Insurer's Subrogation Lien on Employee's Recovery under Jones Act

Insurer's Subrogation Lien on Employee's Recovery under Jones Act

By: Angela Gennaro

Edited by: Tiffany Morales

Chenevert v. Travelers Indem. Co., 746 F.3d 581, 584 (5th Cir. 2014).

The Fifth Circuit recently considered whether an insurer, who makes Longshore and Harbor Workers’ Compensation Act (“LHWCA”) payments to an injured employee on behalf of an employer, is entitled to recover those payments from the employee's settlement of a Jones Act claim against the employer based on the same injuries for which the insurer has already compensated him.In May 2007, Gary Chenevert was working as a crane operator for GC Constructors (“GC”) when he fell and sustained serious injury. Travelers Indemnity Company (“Travelers”) provided coverage to GC for its workers' compensation exposure to injured longshore and harbor workers and thus paid Chenevert $277,728 in indemnity and medical benefits under the LHWCA between May 2007 and May 2010. In May 2010, Chenevert sued GC in federal court, alleging that he was working as a seaman at the time of his accident and seeking damages under the Jones Act for GC's negligence. Based on Chenevert's claim that he was a “seaman” (rather than a “longshoreman”), Travelers stopped making payments. A few months later, in November 2010, GC filed a notice of lien claiming that, in the event judgment is rendered in favor of Chenevert on his Jones Act claim, GC “has a lien against any funds due and payable to Travelers Insurance Company who is the insurer under the U.S. Longshore and Harbor Workers' Compensation Act.”Days after GC and Chenevert reached a settlement, Travelers filed a motion to intervene. GC notified the district court of the settlement agreement and requested that $277,728 of the settlement funds be deposited into the court's registry pending the outcome of the dispute between Chenevert and Travelers. Denying Travelers’ motion to intervene, the district court held that Travelers’ interests in the litigation had been adequately represented by GC and that it had no right of subrogation as to the settlement proceeds.On appeal, the Fifth Circuit ruled for Travelers holding that an insurer who makes LHWCA payments to an employee on behalf of the employer acquires a subrogation lien on any recovery by the employee in a Jones Act suit based on the injuries for which the insurer has already compensated him.In its reasoning, the court noted that 33 U.S.C. § 905 allows a worker to obtain a tort recovery from a third party based on injuries for which he has already been compensated by his employer under the LHWCA. The court noted that courts “have uniformly held ... that an employer has a subrogation right to be reimbursed from the worker's net recovery from a third party for the full amount of compensation benefits already paid.” The court noted the insurer has an even stronger equitable claim to repayment from a Jones Act recovery than a § 905 recovery because a worker who succeeds in a Jones Act claim is necessarily a seaman, and therefore not even entitled to LHWCA benefits. The court said Travelers’ is subrogated to GC’s right of reimbursement because Travelers paid out LHWCA benefits on behalf of GC. In doing so, “Travelers acquired a repayment lien that is independent of, and cannot be nullified by, GC. If this were not so, an employer and employee could easily settle around the insurer's lien and prevent any possibility of recovery by the insurer.”The Fifth Circuit therefore granted Travelers’ motion to intervene for the purpose of collecting the $277,728 in the court’s registry.