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Stout v. State Compensation Fund2/8/2000
AFFIRMED IN PART; REVERSED IN PART
This appeal presents several issues relating to the lien rights of a workers' compensation carrier. Specifically, we are asked to decide whether equitable apportionment applies when a third-party claim is settled, what is encompassed in the carrier's duty of good faith and fair dealing when it is asked to approve a settlement with a third-party tortfeasor, to what extent recoveries by family members of the deceased worker are subject to the carrier's lien, and whether a lien offset against a loss of consortium award is unconstitutional. As discussed below, we affirm the trial court's rulings on these issues in favor of the carrier except for the ruling that the lien attaches to recoveries by family members who did not receive any compensation benefits.
FACTUAL AND PROCEDURAL HISTORY
On June 7, 1994, Todd Stout was severely injured in an accident at Fireworks Productions International, Inc. (FPI), where he was employed. Mr. Stout filed for and received workers' compensation benefits paid by the State Compensation Fund (the Fund). On August 22, 1994, he died of complications from medical care necessary to treat his work-related injuries. The Fund paid approximately $696,632.93 in compensation to or on behalf of Mr. Stout and paid additional benefits to his wife, Debbie Stout, after his death; the amounts paid totaled approximately $725,000. The
Fund claimed a lien for the amount of workers' compensation paid to Todd, Debbie, and for their son, Logan Stout.
Debbie Stout, on behalf of herself and Logan, Mr. Stout's mother, Pat Stout, and Todd Stout's estate (the Stouts) sued a product manufacturer, Luna Tech, Inc., seeking recovery for medical expenses, wrongful death, and loss of consortium. Luna Tech's insurer offered to pay the policy limits of $1,000,000 to settle all claims against Luna Tech. The settlement required consent of the Fund. The Fund was willing to approve the proposed settlement if it was paid a reduced amount of $245,000 for its lien recovery and given a full future credit. The Stouts offered to pay the Fund $100,000 with no future credit. They took the position that the Fund's lien should be significantly reduced due to employer fault for Mr. Stout's injuries. The Fund and the Stouts were unable to reach an agreement.
The Stouts filed the declaratory judgment action that is the subject of this appeal. In the action, the Stouts sought a declaration that the Fund's consent was not required to settle their lawsuit against Luna Tech and a determination of the amount of the Fund's lien against any settlement proceeds.
After considering motions for partial summary judgment filed by the parties, the trial court ruled that under Ariz. Rev. Stat. Ann. (A.R.S.) ยง 23-1023(C), any settlement of the third-party claim must be approved by the Fund. The court further decided that an offset against the Fund's lien for employer liability as allowed under Aitken v. Industrial Commission, 183 Ariz. 387, 904 P.2d 456 (1995), does not apply to settlements because no procedure to determine an equitable apportionment exists except for a trial that goes to a verdict. Finally, the court ruled that under Martinez v. Industrial Commission, 168 Ariz. 307, 812 P.2d 1125 (App. 1991), the Fund's lien applied to amounts recovered for loss of consortium.
In response to a motion for clarification filed by the Stouts, the court stated that whether the lien could or should be paid from beneficiaries who did not receive any direct benefits from the Fund must be decided by the appellate court. However, it interpreted Martinez's silence on the issue to mean that the lien must be
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