Based upon the number of general questions our office receives regarding the area of subrogation, it seemed like a good time to revisit the general nuts and bolts of California Workers’ Compensation subrogation. This discussion will necessarily involve civil litigation principles. As much of our reading audience typically approaches subrogation from a human resource or workers’ compensation standpoint, we will move through these civil litigation aspects of subrogation in a step-by-step fashion. The same may also serve to refresh the basic understandings of those practitioners more experienced in such actions.
Identifying Third Party Claims.

When we speak of a third party claim, this is a reference to a civil action asserted against a party other than the employee, employer or its representative, as a result of an injury to a worker. By its very nature, in identifying a third party case there needs to exist a third party. While there is no precise formula for identifying a potential third party action, a good starting point is to inquire, “Who or what entity caused the worker’s injury?” If your answer identifies an entity, other than the employer or employee, you have likely identified a potential third party action.

There are many methods by which potential third party claims could be unearthed, including review of injury reports, police reports, OSHA citations and procurement of witness statements. However, one of the most valuable tools for identifying a potential third party claim is via deposition of the worker in the workers’ compensation matter. It is in this setting that the defense attorney has an opportunity to inquire directly into the
factual scenario surrounding the injury, which may serve to identify a potential third party. Similarly, the deposition of eyewitnesses may also serve to eliminate potential third party tortfeasors. As experience dictates, many times workers do not relate their story fully to the employer, physicians, or even their own attorney prior to a thorough deposition. As such, even in the course of what appears to be a routine workers’ compensation deposition, there should be a presence as to the potential of third party claims based upon the worker’s testimony. However, it should be noted that even the most keen questioning at the time of the deposition will be of little avail if the deposition was undertaken at a time too late for pursuing a third party action.

Types of Third Party Claims.

The most common third party causes of action can be defined as follows: 1) products liability; 2) premises liability; and 3) general negligence.

When a worker is injured by or while using a machine or a device, red flags should be raised to indicate a potential product’s liability claim. Liability in these cases is established by proving that the product at issue was defectively designed and\or manufactured. Products liability cases may arise when a chair breaks, a dry cleaning machine explodes, a crane malfunctions, a ladder collapses, or other similar situations in which a product does not perform as it was designed or intended.

A third party claim may involve premises liability wherein an owner or controller of property has exposed persons entering the property to an unreasonable risk of harm. A prime example of this is a slip and fall accident. For example, where a delivery person slips and falls while entering a store to make a delivery, a third party premises liability suit may exist. In identifying such claims, the savvy adjuster may be assisted by asking, “Who owns or controls the property or business on or at which the injury occurred?”

The most readily familiar third party cause of action is that of general negligence. Liability for general negligence exists when one person or entity owes a duty of care to the worker and fails, either by action or inaction, to fulfill this duty. General negligence causes of action are often seen in motor vehicle accidents, wherein a third party either fails to stop, leading to an intersection collision, or otherwise negligently operates their vehicle, causing injury to the worker.

General negligence claims may be thought of as a catch-all cause of action, which may coexist with both premises and product liability claims. For example, a construction accident may raise questions of liability in all three identified categories. The accident may occur off site (premises liability), involve a potentially defective forklift (products liability), and raise questions as to training and safety warnings (general negligence). It is factual scenarios such as this that call upon the experience of skilled adjuster and\or litigaters to identify potential liability, investigate liability issues, assess the potential for success and the economic risks involved, and timely move forward with a third party claim if warranted.
The Statute of Limitation.

Pursuant to California Code of Civil Procedure Section 340(3), an action for a person injury or death, caused by the wrongful act or neglect of another, must be filed within one year of the date of the accident that caused the injury or death. While we will detail situations in which subrogation may be pursued more than one year from the date of injury, the general principle to consider is a one-year timeframe from the date of injury.

Even though there is one year from the date of injury in which to institute a third party action via the filing of a complaint in the civil court system, by no means should this indicate that your investigation should be postponed until that time. As with all potential third party claims, it is advisable that investigation, including depositions, photographing of accident scenes, obtainment of maintenance logs, and the procurement of witness

statements, be done at the first opportunity. Timely and thorough investigation in turn will at least initially help determine whether a third party action is in fact viable and may lead to the success of the same in the long run.

As stated above, the general rule dictates that a complaint must be filed in the civil court system within one year from the date of injury. An exception to this rule, however, exists when the worker files an action within one year thus tolling the statute of limitations and allowing the employer to file a Complaint in Intervention at any time before trial on the facts. Labor Code § 3853. Also, it should be noted that a variation on the one-year statute of limitations also exists in cases of suit against a public entity, wherein an administrative claim must first be filed with a governing agency within six months of the date of injury as a precondition to filing a civil complaint. See California Government Code Section 900 et seq.

Employer/Carrier’s Right of Subrogation

The employer/carrier’s right of subrogation is detailed in Labor Code Sections 3850 through 3865. One of the principles behind subrogation is the avoidance of double recovery, i.e. not allowing the worker to recoup workers’ compensation benefits and civil damages. This policy is vindicated by allowing the employer/carrier an independent right to proceed against a 3rd party to recover benefits paid to or on behalf of a worker. Labor Code Section 3732.

The most commonly cited goals in pursuing a subrogation action, include the right to reimbursement and the right to credit. Reimbursement is the recoupment of monies paid to or on behalf of an injured worker. Credit results in a reduction of the employer’s obligation to pay workers’ compensation benefits by the amount of the worker’s net recovery from the civil action.

In addition to the foregoing, a third and often overlooked benefit of prosecuting subrogation actions is discovery that may be useful in defending the workers’ compensation claim. Discovery in workers’ compensation proceedings is limited with the main discovery tools being depositions and subpoenas. However, in civil proceedings, discovery is much more expansive including the request for production of documents, requests for admissions, and interrogatories, each requiring written verified responses. From this discovery process much more is usually learned of the worker’s injury allegations which can come into and, be utilized to defend the workers’ compensation claim, whether or not reimbursement or credit is honored in the civil arena. The interaction between the two should not be overlooked.

Employer/Carrier Subrogation Prosecution Options

Both the worker and the employer/carrier have an independent right to proceed against the third party. This right can be exercised by filing a civil complaint. In many instances where there is a good case for liability, the injured worker is represented and will, in fact, file a complaint, preserving the statute of limitations. However, where there has been no action taken on behalf of an injured worker, it is incumbent upon the employer/carrier to move forward toward settlement and/or the filing of a civil complaint within 1 year from the date of the injury. In a situation where the injured worker is represented and litigation has already been instituted by way of the filing of a civil complaint, the employer/carrier has two main options: (1) file a lien; or (2) file a Complaint in Intervention.

By filing a lien in the civil action, the employer/carrier does little more than apprise the active parties of its presence and desire for reimbursement at the time of settlement or judgment. A lien may be amended at any time up to satisfaction of the civil judgment. Labor Code Section 3857.

A lien claimant is not a party to the civil action and therefore has no right to undertake discovery, may not participate in the proceedings, and has no means to actively insure protection of its interests. Rather, a lien claimant relies upon the worker’s counsel to prosecute and litigate the underlying claim.

Where reimbursement is earnestly sought, a downside clearly exists for a lien claimant. Not only is the lien claimant essentially inactive and thus, at the mercy of the experience and diligence of the worker’s counsel, but this activity comes at a price. In particular, as a lien claimant, the employer/carrier will likely forfeit 33% to 40% of its lien to the worker’s counsel in attorney’s fees, under the theory that it was the efforts of that attorney that procured a benefit for the employer/carrier.

An additional concern exists where the parties in the civil action settle around the lien. In this circumstance, case law dictates that the lien claimant’s only recourse is to proceed to civil trial within 10 days. Aetna Casualty and Surety Company v. Superior Court (1993) 20 Cal.App. 4th 1502. As you can imagine, going it alone at this stage is very difficult where the lien claimant has been inactive all along, not privy to the discovery which has taken place, and many of the witnesses favorable to the plaintiff may be uncooperative, unidentifiable or unavailable. As with any litigation strategy, the determination to proceed as a lien claimant versus a party must be made on a case by case basis in light of the relevant facts, most especially the issues of employer negligence, liability and amounts expended.

The other option to prosecuting subrogation rights after the worker has filed a civil complaint is to intervene in the action. A Complaint in Intervention may be filed at any time before trial on the facts. Labor Code Section 3853. Unlike a lien claimant, the intervenor is a party to the suit and is charged with proving up its right to reimbursement, including employment, industrial injury, authorized insurance or self insurance by the employer, liability on the part of the third party, the nature and extent of workers compensation benefits provided, and damages from the tort perspective.

An active intervenor is one who is in some way instrumental in the settlement and/or litigation of the case, such that the benefit derived cannot be solely attributable to the efforts of the worker’s counsel. In such a case the reimbursement claim will not likely be reduced to pay attorney’s fees to the worker’s counsel.

Further, as an active party, the employer/carrier may be able to fashion a global settlement with a maximum reimbursement and a Third Party Compromise and Release or stipulation to credit. However, should settlement be achieved solely between the third party defendant and the injured worker, as an active party the employer/carrier should nevertheless be able to proceed to trial having been privy to the details of civil discovery. In either instance, information will also have been garnered to aid in limiting workers’ compensation liability.

Employer Negligence

A finding of employer negligence will likely impact an employer/carrier’s reimbursement and credit rights, such that the possibility of the same must be considered in assessing subrogation potential. In a general sense, a third party will be required to reimburse the negligent employer for benefits paid only to the extent that such benefits have exceeded the proportionate share of damages attributable to the employer’s negligence. In other words, the establishment of employer negligence creates a “threshold” which dictates the employer/carrier’s potential recovery and credit rights. This “threshold” is commonly referred to as the “Arbaugh threshold”. Arbaugh v. Proctor and Gamble Company, Transport Indemnity Company, (1978) 80 Cal.App. 3d 500. The “Arbaugh threshold” was discussed at length in a prior article.

To the extent the existence and level of employer negligence directly impacts potential reimbursement and credit rights, these issues are paramount in assessing the economic realities of litigation, including the costs to be expended and level of participation desired. It should be noted however that the issue of employer negligence is not a finely tuned scientific theorem, but is an estimation that can be arrived upon after review of all the facts, often during the course of actual involvement in the civil litigation and all of the discovery.


The essentials of California Workers’ Compensation subrogation is an exhaustive topic which this article covered in the most general sense in order to provide an overview as to identification of potential third party claims, and employer/carrier’s rights and time limits involved after identifying potential third party actions, as well as the methods by which to move forward towards prosecution of a third party action. Once a grasp is had of the general subrogation framework and principles, third party identification and educated decision making can likely follow.