Dix & Associates Pipeline Contractors, Inc. v. Key

799 S.W.2d 24, 1990 Ky. LEXIS 107, 1990 WL 171769

• Court: Kentucky Supreme Court
• Decided: November 8, 1990
• Docket: 89-SC-852-TG, 90-SC-330-TG
• Status: Published

Opinions

VANCE, Justice.

We granted transfer of this case from the Court of Appeals to consider whether a conflict exists between the opinions of this court in Nix v. Jordan, Ky., 532 S.W.2d 762 (1975), and Burrell v. Elec. Plant Bd. of Franklin, Ky., Ky., 676 S.W.2d 231 (1984), and the decisions of this court in Hilen v. Hays, Ky., 673 S.W.2d 713 (1984); Prudential Life Ins. Co. v. Moody, Ky., 696 S.W.2d 503 (1985); Floyd v. Carlisle Const. Co., Inc., Ky., 758 S.W.2d 430 (1988); and Stratton v. Parker, Ky., 793 S.W.2d 817 (1990).

On April 8, 1985, Mason Cornelius; an employee of Dix & Associates Pipeline Contractors, Inc. (hereinafter Dix & Associates) was killed at work when he was struck by a motor vehicle operated by Jerry Key, an employee of Bardstown Mills, Inc. Cornelius was survived by his wife, Barbara, and two children.

Claim was made against Dix & Associates, the employer, for workers’ compensation benefits, and an action was instituted against Jerry Key and Bardstown Mills, Inc. as third-parties whose negligence was alleged to have cause the death.

Bardstown Mills, Inc. and Jerry Key filed a third-party complaint naming Dix & Associates as a third-party defendant. The third-party complaint alleged that the negligence of Dix & Associates caused or contributed to the death of Cornelius and asserted a claim against Dix & Associates for indemnity and/or contribution.

Thereafter, the estate of Cornelius, on April 22, 1987, settled its claim against Bardstown Mills, Inc., for the sum of $250,-000.00. At the time of settlement, Dix & Associates had paid $36,949.54 in compensation benefits. In the settlement agreement, Bardstown Mills, Inc. assumed responsibility for any subrogation rights that Dix & Associates would have to recover, pursuant to K.R.S. 342.700, the amounts it had paid in compensation benefits up to the time of the settlement.

Bardstown Mills, Inc. also obtained a release from each of the children of the deceased in which Dix & Associates and its insurance carrier were released from the payment of money for the compensation benefits to the children after April 22, 1987, and also obtained an assignment from the children of the right to collect future compensation benefits.

After the settlement, in which Dix & Associates did not participate, Dix & Associates filed a counterclaim in which it sought to recover from Bardstown Mills, Inc., pursuant to K.R.S. 342.700, the $36,-949.54 it had paid in compensation benefits.

The law suit filed by the Cornelius estate against Bardstown Mills, Inc. was dismissed as settled, and the claim of Bards-town Mills, Inc. for indemnity and/or contribution against Dix & Associates, and the claim of Dix & Associates to recoup from Bardstown Mills, Inc. the sum it had paid in workers’ compensation benefits were set for trial. The case was tried before a jury which was given an apportionment instruction as to the comparative “causative fault” of the parties. The jury apportioned “causative fault” as follows: 95 percent to Bardstown Mills, Inc. and 5 percent to Dix & Associates.

Despite the apportionment by the jury, the trial court awarded contribution to Bardstown Mills, Inc. against Dix & Associates for 50 percent of the amount of the settlement, subject to the limitation that the contribution could not exceed the amount paid by Dix & Associates as workers’ compensation benefits. The court awarded judgment to Dix & Associates against Bardstown Mills, Inc. for the amount it had paid as workers’ compensation benefits. The net effect of the judgment is that the two amounts effectively offset each other and is, as the trial judgment stated, “a washout.”

In the trial court, Bardstown Mills, Inc. contended that the case was controlled by Burrell v. Elec. Plant Bd. of Franklin, Ky., supra, and Nix v. Jordan, supra. In Burrell, this court approved contribution on a 50-50 basis and stated that Nix v. Jordan, supra, prohibited apportionment of liability between a defendant and a third-party defendant.

Dix & Associates relied upon Hilen v. Hays, supra, and Floyd v. Carlisle Const. Co., Inc., supra. It contended that Nix v. Jordan was no longer applicable because the rule of comparative negligence announced in Hilen v. Hays is that liability should be assessed in direct proportion to fault. Dix & Associates contended that Floyd v. Carlisle Const. Co., Inc., supra required apportionment between a defendant and a third-party who had settled a claim with the plaintiff and who was not named as a party to the litigation. Dix & Associates argue that if apportionment is required, even as to one who is not a party, it would be absurd to hold that apportionment is not required as to a named defendant who has been brought into the action as a third-party.

Dix & Associates contend that Nix v. Jordan was not expressly overruled by Floyd v. Carlisle Const. Co., Inc., supra, because Floyd v. Carlisle Const. Co., Inc. did not involve a named third-party defendant, but pointed out that it was indicated in a footnote in that opinion, that a majority of the court, if confronted with the precise question, would overrule Nix v. Jordan.

Indeed there has been some confusion in the courts created by our decisions in this area, and one panel of the Court of Appeals has concluded that Nix v. Jordan has been overruled (Zimmerman v. Miller’s Bottled Gas, Inc., Ky.App., 775 S.W.2d 934 (1989)) and another panel has held that Burrell v. Elec. Plant Bd. of Franklin, Ky., supra, is still controlling law (Ingersoll-Rand Co. v. Rice, Ky.App., 775 S.W.2d 924 (1989)).

K.R.S. 342.700(1) provides:

“(1) Whenever an injury for which compensation is payable under this chapter has been sustained under circumstances creating in some other person than the employer a legal liability to pay damages, the injured employe may either claim compensation or proceed at law by civil action against such other person to recover damages, or proceed both against the employer for compensation and such other person to recover damages, but he shall not collect from both.” (Emphasis ours.)

The statute makes no mention of any limit upon the amount of recovery by an insured employee from a third person, and the state of the law as it existed when the statute was enacted would allow the employee a full and complete recovery from a negligent third party, although the negligence of the third party may not have been the only causative factor of the injury.

At common law, each one of jointly negligent persons was held to be entirely responsible for a single indivisible injury because it was thought that the injury could not be divided into parts to determine the responsibility of each negligent actor.

In Kentucky, however, joint and several liability was partially abrogated by K.R.S. 454.040 which permitted a jury the option of assigning either joint or several damages against defendants. This statute was construed in Orr v. Coleman, Ky., 455 S.W.2d 59 (1970), which permitted apportionment of liability between two defendants in an action, one of whom was no longer a defendant by reason of settlement. There is no doubt that the apportioned liability, pursuant to K.R.S. 454.040 and Orr v. Coleman, supra, is several liability as apportioned to each defendant and is not joint and several. Cox v. Cooper, Ky., 510 S.W.2d 530 (1974). K.R.S. 454.040 was enacted in recognition of the fact that the fault of one joint tort-feasor may be more grievous than the fault of another. Alexander v. Humber, 86 Ky. 565, 6 S.W. 453 (1888).

The apportionment of several liability to each of joint tort-feasors, approved in Orr v. Coleman, supra, was based upon a statute, and in Nix v. Jordan, supra, this court held that apportionment under the statute was permitted only as to codefendants named in the complaint, but that the statute could not be the basis for extending apportionment of liability to joint tort-fea-sors, one of whom was an original defendant and the other a third-party defendant.

Unless Nix v. Jordan, supra, is overruled, the appellees are correct that there should not have been an apportionment of liability in this case because the appellees were not defendants in the original action filed by the Cornelius estate but were brought in as third-party defendants in a claim for indemnity and/or contribution. Our first inquiry, then, is whether Nix v. Jordan remains valid.

The principles announced in Hilen v. Hays, supra, which established comparative negligence in Kentucky, and cases which followed it, including Prudential Life Ins. Co. v. Moody, supra; Floyd v. Carlisle Const. Co., Inc., supra; and Stratton v. Parker, supra; have established that liability among joint tort-feasors in negligence cases is no longer joint and several but is several only. Because the liability is several to each negligent joint tort-feasor, it is necessary to apportion a specific share of the liability to each of them, and by necessity, that includes a joint tort-feasor brought into the action as a third-party defendant as well as the defendant named in the original complaint.

Prior to our decision in Hilen v. Hays, a negligent plaintiff was barred from recovery in a tort action by reason of his contributory negligence. We reversed and now allow a negligent plaintiff to recover from negligent defendants by an apportionment of the respective fault of the parties. Our decision in Hilen v. Hays, was premised upon the principle of fundamental fairness, that liability should be assessed in relation to fault and that the extent of liability should be determined by the extent of the fault.

Although Hilen v. Hays did not involve multiple defendants, the fundamental fairness doctrine asserted therein has caused some rethinking on the question of joint and several liability. Whereas it is fundamentally unfair for a plaintiff who is only 5 percent at fault to be absolutely barred from recovery from a defendant who is 95 percent at fault, it is equally and fundamentally unfair to require one joint tort-feasor who is only 5 percent at fault to bear the entire loss when another tort-fea-sor has caused 95 percent of the loss. Such a result is possible if the only tort-fea-sor named by the plaintiff in a law suit is only 5 percent at fault and another tort-fea-sor who is 95 percent at fault is brought in as a third-party defendant. Nix v. Jordan, if allowed to stand, would prohibit apportionment, and the plaintiff would recover his entire loss against the defendant who was 5 percent at fault, leaving that defendant to seek contribution and recover 50 percent, at best, and at worst, with an insolvent third-party defendant, he would recover nothing by contribution and would thus suffer 100 percent of the loss even though only 5 percent at fault.

By the same token, it is fundamentally unfair for a defendant 95 percent at fault to recover one-half of the judgment against him from another defendant only 5 percent at fault.

Burrell v. Elec. Plant Bd. of Franklin, Ky., supra, was rendered three months after the decision in Hilen v. Hays, and at a time when the court had not fully considered all of the ramifications flowing from that decision. Since then, we have decided Prudential Life Ins. Co. v. Moody, Floyd v. Carlisle Const. Co., Inc., and Stratton v. Parker. All of these cases point to the conclusion that apportionment is no longer an option which may be exercised where joint tort-feasors are named in the complaint. Apportionment is now required upon the request of either of the negligent parties.

In Prudential Life Ins. Co. v. Moody, supra, the . plaintiff recovered judgment against joint tort-feasors against whom the jury apportioned fault at 50 percent each. On appeal, one of the defendants succeeded in having the judgment reversed because of the statute of limitations. The question then became whether the other defendant was liable for the entire amount of the judgment or only one-half of it. We held that each defendant was liable only to the extent of his fault, and the remaining defendant could not be required to bear the whole loss.

Floyd v. Carlisle Const. Co., Inc., was a case where the plaintiff settled a claim with one tort-feasor and sued the other. Nix v. Jordan would not have permitted apportionment against the settling tort-fea-sor if he had been brought into the action as a third-party defendant. The settling tort-feasor was never made a party to the law suit in any fashion. Nevertheless, this court held that apportionment of liability was required between the defendant and a party who had settled the claim against him, even though not a party to the litigation. We stated:

“A tortfeasor who is not actually a defendant is construed to be one for purposes of apportionment if he has settled the claim against him or if he was named as a defendant in the plaintiffs complaint even though the complaint was subsequently dismissed as to him.

“The rule requiring apportionment among tortfeasors no longer rests exclusively upon K.R.S. 454.040. Apportionment also follows as a natural consequence of our decision in ‘Hilen v. Hays’, Ky., 673 S.W.2d 713 (1984). In that case, we overturned a rule of longstanding that contributory negligence was an absolute bar to recovery and adopted the rule of comparative negligence. Our stated reasons for doing so was that simple fairness required, ‘liability for any particular injury in direct proportion to fault.’ Hilen, supra, at p. 718.

“We have implemented this concept that the extent of liability is limited to the extent of fault in Prudential Life Insurance Co. v. Moody, Ky., 696 S.W.2d 503 (1985), in which we held that where the defendants are equally at fault, but the claim against one of them is barred by the statute of limitations, the other defendant cannot be liable for more than 50% of the damages.

“It follows from Hilen v. Hays and Prudential Life Insurance Company v. Moody that when there are joint tort-feasors the liability of either of them is limited by the extent of his fault.¹” (Emphasis ours.)

Floyd v. Carlisle Const. Co., Inc., at 758 S.W.2d 432.

We also noted in a footnote that:

In Stratton v. Parker, Ky., 793 S.W.2d 817 (1990), we held:

“The law has now developed to the point that in tort actions involving the fault of more than one party, including third-party defendants and persons who have settled the claim against them, an apportionment instruction, if requested, must be given whereby the jury will determine the amount of the plaintiffs damage and the degree of fault to be allocated to each claimant, defendant, third-party defendant, and person who has been released from damage. The extent of the liability of each is a several liability and is limited to the degree of fault apportioned to each.”

In this case, what otherwise would have been tort liability of Dix & Associates to the injured worker has been extinguished by reason of the workers compensation coverage. As a practical matter, workers compensation coverage constitutes a settlement between the employee and the employer whereby the employee settles his tort claim for the amount he will receive as compensation. For all practical purposes, in this case, Dix & Associates occupies the position of a tort-feasor which has settled the tort claim against it.

In the case before us, the appellees contended that they were third-party defendants and that the apportionment herein was improper because Nix v. Jordan prohibited apportionment in such cases. The issue was presented and argued before the trial court and is now squarely before us.

To the extent that it prohibits apportionment of liability in tort actions between an original defendant and defendants brought into the litigation as third-party defendants, Nix v. Jordan, Ky., 532 S.W.2d 762 (1975) is overruled.

Burrell v. Elec. Plant Bd. of Franklin, Ky. relied upon Nix v. Jordan for the proposition that there could be no apportionment of liability. Because we now overrule Nix v. Jordan, we must now also overrule Burrell v. Elec. Plant Bd. of Franklin, Ky., Ky., 676 S.W.2d 231 (1984), to the extent that it precluded apportionment of liability between the employer and the third person from whom the employee sought recovery of damages.

We hold that the apportionment of liability by the jury between the employer and the third party in this case was properly allowed.

In Orr v. Coleman, Ky., 455 S.W.2d 59, 61 (1970), we stated:

“The practical answer is that the jury should be required to assess the total amount of the claimant’s damages and fix the proportionate share of the nonset-tling tortfeasor’s liability on the basis of his contribution to the causation. The trial court may then compute the amount of the judgment to be entered against the nonsettling tortfeasor, thus fixing his ultimate liability (and incidentally obviating any question of or necessity for contribution).” (Emphasis ours.)

In Ohio River Pipeline Corp. v. Landrum, Ky.App., 580 S.W.2d 713, 719-720 (1979), it was held:

“The right of contribution between joint tort-feasors is created by KRS 412.-030. Like apportionment of liability under KRS 454.040, contribution is concerned with the distribution of loss among joint tort-feasors. However, there are important differences. Under KRS 454.040, the trier of fact may apportion liability among the joint tort-feasors on the basis of the percentage of causation attributable to each. Apportionment is not required to be equal. S. W. Corum Hauling, Inc. v. Tilford, Ky., 511 S.W.2d 220, 221 (1974); Cox v. Cooper, supra, 510 S.W.2d at 536. Under the doctrine of contribution, the liability of each joint tort-feasor is equal and is not apportioned on the basis of causation. Nix v. Jordan, Ky., 532 S.W.2d 762 (1975); see also Lexington Country Club v. Stevenson, Ky., 390 S.W.2d 137, 143, fn. 4 (1965); Elpers v. Kimbel, Ky., 366 S.W.2d 157, 161 (1963). If the trier of fact chooses to apportion its award among the joint tort-feasors, the question of contribution becomes moot. Each joint tort-feasor is no longer liable for the entire judgment. Under KRS 454.040, each tort-feasor is liable only for the amount apportioned against it by the trier of fact. Cox v. Cooper, supra, 510 ; Lexington Country Club v. Stevenson, supra, 390 S.W.2d at 143.” (Emphasis ours.)

Because liability was properly apportioned in this case, the settlement between appellees and the injured worker settled only appellees’ liability to the injured worker, to-wit, 95 percent of the injured worker’s claim for damages. Because the appellees have paid in settlement only for the damages caused by them, but did not pay for the 5 percent of the liability apportioned to Dix & Associates, it follows that the appellees have no claim against Dix & Associates for contribution.

The judgment in this case, insofar as it awarded contribution to appellees against the appellant, Dix & Associates, is reversed.

We next consider the subrogation claim of Dix & Associates to recover the $36,949.54 paid as workers compensation as permitted by K.R.S. 342.700(1).

Although an injured employee may proceed against both his employer and a third party, he is prohibited from recovery from both. As a means of preventing double recovery, the employer may intervene in the injured worker’s claim against the third party and recoup an amount not to exceed the amount of compensation paid. The potential recovery from a third party does not extinguish the right to compensation, but to the extent that an injured party receives compensation for his injury from a third party, then to that extent, the employer may recover back its compensation paid. When K.R.S. 342.700 was enacted, an injured employee would normally be entitled to recover his entire loss from a negligent third party, and therefore the employer, to prevent double recovery, would be entitled to recoup out of the benefits received by the employee from the third party all of the compensation paid.

Under the law as it now exists, an injured worker may not recover all of his loss from a negligent third party. He may have only a partial recovery from the third party as liability is apportioned between the third party and the employer. If the injured worker is contributorily negligent, some degree of fault will be apportioned to him, and he will not obtain a full recovery against a negligent third party. Since the employee in this case has only recovered 95 percent of his total damage from the negligent third party, the continuation of 5 percent of his workers compensation benefits will not amount to a double recovery. A double recovery can be prevented by allowing Dix & Associates to recoup only 95 percent of the compensation benefits paid. If the injured employee recovers only 95 percent of his loss from the negligent third party and his employer could recover out of that fund 100 percent of the amount paid in compensation benefits, not only would the employee not be whole, but the employer would profit from his own negligence.

Kansas has resolved the problem by statute. K.S.A. 44-504(d):

“(d) If the negligence of the worker’s employer or those for whom the employer is responsible, other than the injured worker, is found to have contributed to the party’s injury, the employer’s subro-gation interest or credits against future payments of compensation and medical aid, as provided by this section, shall be diminished by the percentage of the damage award attributed to the negligence of the employer or those for whom the employer is responsible, other than the injured worker.”

In Kentucky, when an injured employee proceeds for workers’ compensation against his employer and separately, in a tort action, against a negligent third party, if the employer is made a third-party defendant in the tort action, the jury should be instructed to determine the total damage sustained by the employee and to apportion liability between the employer and the third party according to the respective fault of each. The judgment against the negligent third party should be for only that percentage of the total damage which has been apportioned to him, and he will not have any claim for contribution against the employer. The employer shall then be entitled to recoup from the proceeds of the worker’s settlement or judgment a percentage of the amount paid or payable as compensation benefits equal to the percentage of fault apportioned to the negligent third party.

When a claim by an injured employee against a negligent third party in which the employer has been designated a third-party defendant is settled without trial and apportionment of liability, either the injured employee or the employer shall be entitled to litigate the issue of apportionment of liability in order to ascertain the extent of the employer’s right to recoup compensation payments.

Ordinarily, the recoupment of compensation payments by an employer would come from the proceeds of any judgment against, or settlement with, the negligent third party. In this case, however, the negligent third party agreed to indemnify the estate of the injured worker as to any recoupment of compensation benefits paid up to the date of settlement. For that reason, the judgment may properly go against the appellees for recovery of 95 percent of the compensation paid to the date of settlement.

As we noted at the beginning of this opinion, we granted a transfer of this case from the Court of Appeals to consider whether a conflict existed between our opinions in Nix v. Jordan, supra, and Burrell v. Elec. Plant Bd. of Franklin, Ky., supra, and the decisions of this court in Hilen v. Hays, supra; Prudential Life Ins. Co. v. Moody, supra; Floyd v. Carlisle Const. Co., Inc., supra; and Stratton v. Parker, supra. These potential conflicts were called to the attention of the trial court. The issue of contribution was raised on the appeal whereby appellant contended that the negligent third party was not entitled to any contribution whatever, albeit for a different reason than the one adopted in this opinion. The question of whether the appellees should be entitled to any contribution whatever because they had settled only the liability for the 95 percent of the injury apportioned to them was fully explored in oral argument before this court. The extent of the employer’s right to recover compensation paid and payable was raised by cross-appeal, and the question of whether it should recover all or 95 percent of the compensation paid and payable was fully explored in the oral argument before this court.

We are not cited to any specific pleading which raised an issue as to the validity of the release of future benefits to the heirs of the injured worker or the assignment of those future benefits to appellees. The trial court made no decision relating to those issues, and we do not reach those issues in this opinion.

The judgment is reversed with direction that the claim of the appellees for contribution be denied and that judgment be entered for appellant for the recoupment of 95 percent of the workers’ compensation benefits paid or payable by it.

STEPHENS, C.J., and GANT and WINTERSHEIMER, JJ., concur. LEIBSON, J., dissents by separate opinion in which COMBS and LAMBERT, JJ., join.

1 “1 Because of the rule established in Hilen v. Hays, Ky., 673 S.W.2d 713 (1984) a majority of this court would now hold that apportionment is required even as to joint tortfeasors brought in as defendants in a third-party complaint and would overrule Nix v. Jordan, Ky., 532 S.W.2d 762 (1975) to the extent that it holds otherwise.”