Brown v. Leighton , 385 Mass. 757 ( 1982 )

Lynch, J.

On April 4, 1975, while in the course of his employment as a taxicab driver for the defendant, the plaintiff was injured when the taxicab he was driving was struck from the rear by a vehicle owned by Ray’s Auto Supply, Inc., and operated by Edward F. Graham. After learning that his employer was not insured, as required by the Workmen’s Compensation Act (Act), G. L. c. 152, the plaintiff instituted the instant action against his employer with the advantages afforded by G. L. c. 152, § 66. The plaintiff then filed a separate action against the allegedly negligent third party, Edward F. Graham. Following a judgment against the third party awarding the plaintiff $8,000, plus interest and costs, the plaintiff accepted $9,000 from the third party as a settlement of the judgment. The instant action was tried to a jury on the issue of damages alone, the employer having conceded liability, and the jury returned a verdict in favor of the plaintiff in the amount of $10,000. At the trial, counsel agreed that whether the defendant was entitled to credit toward any verdict to the extent of the plaintiff’s recovery against the third party was a question of law to be decided by the judge. Following the verdict, the judge concluded that the employer should be credited with the amount of the plaintiff’s recovery against the third party and ordered entry of a judgment in the amount of $1,000, plus interest and costs. The plaintiff appealed and we transferred the case on our own motion.

The sole issue on appeal is whether the trial judge erred in permitting the uninsured employer to be credited with the amount the plaintiff recovered from the negligent third party. We conclude, for the reasons that follow, that it was error under the circumstances of this case to allow the uninsured employer to be, in effect, subrogated to the rights of the employee against the negligent third party. In reaching this conclusion, we review various provisions of the Workmen’s Compensation Act in light of the purposes of the Act as a whole as well as the nature of subrogation.¹

We note at the outset that G. L. c. 152 is silent on the precise question presented here. It is helpful, however, to review those circumstances under which subrogation rights for the insurer are provided by the Act. At the time of the plaintiff’s injury, § 15 of G. L. c. 152, as appearing in St. 1971, c. 888, § 1, provided in part, “Where the injury for which compensation is payable was caused under circumstances creating a legal liability in some person other than the insured to pay damages in respect thereof, the employee shall be entitled, without election, to the compensation and other benefits provided under this chapter. Either the employee or insurer may proceed to enforce the liability of such person, but the insurer may not do so unless compensation has been claimed or paid under an agreement. The sum recovered shall be for the benefit of the insurer, unless such sum is greater than that paid by it to the employee, in which event the excess shall be retained by or paid to the employee.” As stated in Furlong v. Cronan, 305 Mass. 464, 467 (1940), one of the purposes of § 15 is, “to preserve the cause of action [against the third party] for the benefit of the insurer.” In Furlong, we held that although an insurer may bring a third party action after compensation has been claimed, but before it has been paid, an insurer must await actual compensation payment before it may continue to prosecute the third party action. Id. at 469. See Capozzi’s Case, 4 Mass. App. Ct. 342, 346-347 (1976). Section 15 clearly makes payment of compensation a condition precedent of any direct recovery by the insurer against a third party or any right to reimbursement for compensation paid from a recovery by the employee against a third party. An employer’s right to be subrogated to the rights or recovery of an employee, then, arises only by virtue of the statute, and the purpose of that right is to “give the employer so much of the negligence recovery as is necessary to reimburse him for his compensation outlay.” Richard v. Arsenault, 349 Mass. 521, 524 (1965).

The employer in the instant action did not avail itself of insurance with a private insurer or attempt to qualify as a self-insurer as required by G. L. c. 152, § 25A. No claim to compensation nor payment to the plaintiff was made. Resolving whether the employer should nonetheless be entitled to subrogation under these circumstances requires some consideration of the nature of subrogation and the requirements of the Workmen’s Compensation Act.

The origin and nature of the doctrine of subrogation lies in equity, and the principles of that jurisprudence govern its application. Amory v. Lowell, 1 Allen 504, 507 (1861). See Travelers Ins. Co. v. Graye, 358 Mass. 238 (1970). “The doctrine of subrogation, which rests ‘upon natural justice and equity’ (Amory v. Lowell, 1 Allen 504, 507 [1861]), is not to be applied if the result is injury or prejudice to the person whose rights are sought to be used by another.” Hill v. Wiley, 295 Mass. 396, 403 (1936). The object of subrogation is to prevent injustice and one who seeks equity must do equity. See New England Merchants Nat'l Bank v. Kahn, 363 Mass. 425, 428 (1973).

With these principles in mind, we examine the employer’s conduct in failing to insure himself, and the purposes of the Workmen’s Compensation Act. The Workmen’s Compensation Act has been compulsory for most employers since 1943 and there is no question that the Act was compulsory for the instant employer. As we recently noted in LaClair v. Silberline Mfg. Co., 379 Mass. 21 (1979), failure to insure through a private insurer or to qualify as a self-insurer as required by G. L. c. 152, § 25A, carries with it severe penalties. Where an employer refuses to comply with the statutory mandate, it may be held liable in an action for tort damages without regard to its negligence or other fault. In addition, the common law defenses of fellow servant, assumption of the risk, and contributory negligence are inapplicable if the employee’s injury arises in the course of employment. G. L. c. 152, § § 66 and 67. LaClair v. Silberline Mfg. Co., supra. Barrett v. Transformer Serv., Inc., 374 Mass. 704 (1978). Criminal penalties for noncompliance with the Act’s mandate are provided by G. L. c. 152, § 25C. A fine of not more than $500 and imprisonment of not more than one year may be imposed on the employer who fails to provide the required coverage. A president or treasurer, or both, of an employer corporation may be held personally liable to this criminal punishment.

As we noted further in our LaClair decision, these statutory provisions reveal that “the Workmen’s Compensation Act is a humanitarian measure designed to provide adequate financial protection to the victims of industrial accidents. There can be little doubt that without the benefits provided by the statute, as enforced through compulsory insurance, many injured employees and their families would be forced to shoulder by themselves large portions of the costs of job-related accidents” (citations omitted). Id. at 27. It is manifest that the legislative design in enacting the Act and in making its provisions compulsory on almost all employers was to promote its use throughout the Commonwealth. This court recognized the underlying purpose in Young v. Duncan, 218 Mass. 346, 349 (1914), and reiterated it as recently as our decisions in Ferriter v. Daniel O’Connell’s Sons, 381 Mass. 507 (1980), LaClair v. Silberline Mfg. Co., supra, and Barrett v. Transformer Serv., Inc., supra.

Where the employer is insured the Legislature has clearly provided for the division of the proceeds of third-party actions between employee and employer. G. L. c. 152, § 15. Nowhere in the statute, however, is there even a suggestion that an employer who neglects or refuses to follow the statutory mandate should be afforded the same right to share in the recovery against negligent third parties. That the statute makes it mandatory for most employers to provide insurance coverage in order that financial assistance is readily and speedily available to their injured employees strongly suggests the contrary.

Were we to permit an uninsured employer such as the defendant to reap the benefits of subrogation under the circumstances of this case, we would be rewarding him for his illegal conduct; we would also be promoting the defeat of a strong and enduring legislative program to provide the employee and the employee’s family with the “right to be insured against the grievous financial impact that may result from injury in the workplace.” LaClair v. Silberline Mfg. Co., supra at 27.

In reaching our decision, we note that other jurisdictions have concluded similarly in analogous circumstances. In Baio v. Commercial Union Ins. Co., 410 A.2d 502 (Del. 1979), the Supreme Court of Delaware denied subrogation rights to an insurer who sought to be reimbursed under a statutory provision similar to G. L. c. 152, § 15, for its payment of compensation to an employee after the employee recovered against one of the third parties he had sued. The insurer originally had joined the employee as a plaintiff in the third-party action. After entry of the action, the insurer discovered that it had a tort liability contract of insurance with one of the third-party defendants; thereafter it represented its insured and judgment was entered for the defendant whom it represented. The insurer vigorously defended the suit. The court concluded that although the insurer had a statutory right of subrogation to recover the amounts paid or payable under the Delaware compensation act, when the insurer had a conflict of interest such as the one there presented, its conduct, and its right of recovery were governed by equitable principles. The court noted the insurer’s vigorous defense in the third-party action and denied the insurer its statutory right to subrogation. See Arendas v. Rich & Co., 220 F. Supp. 957 (W.D. Pa. 1963).

Similarly, in State ex rel. Woods v. Hughes Oil Co., 58 N.D. 581 (1929), the court denied an uninsured employer reimbursement and subrogation rights after the employee recovered against a negligent third party. Moreover, as the North Dakota compensation act then read, it required the employer to pay compensation as a penalty for failure to comply with the insurance provisions of the Act. In so concluding, the court noted that the Compensation Act considers an employer who fails to obtain insurance “to be a wrongdoer, and properly subject to penalties rather than one to be favored and accorded the benefit of the doctrine of subrogation.” Id. at 600.

We recognize that, to some extent, our ruling allows the employee a double recovery. We observe, however, that the plaintiff was injured in April, 1975. Three and one-half years later he recovered against the negligent third party. The plaintiff, nearly seven years after his injury, has yet to reap the fruits of his right to sue his uninsured employer. We note, in this regard, that one aim of the Workmen’s Compensation Act is that there be speedy payment of the amount due an injured employee. Ahmed’s Case, 278 Mass. 180, 187 (1932). Payments under the Act were meant to provide financial relief for the injured employee’s inability to earn wages or for the deprivation of support flowing from wages the employee had previously received. G. L. c. 152, § 35. See Devine’s Case, 236 Mass. 588, 593 (1921); Duart v. Simmons, 231 Mass. 313, 319 (1918). To the extent that the plaintiff forfeited these and other privileges he may have had under the Act, his recovery cannot be represented fairly as a double one. If there be a remaining element of double recovery, in our view, the Act so provides. The Act creates a right of action for an employee against an uninsured employer to recover for injuries occurring during the course of employment regardless of fault. G. L. c. 152, § 66. The mere fortuity that the plaintiff was able to recover from a negligent third party in an action brought wholly at the employee’s risk and expense and in an action which the employer could not institute itself, or force the employee to institute, should not enure to the employer’s benefit. We note in this regard that the Act itself provides for the doubling of compensation where the employer is seriously at fault. G. L. c. 152, § 28. See Boardmans Case, 365 Mass. 185 (1974).

We order that the judgment be set aside and a new judgment be entered in favor of the plaintiff, in the amount of $10,000, plus interest and costs.

So ordered.

1 We recognize, as the dissent aptly reminds us, that, technically, the defendant does not seek to be subrogated to the rights of the plaintiff against the negligent third party. The defendant does not, however, seek contribution as a joint tort-feasor, as the dissent’s analysis assumes by analogy. The only distinction between the instant case and one involving subrogation in its true form is that here the plaintiff, by fortuity, has already exercised his rights against the third party and the defendant seeks the benefit of the fruits of the plaintiff’s efforts. In the context of this case, this is a distinction that affects neither the rights of the parties nor the merits of the subrogation analysis. To give weight to such a distinction ignores the central fact of this case, namely, that the employer is uninsured.