A new twist on Kansas Workers' Compensation Subrogation: Rumbaugh v. Direct TV

Subrogation in workers’ compensation can be tricky, and that’s especially true in Kansas.   The employee's fault, loss of consortium claims, and policy limits all impact the claimant's recovery and the employer/insurer's reimbursement and credit. A recent case from the Kansas Court of Appeals adds a new factor to the equation: What happens when the third-party claim is for damages related to but not completely duplicative of the benefits paid in the workers' compensation claim?

Justin Rumbaugh was employed by Direct TV when he suffered an admittedly compensable back injury on April 30, 2014.  In October of 2014, he had surgery at two levels in his lower back, and after a rehabilitation period reached maximum medical improvement in February of 2016.  Two months later, Rumbaugh left Direct TV for another employer. 

On October 2, 2016, Rumbaugh presented to an emergency room complaining of problems with urinary retention.  The ER physician attributed his symptoms to his prostate medications and he was released from care.  He returned three days later with the same urinary retention problem but with new symptoms of leg weakness.  This time, he was properly diagnosed with cauda equina syndrome and was referred to a neurosurgeon.  He had decompression surgery the next day.  A treating doctor concluded that the cauda equina syndrome was causally related to his original injury. 

On April 17, 2018, Rumbaugh settled his workers’ compensation claim.  The settlement was full and final as to indemnity, but future medical was left open pending a potential Medicare set-aside.  Sometime later, Rumbaugh filed a lawsuit against the medical provider, alleging that the delay in accurately diagnosing the cauda equina syndrome left him with permanent ongoing urological problems.  Notably -- at least according to the plaintiff's medical malpractice attorney -- the lawsuit did not claim that the claimant's underlying back problems or the cauda equina syndrome itself were at issue.

In March of 2020, Rumbaugh’s medical malpractice counsel attempted to reach counsel for the employer/insurer in the workers’ compensation claim to advise of the law suit, but that communication went unanswered.  On April 6, the attorney sent a letter to the defense attorney, advising of a potential settlement and setting forth his calculations for the lien recovery.  This letter apparently went unanswered as well.  The case settled at mediation on April 14, 2020, and on April 27, 2020, the medical malpractice attorney sent a letter with a check in the amount of the previously calculated recovery to the defense attorney.  The insurer cashed the check.  Notably, that letter included the following language:

Pursuant to in my April 2, 2020, email, I have enclosed a check for $37,129.23 in relation to your client, American Zurich Insurance Company's, subrogation interests. This check is meant to serve as a full accord and satisfaction as to any subrogation interests, future setoffs/credits, and/or lien interests American Zurich Insurance Company and/or Gallagher Bassett have or claim to have in Mr. Rumbaugh's third-party liability settlement. Should you have any questions or concerns, please do not hesitate to contact me. If I have not heard from you otherwise, I will presume this matter is closed.

(Emphasis added). 

In 2021, the claimant filed the first of several applications for post-award medical treatment.  Ultimately, after both sides obtained expert opinions, a post-award medical hearing was held on March 9, 2023.  Although causation of the cauda equina syndrome was at issue, the major issue was the impact of the third party settlement.  Specifically, the claimant asked the court to find the “accord and satisfaction” language in the April 27, 2020 letter to the employer/insurer’s attorney precluded the respondent from asserting a credit against any benefits owed.  The respondent, on the other hand, asked the court to find that the entire third party settlement was a credit against potential benefits.

The ALJ held that the cauda equina syndrome was the natural and probable consequence of the original injury, but found that the malpractice likely made the condition worse and irreversible.   As such, the entire third party settlement had to be extinguished before the respondents were liable for any additional medical benefits. As to the claimant's argument that the Accord and Satisfaction language precluded the respondent from raising the credit argument, the ALJ found that the issue was premature, as there were no medical bills presented for payment. The Board affirmed, and Rumbaugh appealed.

The Appellate Court reversed the ALJ and the Board's finding that the entire third-party settlement had to be extinguished before the respondent was liable for additional benefits. The Court apparently relied heavily on statements from the medical malpractice counsel that "the settlement award covered only the urological symptoms due to a delay in proper diagnosis and treatment, but not medical treatment related to Rumbaugh's back pain." It found that the Board failed to consider whether the settlement was duplicative of the workers' compensation Award, relying on Wissman v. Cossman, 991 P.2d 415, a Kansas Supreme Court decision. Wissman held that a third-party settlement based in part on lost wages that were not paid by workers' compensation was non-duplicative, and thus, not subject to the subrogation lien.

The Court of Appeals remanded the case back to the Board to determine whether the third-party settlement "includes damages for treatment of Rumbaugh's injury or condition for which he also received a workers compensation award." As to the Accord & Satisfaction claim, the Court of Appeals agreed with the Board that it was untimely. For some reason, neither the ALJ, the Board, or the Court of Appeals addressed whether the Accord & Satisfaction language applied to the credit, but it appears they all concluded it did not.

On the defense side, practitioners should encourage their clients to take a more active role in subrogation, particularly when it becomes apparent the issues may impact the lien recovery. K.S.A. 44-504(b) allows for intervention by the employer/insurer as a matter of right, and this is one way to prevent settlements from being crafted to avoid a lien. From the claimant's side, attorneys should evaluate their third-party/workers' compensation cases carefully to ensure that only duplicative benefits are subject to the lien. Finally, and even though it appears the courts at all levels punted on that issue in this case, the use of Accord & Satisfaction should not be ignored by either side.

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