Employers Subrogation Interest Takes Priority Over Employees Recovery

The Alabama Court of Civil Appeals recently released its opinion in the case of Nuss Lumber Co., Inc. v. The Estate of Andy Monghan, in which the Court addressed the employer’s right to recoup workers’ compensation benefits paid when the employee recovers from third parties. In January 2002, Monghan was injured in an automobile accident while working for Nuss Lumber. Nuss ultimately paid Monghan a substantial amount of workers’ compensation benefits and incurred substantial expenses for medical treatment. Monghan sued Nuss Lumber and also named several third parties who he claimed caused the automobile accident as defendants in the action. Nuss then filed a counter-claim asserting its rights under §25-5-11 (a) of The Alabama Workers’ Compensation Act, seeking repayment of the benefits it had paid on account of Monghan, which totaled more than $1.3 million. In October 2005, Monghan entered into a settlement with the third parties, whereby more than $500,000 was paid in a lump sum, and whereby Monghan would receive nearly $30,000 per month over the next several years from an annuity. While the parties agreed on the amount that Nuss was entitled to recover from the third party settlement funds, there was a disagreement as to the matter in which Nuss’ interest would be satisfied. The Trial Court initially ruled that Nuss was entitled to a lump sum payment of approximately $350,000 and that the remaining balance of more than $1 million would be paid in monthly installments of approximately $15,000 per month. However, Nuss contended that it was entitled to recover the full amount of its lien before the estate could collect any funds from the settlement. The Court of Civil Appeals agreed and stated that Nuss was entitled to recover all of the currently available funds and that it also had priority as to funds that become available in the future through the annuity payments. The Court noted that §25-5-11 (a) of The Alabama Workers’ Compensation Act works to relieve an employer of the financial burden of a work related injury when there is a culpable third party to shift the burden to, and that it also prevents double recovery for the same injury by the employee. As such, the Court held that denying immediate recovery to Nuss would be a contravention of §25-5-11 (a). However, the Court ruled that Nuss could not force Monghan’s estate to liquidate the annuity so that Nuss could make an immediate and full recovery.