Texas SC reverses settlement arrangement that cut out insurer, minor child

Steve Korris Apr. 9, 2008, 3:00pm

Justice Scott Brister

AUSTIN – The Texas Supreme Court ruled recently that a $4.5 million settlement in a workers' compensation claim not only cut an insurer carrier out of its rightful share, but cut out the interests of a minor involved in the case.

On April 4, the court unanimously reversed Jones County District Judge Brooks Hegler and the 11th District appellate court in Eastland.

"For decades, Texas law has required the first money recovered by an injured worker from a tortfeasor to go to the workers' compensation carrier, and until the carrier 'is paid in full the employee or his representatives have no right to any funds,'" Justice Scott Brister wrote. "In this case, a $4.5 million settlement was structured so the plaintiffs and their attorney got all the funds and the compensation carrier got nothing. The plaintiffs argue this result is harmless because the carrier can sue the defendants (they do not volunteer themselves) to get the money back. That might give the carrier second or third money, but not first money. As the statute guarantees the carrier first money, we reverse."

The case involved Paula Ledbetter, whose husband, Charles Ledbetter, died of electrocution in 2003. Texas Mutual, workers' compensation carrier for his employer, paid $6,000 in funeral expenses and began paying Paula Ledbetter and her minor son $1,258 a month.

Paula Ledbetter sued two companies in 2004, claiming they caused her husband's death. She sued for his estate, herself, her son and two adult daughters.

The case quickly settled, at $4.5 million.

The Supreme Court found that the settlement arrangement kept Texas Mutual from getting the funds to which it was entitled.

"Perhaps even more troubling than what happened to the carrier in this case is what happened to the minor," Justice Brister wrote.

Ledbetter's attorney, Burt Burnett of Abilene, nonsuited the child's claims although attorney ad litem William Lowe Burke III of Abilene represented the child.

That was not Burnett's motion to make, Brister wrote.

"The only reason judges appoint ad litems and approve minor settlements is because a minor's interests may conflict with those of other family members or their attorneys," he wrote.

"The record here makes no mention of recovery for the minor; it is possible this was disclosed and discussed off the record, but of course the primary reason for holding settlement hearings is to create such a record," he wrote.

"On this record," he wrote, "one simply cannot tell whether the trial court or the ad litem discharged their duties to make sure this minor was protected."

"As the settlement involved a minor, the trial court had to approve it," Brister wrote.

Texas Mutual attorneys, staring at a big zero on the settlement sheet, moved to intervene and petitioned Hegler for subrogation of past and future benefit payments.

Texas Mutual had paid about $30,000.

At a hearing, Burnett nonsuited all claims except those of the dead man's estate.

Texas Mutual attorneys protested that nonsuiting would subvert their subrogation rights, but Hegler granted the nonsuit.

The insurer asked what the estate would do with the money and whether the Ledbetters had other income, but Burnett objected and Hegler sustained the objection.

Hegler struck Texas Mutual's motion to intervene but declared the insurer a party anyway and ordered it to continue making monthly payments to Ledbetter.

Burnett told Hegler that the estate would receive $2,388,545.40 for Charles Ledbetter's pain and suffering. Burnett said he would receive a fee of $2,063,912.60.

That left an ad litem fee of $47,542 for Burke, and nothing for Paula Ledbetter, her son, or Texas Mutual.

"Ledbetter died intestate," Brister wrote, "so his widow was entitled to one third of the estate and his children to the remainder."

He wrote, "But there was no evidence regarding expenses or expected distributions from Ledbetter's estate, or any testimony regarding how this settlement benefited the minor."

He wrote, "Nor did the plaintiffs' attorney explain how the minor was to be protected, instead focusing his questions on protecting himself."

At the 11th District, appellate judges agreed with Texas Mutual that Hegler should have granted intervention and that the estate shouldn't collect everything.

On the other hand, they declined the insurer's petition to set aside the nonsuit and reinstate Paula Ledbetter and her son as parties.

Both sides appealed, and Texas Mutual prevailed.

"The law governing this settlement is simple," Brister wrote. "The compensation carrier gets the first money a worker receives from a tortfeasor."

He wrote, "First money reimbursement is crucial to the workers' compensation system because it reduces costs for carriers (and thus employers, and thus the public) and prevents double recovery by workers."

He wrote, "There is nothing discretionary about this statute; a carrier's right to reimbursement is mandatory."

He wrote, "The intervention would not have delayed the settlement a moment had the plaintiffs honestly admitted the benefits they got and agreed to the carrier's right to first money as Texas law requires."

He wrote, "By statute, a carrier is entitled to first money, and that right is gone forever if the money goes first to someone else."

On remand, he wrote, Hegler "must ensure not only that the carrier gets first money, but that the minor's interests are protected in the resulting allocation."

He wrote, "Given the limited size of the carrier's subrogation claim and the large size of the settlement, we are confident the trial court can protect both the carrier's and the minor's interests without undoing the settlement and starting the litigation from scratch."

More News