Wisconsin Lawyer
Vol. 85, No. 5, May 2012

Can a worker's compensation carrier compel the settlement of a plaintiff's bodily injury lawsuit over the objection of the injured plaintiff? According to the Wisconsin Supreme Court, it can. In October 2011, by declining review, the supreme court let stand a published District II Court of Appeals' decision approving a circuit court decision that compelled an injured plaintiff to accept, over his objection, a settlement of his injury claim.¹ The court of appeals concluded that because the injured plaintiff's worker's compensation carrier had an equal voice in the prosecution of the action, it had the right to seek to compel the settlement of a claim even though the injured worker wanted to continue the litigation to trial.

The Case Facts

Kevin Dalka was involved in a motor vehicle accident while in the course of his employment. Zurich American Insurance Co. (Zurich) insured his employer for worker's compensation claims. Dalka applied for and received benefits from Zurich for the injuries he received in this motor vehicle accident. Subsequently, Dalka was injured when he slipped and fell while working. Again, Zurich paid benefits for that work-related loss. Later, Dalka was involved in yet another motor vehicle accident, this one not work related.² Dalka brought suits against the drivers involved in both motor vehicle accidents and also against their insurers. Because only the first motor vehicle accident was a work-related loss for which Zurich paid benefits, it was a plaintiff in only that lawsuit. The two motor vehicle accident cases eventually were consolidated.

Before trial, the driver and liability insurer for the first accident offered to settle all claims stemming from the accident for a total of $8,500.³ Dalka refused to accept the settlement, believing that his case was worth more. Zurich, however, decided that the settlement was sufficient. Given the difference of opinion, Zurich brought a motion before the circuit court to compel settlement of the first motor vehicle accident for the amount offered.

Dalka was not present at the motion hearing to compel the settlement.⁴ Dalka's attorney offered no argument that the circuit court lacked authority to compel the settlement pursuant to Wis. Stat. section 102.29. The circuit court concluded that it had the authority to act on the motion. The court evaluated the case's strengths and weaknesses and concluded that the offer was probably better than what Dalka would receive if he went to trial.⁵ As a result, the circuit court compelled the parties to accept the settlement offer, foreclosing Dalka's ability to present his negligence case to a jury for the first motor vehicle accident. Dalka appealed.

The Court of Appeals Decision

The court of appeals concluded that Zurich had the right to seek judicial resolution of the dispute and that the circuit court had the authority to compromise the case. Initially, the court of appeals noted that Dalka had forfeited his right to appellate review by offering no argument in opposition to Zurich's motion to compel the settlement.⁶ Despite the forfeiture, the court of appeals nevertheless considered the substantive arguments Dalka presented. Dalka challenged the constitutionality of Wis. Stat. section 102.29, claiming that the statute deprived him of his right to jury trial under article I, section 5 of the Wisconsin Constitution. The court of appeals disagreed.

The court of appeals concluded that Dalka waived his right to a jury trial "by operation of law."⁷ The court of appeals noted that the rights of employees, employers, and worker's compensation carriers were established by the Wisconsin Legislature, which has provided for coequal voices in the prosecution of tort claims involving workers injured in the scope of their employment. The Legislature also vested circuit courts with the authority to resolve, without a jury trial, any disputes among employees, employers, and carriers concerning the prosecution of those third-party claims. The court of appeals concluded that the injured worker's "right" to a jury trial was waived by operation of law upon acceptance of worker's compensation benefits, because such an act brought the third-party claim within the ambit of the provisions of the worker's compensation act. Because Dalka accepted worker's compensation benefits, he forfeited the right to maintain unilateral control over the prosecution of his bodily injury claim.⁸

The court found support for its decision in Bergren v. Staples.⁹ In Bergren, an injured employee's widow brought a tort action for the death of her husband after he was killed in the course of his employment. The employee's widow was presented with a settlement offer from the defendants that she wished to accept. The worker's compensation carrier did not want to accept the offer. The widow sought to compel the settlement over the objection of the carrier. The circuit court in Bergren compelled the settlement. The supreme court confirmed the circuit court's authority to resolve the dispute between the injured employee's widow and the worker's compensation insurer. In Dalka, the positions were reversed, but the outcome remained the same: the circuit court was permitted to resolve the dispute.

The court of appeals also found that Dalka had no standing to challenge the constitutionality of the Worker's Compensation Act.¹⁰ Dalka had asserted that to the extent that Wis. Stat. section 102.29 prevented him from exercising his right to a jury trial, it was unconstitutional. The court of appeals rejected this argument. The court of appeals concluded that even assuming that Dalka had a constitutional right to "press his claim to trial," he waived that claimed constitutional right when he applied for and received worker's compensation benefits.¹¹ Wisconsin law holds that an individual is not entitled to attack the constitutionality of an act under which he applied for and received benefits.¹² Because Dalka reaped the benefits of the Act, he had no right to later challenge its constitutionality.

The decision in Dalka highlights the impact of an important aspect of Wisconsin's comprehensive worker's compensation program. The Wisconsin statute that governs the prosecution of third-party actions for injuries to employees in the course and scope of their employment is part of the overall worker's compensation program. "The WCA represents the legislative compromise between the interests of employers, employees and the public in resolving compensation disputes regarding work-related physical or mental harms arising in our industrial society."¹³ It is designed to govern the entire injury event from start to finish. The Legislature established "a system under which workers, in exchange for compensation for work-related injuries regardless of fault, would relinquish the right to sue employers and would accept smaller but more certain recoveries than might be available in a tort action."¹⁴

Part of that "overall worker's compensation program" involves resolving the tort liability of third parties who cause injuries for which workers are compensated by worker's compensation insurers. Wisconsin Statutes section 102.29 addresses those situations.¹⁵ This statute specifically provides that the worker's compensation carrier shall have the same right as the injured employee to make a claim or maintain an action in tort against any other party for injury or death. It specifically states that both parties shall have an equal voice in the prosecution of the claim. The statute even provides for a specific formula for the distribution of any funds received by way of settlement or verdict, and with regard to disputes between the worker and carrier, the statute provides for a mechanism in the event of a dispute between the injured employee and the worker's compensation carrier: the circuit court.

The Dalka case highlights the employee's loss of exclusive control over his or her own injury claim once worker's compensation benefits are accepted. However, that an injured person does not maintain this exclusive control after receiving benefits from another is not an unknown concept, and the law is replete with such outcomes. For example, by accepting benefits available under the Employee Retirement Income Security Act (ERISA), the plan is usually entitled to recovery starting with the first dollar of any settlement, before the injured party receives any settlement funds, even if the plan took no action to generate the settlement funds.¹⁶

Likewise, by accepting benefits under insurance policies, insureds and beneficiaries may lose complete control over claims. For example, insureds:

• can be required to attend a trial even if the insured has no financial interest in the litigation;¹⁷
• can be required to submit to examinations under oath or forfeit benefits even if the testimony could ultimately be used against the insured in a criminal proceeding for arson;¹⁸
• must have the insurer's consent before a settlement is reached, or risk relieving the insurer of the duty to defend;¹⁹
• may not settle with tortfeasors and then pursue underinsured motorist claims with their own insurers unless they provide their insurer with notice and an opportunity to preserve the insurers' subrogation rights;²⁰ and
• may be precluded from seeking a jury trial and be compelled to arbitrate their uninsured and underinsured motorist claims.²¹

The Dalka decision highlights an often-overlooked ramification of worker's compensation claims: an employee, by accepting worker's compensation benefits, surrenders sole decision-making authority. When an employee accepts employment with an employer that is required to provide worker's compensation benefits, he or she has made a conscious, knowing, and voluntary decision to cede exclusive control over any third-party claim in exchange for certain and more immediate benefits provided by the worker's compensation carrier.²² The employee will not later be heard to complain that he or she has lost exclusive control over direction of the claim.

Effects of the Dalka Decision

The Dalka decision underscores the rather significant influence that a worker's compensation carrier can have on the prosecution of a third-party tort claim. Before Dalka, most plaintiffs and their counsel simply assumed that the worker's compensation carrier would accept their decision as to whether to accept a settlement or proceed to trial. As long as the funds were allocated pursuant to Wis. Stat. section 102.29, the court would approve the amount and the distribution would be valid.²³ The worker's compensation carrier was often the "silent partner." Now, however, plaintiffs and their counsel will have to pay closer attention to and involve the worker's compensation carrier in settlement discussions. If a plaintiff believes that an offer should be accepted and the worker's compensation carrier does not, or vice versa, their dispute will have to be resolved by the circuit court with the potential end result of a jury trial being precluded.

A party seeking to compel a settlement should provide the circuit court with enough information on both liability and damages to demonstrate that the settlement is reasonable and should be approved. While the exact contours of this proof have not yet been established, the Dalka appellate court observed that the circuit court evaluated the strengths and weaknesses of arguments for and against compelling the settlement.²⁴ Ultimately, the Dalka circuit court concluded that the defendant's settlement offer was more than the case was worth.²⁵ This evaluation suggests that evidence regarding the nature of the liability claim, the amount of damages, issues with witnesses, and even the costs of further litigation should be presented in a clear and coherent manner to provide a sufficient discretionary basis for the circuit court's decision.

Although the plaintiff and the worker's compensation carrier will likely be the most vocal participants in any such motion, the defendant should also be involved. If the motion to compel acceptance of the settlement offer is denied, the defendant will be faced with additional defense costs and an uncertain result at trial. Correspondingly, a party opposing a motion to compel acceptance of the settlement offer should attempt to demonstrate that a better result would likely occur with a jury trial.

The Dalka decision increases the potential influence of worker's compensation carriers on Wisconsin personal injury litigation. For example, a worker's compensation carrier is entitled to pursue an action for all injuries that an employee sustains, including pain and suffering, even if that worker is not a party to the lawsuit.²⁶ A worker's compensation insurer's right to recover depends not on language in the policy but on statute; the insurer is entitled to a distribution according to the formula set forth in Wis. Stat. section 102.29, regardless of whether the settlement funds make the injured worker "whole."²⁷ A worker's compensation carrier is also entitled to its statutory allocation of the entire settlement proceeds even if some or all of those proceeds are for compensation of an aggravation of a pre-existing injury and even if the aggravation is not part of the basis for the underlying worker's compensation claim.²⁸ The scope of the worker's compensation carrier's entitlement to its statutory allocation extends to claims for medical malpractice that aggravated an underlying condition for which the worker's compensation carrier paid benefits.²⁹ A worker's compensation insurer is entitled to an allocation of the settlement proceeds even if the funds came from the employee's own employer pursuant to an indemnification agreement between the tortfeasor and the employer.³⁰

Wisconsin law has also held that a worker's compensation insurer is not bound to accept a structured-settlement payment schedule but is entitled to a lump-sum payment of its statutory allocation even if the injured worker agrees to the structured payments.³¹ A worker's compensation carrier is entitled to the statutory distribution-of-verdict award even if the worker's compensation carrier's insured (the employer) was found to be more at fault than the defendant.³² Significantly, there is no deduction to be taken in the distribution formula for the negligence of the worker's compensation carrier's insured (the employer).³³ The waiver of subrogation rights in a contract by the insured of the worker's compensation carrier will not constitute a waiver of the worker's compensation insurer's right to statutory reimbursement under section 102.29.³⁴ The worker's compensation carrier is even entitled to interest on that portion of a judgment that represents its statutory reimbursement amount.³⁵

Conclusion

With Dalka in its arsenal, the worker's compensation carrier will be in a position to exert further control over the course of litigation in which it is involved. Not only can the worker's compensation carrier seek to force the parties to distribute any funds received pursuant to the statutory formula, it now might be able to force an end to the litigation at a time that might seem premature, at least to the injured employee. Although the circumstances necessary to trigger a Dalka motion will likely not occur very often, parties should maintain sufficient communication to reach shared goals in an effort to avoid giving the circuit court more influence over the claim's resolution than that exerted by the parties themselves.

Endnotes

¹ Dalka v. American Family Mut. Ins. Co., 2011 WI App 90, 334 Wis. 2d 686, 799 N.W.2d 923.

² Id. ¶ 2.

³ Id. ¶ 3.

⁴ Id.

⁵ Id. ¶ 4.

⁶ Id. ¶ 5.

⁷ Id. ¶ 10.

⁸ Id.

⁹ Id. ¶ 8 (citing Bergren v. Staples, 263 Wis. 477, 57 N.W.2d 714 (1953)).

¹⁰ Id. ¶ 11.

¹¹ Id. ¶ 10.

¹² Id. ¶ 11 (citing Beck v. Hamann, 263 Wis. 131, 138, 56 N.W.2d 837 (1953)).

¹³ Henning v. General Motors Assembly Div., 143 Wis. 2d 1, 11, 419 N.W.2d 551 (1988).

¹⁴ County of La Crosse v. WERC, 182 Wis. 2d 15, 30, 513 N.W.2d 579 (1994).

¹⁵ The statute provides, in relevant part, as follows:

"(1) ... The employer or compensation insurer who shall have paid or is obligated to pay a lawful claim under this chapter shall have the same right to make claim or maintain an action in tort against any other party for such injury or death. ... However, each shall give to the other reasonable notice and opportunity to join in the making of such claim or the instituting of an action and to be represented by counsel. ... Each shall have an equal voice in the prosecution of said claim, and any disputes arising shall be passed upon by the court before whom the case is pending, and if no action is pending, then by a court of record or by the department."

¹⁶ Zurich Am. Ins. Co. v. O'Hara, 604 F.3d 1232, 1237 n.4 (11th Cir. 2010).

¹⁷ Simonds v. Bouton, 87 Wis. 2d 302, 274 N.W.2d 666 (1979).

¹⁸ State Farm Fire & Cas. Co. v. Walker, 157 Wis. 2d 459, 459 N.W.2d 605 (Ct. App. 1990).

¹⁹ West Bend Co. v. Chiaphua Indus. Inc., 112 F. Supp. 2d 816 (E.D. Wis. 2000), aff'd, 11 F. App'x 616 (7th Cir. 2001) (unpublished disposition).

²⁰ Vogt v. Schroeder, 129 Wis. 2d 3, 383 N.W.2d 876 (1986).

²¹ Jones v. Poole, 217 Wis. 2d 116, 579 N.W.2d 739 (Ct. App. 1998).

²² Wis. Stat. §§ 102.04, 102.28(2).

²³ Unless the employee and carrier reach a different agreement, the proceeds of any settlement must be allocated pursuant to the formula set forth in the statute (Wis. Stat. § 102.29(1)). Further, to the extent that it appears a settlement seems to circumvent the distribution formula under section 102.29, courts must supervise that settlement to ensure that it is compliant with the statute's directives. DeMeulenaere v. Transport Ins. Co., 116 Wis. 2d 322, 330, 342 N.W.2d 56 (Ct. App. 1983).

²⁴ Dalka, 2011 WI App 90, ¶ 4, 334 Wis. 2d 686.

²⁵ Id.

²⁶ Threshermans Mut. Ins. Co. v. Page, 217 Wis. 2d 451, 577 N.W.2d 335 (1998).

²⁷ Standard Sur. & Cas. Co. v. Spewachek, 233 Wis. 158, 288 N.W. 758 (1939); Martinez v. Ashland Oil Inc., 132 Wis. 2d 11, 390 N.W.2d 72 (Ct. App. 1986); see also Danielson v. Larsen Co., 197 Wis. 2d 799, 541 N.W.2d 507 (Ct. App. 1995).

²⁸ Martinez, 132 Wis. 2d at 16.

²⁹ Sutton v. Karrakka, 159 Wis. 2d 83, 464 N.W.2d 29 (Ct. App. 1990).

³⁰ Houlihan v. ABC Ins. Co., 198 Wis. 2d 133, 542 N.W.2d 179 (Ct. App. 1995).

³¹ Skirowski v. Employers Mut. Cas. Co., 158 Wis. 2d 242, 462 N.W.2d 245 (Ct. App. 1990).

³² La Chance v. Thermagas Co. of Lena, 120 Wis. 2d 569, 357 N.W.2d 1 (Ct. App. 1984); see also Mulder v. Acme-Cleveland Corp., 95 Wis. 2d 173, 290 N.W.2d 276 (1980).

³³ La Chance, 120 Wis. 2d at 580-81.

³⁴ Campion v. Montgomery Elevator Co., 172 Wis. 2d 405, 493 N.W.2d 244 (Ct. App. 1992).

³⁵ Hauboldt v. Union Carbide Corp., 160 Wis. 2d 662, 467 N.W.2d 508 (1991). 

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