of any recovery. Insurers may wish to intervene into civil suits, particularly where the lien is sizeable, to ensure that the lienholder’s interests are represented in civil proceedings. While it may not be necessary in all cases to engage separate counsel to ensure your lien rights are protected, it is certainly mandatory that the civil litigation be closely monitored to ensure that your lien rights remain viable.

Sonia C. Das

Lewis Wagner, LLP

501 Indiana Avenue, Suite 200

Indianapolis, IN 46202

(317) 237-0500

Facsimile: (317) 630-2790