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Hawaii Supreme Court: When Employee Suffers Workers’ Compensation Injury Because of Third Party, Employer Cannot Seek Reimbursement Through Indemnity Agreement

Posted Tuesday, August 7, 2018 6:28 am

In a case recently issued by the Supreme Court of Hawaii, an employee of a general contractor on a construction project allegedly sustained injury due to a subcontractor’s actions.  After paying for the workers’ compensation benefits, the general contractor employer requested reimbursement from the subcontractor pursuant to the subcontractor’s indemnity agreement.  The subcontractor, however, argued that the state workers’ compensation statute governed the reimbursement, instead of the indemnity agreement.

The Court agreed with the subcontractor and held that the general contractor employer was not entitled to contractual indemnification because Hawaii’s comprehensive workers’ compensation statute provided the exclusive remedy for employers seeking reimbursement from third-party tortfeasers.  The Court stated, “An employer cannot contractually require a third-party tortfeaser to indemnify it for workers’ compensation payments.  Rather, the employer must follow the procedure provided by HRS § 368-8.”

HRS § 386-8 recognizes the work injury claim against a third party may be prosecuted by: (1) the employer alone; (2) the employee alone; and (3) the employer and the employee.[1]  Regardless of who commences the action, however, the statute mandates reimbursement of the employer for workers’ compensation expenses from the judgment or settlement. 

The Court believed that by including such a comprehensive reimbursement scheme in the statute, the Legislature intended the relief provided in the workers’ compensation law to be the only remedy for third-party torfeaster actions for workers’ compensation claims.  Moreover, viewing HRS § 368-8 as the exclusive remedy was consistent with the purpose of the workers’ compensation law, which is to provide prompt compensation to the injured employee (or his or her dependents) while also securing for the employer freedom from “vexatious, delaying and uncertain litigation.”

A copy of the case, Hawaiian Dredging Construction Company v. Fujikawa Associates, Inc. (June 8, 2018), is available here.

 

[1] HRS 368-8 provides in relevant part:

(4) No release or settlement of any claim or action under this section is valid without the written consent of both employer and employee.  The entire amount of the settlement after deductions for attorney’s fees and costs as hereinafter provided, is subject to the employer’s right of reimbursement for his compensation payments under this chapter and his expenses and costs of action.

(5) If the action is prosecuted by the employer alone, the employer shall be entitled to be paid from the proceeds received as a result of any judgment for damages, or settlement in case the action is compromised before judgement, the reasonable litigation expenses incurred in preparation and prosecution of such action, together with a reasonable attorney’s fee, which shall be based solely upon the services rendered by the employer’s attorney in  effecting recovery both for the benefit of the employer and the employee.  After the payment of the expenses and attorney’s fee, the employer shall apply out of the amount of the judgment or settlement proceeds an amount sufficient to reimburse the employer for the amount of his expenditure for compensation and shall pay any excess to the injured employee or other person entitled thereto.

(6) If the action is prosecuted by the employee alone, the employee shall be entitled to apply out of the amount of the judgment for damages, or settlement in case the action is compromised before judgment, the reasonable litigation expenses incurred in preparation and prosecution of the action, together with a reasonable attorney’s fee which shall be based solely upon the services rendered by the employee’s attorney in effecting recovery both for the benefit of the employee and the employer.   After the payment of such expenses and attorney’s fee, there shall be applied out of the amount of the judgment or settlement proceeds, the amount of the employer’s expenditure for compensation, less his share of the expenses and attorney’s fee.  On application of the employer, the court shall allow as a first lien against the amount of the judgment for damages or settlement proceeds, the amount of the employer’s expenditure for compensation, less his share of such expenses and attorney’s fee.

(7) If the action is prosecuted by both the employee and the employer, in a single action or in consolidated actions, and they are represented by the same agreed attorney or by separate attorneys, there shall first be paid from any judgment for damages recovered or settlement proceeds in case the action or actions are settled before judgment, the reasonable litigation expenses incurred in preparation and prosecution of such action or actions, together with reasonable attorney’s fees based solely on the services rendered for the benefit of both parties where they are represented by the same attorney, and where they are represented by separate attorneys, based solely upon the service rendered in each instance by the attorney in effecting recovery for the benefit of the party represented.  After the payment of the expenses and attorneys’ fees there shall be applied out of the amount of the judgment for damages, or settlement proceeds an amount sufficient to reimburse the employer for the amount of his expenditure for compensation and any excess shall be paid to the injured employee or other person entitled thereto.

 

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