Wausau Contractors

Not overruled or negatively treated on appealinfoCoverage
Michigan Court of AppealsJan 5, 1982
112 Mich. App. 130 (Mich. Ct. App. 1982)
112 Mich. App. 130316 N.W.2d 231

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Docket Nos. 50045, 56026.

Decided January 5, 1982. Leave to appeal applied for.

Wisti Jaaskelainen (by Michael E. Makinen), for Donald J. Treadeau and Rose Treadeau.

Corcoran Ingleson, P.C. (by Guy W. Lewinski), for Great American Insurance Companies.

Before: N.J. KAUFMAN, P.J., and J.H. GILLIS and CYNAR, JJ.


Plaintiffs appeal the trial court's grant of intervening plaintiff's motion for allocation of proceeds from a settlement effected between plaintiffs and defendants and the trial court's apportionment of the proceeds between the plaintiffs and the intervening plaintiff. Intervening plaintiff appeals the same order. Both appeal as of right, and the cases have been consolidated on appeal. We affirm.

Donald J. Treadeau was injured in the course of his employment, and Great American Insurance Companies, the workers' compensation insurance carrier, paid $17,439.50 for weekly compensation benefits and medical expenses.

Plaintiff Donald J. Treadeau filed a third-party tort action against the defendants for injuries received in the course of his employment, and his wife, plaintiff Rose Treadeau, filed a cause of action for loss of consortium. After the lawsuit was instituted, Great American intervened in the cause of action pursuant to the workers' compensation statute, MCL 418.827; MSA 17.237(827), and was a silent party plaintiff represented by counsel.

Donald and Rose Treadeau are hereinafter referred to as plaintiffs and Great American Insurance Companies is hereinafter referred to as intervening plaintiff.

Trial of this case commenced on October 29, 1979. There is an indication that counsel for plaintiffs and counsel for defendants reached a tentative agreement to settle the rights of all parties for the sum of $25,000; however, the plaintiffs and intervening plaintiff were unable to arrive at settlement conditions agreeable to both.

On the third day of trial, the plaintiffs entered into a settlement agreement with all defendants settling this matter for the amount of $18,000. As part of the settlement, which was placed on the record, the trial court advised intervening plaintiff that it had until November 2, 1979, to advise the court whether it was going to proceed as the active plaintiff for the remainder of the trial. The other alternative given to the intervening plaintiff was not to proceed to trial and to seek reimbursement out of the $18,000 settlement and thereafter the case would be dismissed as to all defendants.

Intervening plaintiff made the decision to seek reimbursement of its workers' compensation lien from the $18,000 settlement between plaintiffs and defendants.

On or about November 3, 1979, intervening plaintiff filed a motion to allocate settlement proceeds, which motion was heard on February 1, 1980. On February 11, 1980, the trial judge entered an order providing that the intervening plaintiff was entitled to seek reimbursement from the proceeds of settlement between the plaintiffs and defendants for compensation benefits paid to plaintiff Donald J. Treadeau. Further, the order provided that intervening plaintiff's motion for allocation of its share of the proceeds of settlement was granted and that same shall be determined in accordance with Franges v General Motors Corp, 404 Mich. 590; 274 N.W.2d 392 (1979), however, with said determination being held in abeyance pending appellate disposition of that order.

It also should be noted that at the oral argument on the motion for allocation counsel for intervening plaintiff strongly objected to the offer of testimony by Mr. Charles R. Goodman, the trial attorney for the plaintiffs, concerning settlement negotiations between the respective parties and their counsel.

Thereafter, counsel for plaintiffs filed a claim of appeal dated February 25, 1980, from the trial court order regarding the motion for allocation entered on February 11, 1980. The claim of appeal was denied because the order was determined not to be a final order of the trial court.

On or about July 3, 1980, counsel for the intervening plaintiff filed a motion for allocation of settlement proceeds under Franges. The motion was argued on November 7, 1980. At this hearing, the trial court indicated that the matter should be renoticed for hearing and that the respective parties should present testimony in support of their positions and file whatever other pleadings they deem necessary in assistance to the court.

Thereafter, the motion for allocation of settlement proceeds was reheard by the court on December 19, 1980. At that time, the plaintiffs presented no additional testimony in support of their position. After hearing the arguments of respective counsel, the court, on January 19, 1981, entered its order apportioning the settlement proceeds according to the formula of distribution pursuant to Manninen v Warner Swasey Co, 80 Mich. App. 253; 263 N.W.2d 341 (1977). Thus, the order of apportionment was entered finding a balance payable to Rose Treadeau in the amount of $3,828.97 (after subtraction of the cost of disbursement and a one-third attorney fee) and a balance payable to Great American Insurance Companies of $5,743.29.

Intervening plaintiff is entitled to seek reimbursement out of the settlement between plaintiff Donald Treadeau and defendants under applicable Michigan case law construing the provisions of MCL 418.827; MSA 17.237(827). Intervening plaintiff may enforce its claim to recover workers' compensation benefits paid to the injured employee, although monies paid to plaintiff wife for loss of consortium are exempt.

In Franges, the Supreme Court adopted the pari passu approach whereby the employer or insurer under workers' compensation pay their share of the recovery costs as they receive the benefit of the plaintiff's recovery from a third-party tortfeasor. In Franges, the Court set forth the procedure to be followed in Michigan suits against third-party tortfeasors under § 827 of the Worker's Disability Compensation Act of 1969, MCL 418.827; MSA 17.237(827) (hereinafter § 827).

Plaintiffs contend that because the intervening plaintiff did not attempt to settle its interest with defendants, such action amounted to lack of good faith and should deprive intervening plaintiff of its right to reimbursement under § 827. According to Arnett v General Motors Corp, 22 Mich. App. 658, 663; 177 N.W.2d 704 (1970), the party paying the benefit is entitled to reimbursement from any recovery against the third party. See also Gamble v American Asbestos Products Co, 381 Mich. 105; 159 N.W.2d 839 (1968), and Transamerican Freight Lines, Inc v Quimby, 381 Mich. 149; 160 N.W.2d 865 (1968). The intervening plaintiff has the right to reimbursement from third-party tortfeasors for plaintiff's economic loss as well as for plaintiff Donald Treadeau's pain and suffering. Pelkey v Elsea Realty Investment Co, 394 Mich. 485; 232 N.W.2d 154 (1975).

The plaintiffs argue, assuming intervening plaintiff may assert an interest in plaintiff Donald J. Treadeau's settlement, such interest is limited to a setoff for future compensation benefits. We do not agree. The intervening plaintiff, as the workers' compensation carrier, is entitled to reimbursement for benefits paid and to a credit against future payments. Under Franges, supra, 619-622, the formula for apportionment of the third-party recovery allows the insurer to be reimbursed for both compensation previously paid and to a future credit computed from the dollar amount actually received by the employee.

Both parties maintain that the court erred in apportioning the plaintiffs' shares of the settlement. The plaintiffs argue that the court improperly reduced plaintiff Rose Treadeau's share of the settlement from 45 percent to 40 percent. The intervening plaintiff argues that the trial court abused its discretion in finding that the plaintiff wife was entitled to 40 percent of the settlement and failed to apply the Franges formula.

In Michigan, an insurance carrier may not reach any portion of a wife's recovery for loss of consortium. Lone v Esco Elevators, Inc, 78 Mich. App. 97, 107-108; 259 N.W.2d 869 (1977).

The trial court relied on Manninen, supra, 256, which holds:

"It is unnecessary to further reiterate the case law and reasoning cited in [Schalk v Michigan Sewer Construction Co, 62 Mich. App. 658; 233 N.W.2d 825 (1975)]. However, we note that Schalk was silent as to the method of determining a plaintiff spouse's share in either the recovery or expenses of recovery. Accordingly, the trial court should first have determined what portion of the total settlement, including a pro rata share of the costs of recovery, represented the interest of plaintiff, June Manninen, and deducted that amount. The court should then determine the reasonable costs of recovery including the attorney's fees expended by defendant, Employers Mutual, to the extent its attorney contributed to obtaining the recovery, as well as the expenses incurred by plaintiffs in reaching the settlement, and deducted that amount."

Intervening plaintiff cites footnote 7 from Lone, supra, 108:

"There is a danger that attorneys or sympathetic juries will allocate a disproportionate amount of recoveries to the spouse's loss of consortium damages. Trial courts and the Workmen's Compensation Bureau should be alert to this possibility and take appropriate actions to prevent it."

It appears that the trial court recognized the problem in the case before us. Allowing the parties to apportion the settlement as they deemed fit could permit plaintiffs to circumvent the reimbursement rights of employers and their insurance carriers. The trial court acted within its discretion in computing the apportionment percentage between plaintiffs.

A problem remains as to the correctness of the formula used by the court. In its January 16, 1981, order of apportionment of settlement proceeds, the court first determined that the intervening plaintiff expended no costs, attorney fees, nor contributed in any way to the recovery. The court's order, in pertinent part, reads as follows:

"As the applicability of the Franges' formula (Franges v General Motors Corp, 404 Mich. 590 [ 274 N.W.2d 392 (1979)]) is not clear to this Court, its ambiguity being evidenced by the inapposite proposed apportionment submitted by the respective parties, the Court adopts the formula of distribution pursuant to Manninen v Warner Swasey Co Employers Mutual Ins Co of Wausau, 80 Mich. App. 253 [ 263 N.W.2d 341 (1977)].

"Accordingly, an order of apportionment is hereby entered as follows:


Amount of settlement awarded to Rose Treadeau $7,200.00

40% of costs disbursements ($3,641.76) $1,456.70 _________ BALANCE $5,743.30

Less one-third attorney fee $1,914.43 Balance payable to Rose Treadeau $3,828.87


Amount of settlement awarded to Donald J. Treadeau $10,800.00

60% of costs disbursements ($3,641.76) $2,185.06 _________ BALANCE $8,614.94

Less one-third attorney fee $2,871.65

Balance payable to Great American Insurance Co. for compensation benefits received by Donald J. Treadeau" $5,743.29

The trial court's apportionment plan does not appear to conform with the formula of Franges, supra, 619, in that it does not break down the costs of recovery into an apportionment percentage. In this case, the amount of settlement awarded to Donald J. Treadeau was less than the amount of the compensation benefits paid by the intervening plaintiff. The total cost of recovery was divided according to the amount of settlement awarded to the respective parties. Each party was charged a one-third attorney fee. The trial court did not abuse its discretion in finding either that Rose Treadeau was entitled to an amount equal to 40 percent of the gross recovery or in the formula it used to apportion the settlement proceeds.

Plaintiffs' claim that intervening plaintiff has waived its right to reimbursement is without merit because, under § 827 and under case law cited on the first issue herein, an intervening plaintiff has the option of either suing a third-party defendant or demanding reimbursement from a plaintiff following a recovery from the third-party defendant.

Any conversations, discussions, or conduct concerning the offer of compromise and settlement were inadmissible. Such evidence should have been excluded by the trial court.

Under MRE 408, such evidence was inadmissible. Rule 408, insofar as applicable herein, reads as follows:

"Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or settlements made in compromise negotiations is likewise not admissible. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is presented in the course of compromise negotiations. This rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution." (Emphasis added.)

While such evidence was inadmissible, intervening plaintiff fails to show any prejudice in the admission of this evidence. Under GCR 1963, 529.1, admission of such evidence was harmless; therefore reversal is not required.

In the last issue, plaintiffs argue that the reimbursement provision under § 827 violates due process and equal protection laws. It is alleged that the statute arbitrarily chooses between compensation carriers and employees and, as interpreted by the trial court, places the compensation carrier in a position of superiority over the employee. We do not agree.

The Supreme Court in Pelkey found MCL 418.827; MSA 17.237(827) to be constitutional in that the right to reimbursement is justified by abrogation of the former election of remedies requirement. The Court held as applicable herein the following:

"Plaintiff states that the Legislature acted arbitrarily when it permitted insurers to reach an employee's recovery for pain and suffering and, therefore, she is being denied her right to substantive due process of laws, US Const, Am XIV, Const 1963, art 1, § 17, and the equal protection of the laws, US Const, Am XIV, Const 1963, art 1, § 2.

"We do not find the Legislature acted arbitrarily. Prior to 1952 PA 155 which amended MCL 413.15; MSA 17.189, an injured employee had to elect to pursue his common-law remedy against the third party or pursue his workmen's compensation remedy. Albert A Albrecht Co v Whithead Kales Iron Works, 200 Mich. 109; 166 N.W. 855 (1918)." Id., 492-493.

In interpreting subsection 8, MCL 418.827(8); MSA 17.237(827)(8), which grants carriers immunity from liability arising out of safety inspection activities, was not deemed by this Court to be violative of public policy or discriminatory in violation of equal protection in view of the Legislature's determination to the contrary as found in Garrett v International Ins Co, 68 Mich. App. 418, 420-421; 242 N.W.2d 798 (1976). This Court ruled that the grant of immunity was based on the public policy of encouraging safety inspections. Similarly, it is apparent that the Legislature granted employers and their insurance carriers the right to be reimbursed to avoid an unjust enrichment or "double-dipping" on the part of an employee who otherwise would be able to collect both workers' compensation benefits from his employer and his employer's carrier in addition to collecting a judgment from the third-party tortfeasor.

We affirm.