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Nevada Supreme Court Changes Subrogation Lien Laws
The Nevada Supreme Court’s ruling on September 19th in AmTrust North America, Inc. v. Vasquez, 140 Nev. Adv. Op. 61 (Sept. 19, 2024) significantly changed subrogation lien law. In the article below, Lisa Wiltshire Alstead, our lead workers’ compensation attorney, explains why this change is beneficial to insurers, employers, and TPAs.
Table of Contents
- Old Case Law
- New Case Law
- What does this mean?
- What can we expect going forward?
I. OLD CASE LAW
Prior to Vasquez, the Breen and Poremba cases were the controlling Nevada authorities on determining the amount an insurer is entitled to recover on its lien under NRS 616C.215(5) against the total proceeds of an injured worker’s recovery from a third-party tortfeasor who caused a compensable injury. (Breen v. Caesars Palace, 102 Nev. 79, 715 P.2d 1070 (1986); Poremba v. S. Nev. Paving, 133 Nev. 12, 388 P.3d 232 (2017)). This most commonly occurs in situations where an employee, while in the course and scope of employment, is driving a company vehicle or their own vehicle and gets into a car accident. The third-party that caused the accident, rather than the employer, is ultimately liable for the accident and resulting injuries. The injured worker typically files a personal injury lawsuit against the third-party tortfeasor and settles the personal injury claim or receives a judgment at trial. Once that occurs, under NRS 616C.215(5), the insurer/employer has a lien on the total settlement/judgment in the full amount paid out in workers’ compensation benefits.
In practice, when the Breen formula was applied, coupled with settlement being characterized primarily as compensation for pain and suffering to shield most of the recovery from the lien as set forth in Poremba, the result often was that the insurer/employer received pennies on the dollar in settling a subrogation lien. There were also gray areas in the law as to how Breen and Poremba applied, especially when a personal injury settlement was reached with only a demand letter from the injured worker’s attorney, rather than a lawsuit being filed.
II. NEW CASE LAW
On September 19th, the Nevada Supreme Court issued the Vasquez case, which recognizes that the Breen formula is “unworkable,” “mathematically flawed,” and “in direct conflict with the statute,” as well as that Poremba is in “direct conflict with both precedent and the plain language of the controlling statute.” This is a victory for insurers and employers and returns the focus of subrogation liens to the plain language of NRS 616C.215. Specifically, the Court held:
Namely, we hold that (1) there is no requirement that an insurer intervene or otherwise participate in the injured worker’s third-party claim to recover on its lien under NRS 616C.215(5); (2) the Breen formula, created in direct conflict with the controlling statute, has proven unworkable and is therefore abandoned in favor of a straightforward lien analysis, under which the insurer’s lien applies to recovery from any third parties for the covered injuries without an allocation of the injured employee’s litigation fees and costs; and (3) in contradiction of our holding in Poremba, NRS 616C.215(5) mandates that an insurer collect from the “total proceeds” of any recovery of an injured worker, including any portion allocated to noneconomic injuries. We therefore overrule those portions of Breen and Poremba that are inconsistent with this opinion.
III. WHAT DOES THIS MEAN?
Vasquez expressly overrules the Breen case with respect to its mathematical formula, as well as Poremba’s carve out for any portion of an injured worker’s recovery allocated to noneconomic damages like pain and suffering. The Court also clarified that an insurer may recover the total proceeds of a third-party settlement even where the matter has been reopened pursuant to NRS 616C.390. In other words, the Vasquez case confirms that the Court deviated from the plain language of NRS 616C.215(5) in Breen and Poremba and is now correcting course by overruling the portions of those cases that are inconsistent with the statute.
Vasquez confirms an insurer/employer has a lien against the total proceeds of any recovery obtained by an injured worker from a third-party and is entitled to be paid the full amount of the lien, in the total amount of all workers’ compensation benefits paid out on the injured workers’ claim, from any settlement without any compromise. The settlement proceeds should pay off the full amount of the workers’ compensation subrogation lien before the injured worker or personal injury attorney is entitled to any portion of the settlement.
IV. WHAT CAN WE EXPECT GOING FORWARD?
Vasquez is a well-reasoned decision from the Nevada Supreme Court. Sometimes appellate courts struggle with understanding the intricacies of workers’ compensation, particularly in cases before the district courts and the Nevada Court of Appeals (which is presumptively assigned workers’ compensation cases that are not matters of first impression under the appellate rules). Interestingly, the parties did not focus on the issues raised in this decision when making their legal argument in briefing and during oral argument. Justice Patricia Lee, who is relatively new to the bench having been appointed in 2022, authored the decision. Justice Lee has a background in complex commercial litigation and demonstrates a very good understanding of the law and the practical issues that were presented by Breen and Poremba, including how those cases were being utilized by the plaintiffs’ bar to avoid paying subrogation liens, such as by allocating settlement funds as pain and suffering damages The Vasquez decision indicates the Nevada Supreme Court may be shifting back toward more business-friendly decisions following recent opinions that have leaned to the employee friendly side.
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