Utah’s Top Court: Employer’s Share of Legal Costs Includes Consideration of Past, Future Benefits

Case File

In Utah, when an employer or insurance carrier seek reimbursement and offset on a worker's third-party tort action, does the proportionate share of legal expenses include past and future benefits? Simply Research subscribers have access to the full text of the case.

Case

HB Construction v. Labor Commission of Utah, No. 20241315 (Utah 02/26/26)

What Happened?

A construction worker was injured in a compensable industrial accident when he was knocked off a nine-foot concrete form and landed headfirst onto hard ground, causing him to become permanently and totally disabled and in need of constant monitoring.

The worker brought a tort action against third parties involved in the accident. He settled the action for $5 million, from which $2,149,618.89 was paid to his attorneys for fees and other expenses. The remaining $2,850,381.11 went into a trust.

The construction company and its insurance carrier had already paid $1,5787,095.60 in medical and indemnity benefits, but when the worker settled the tort action, the company stopped paying benefits, leaving the worker responsible for his needs.

The disbursement of the recovery became the subject of agency proceedings, with the issue being what the company's proportionate share of the attorney's fees associated with the third-party action.

An administrative law judge determined that because the statute did not explicitly refer to future unknown benefits in calculating the employer's interest, only known benefits should be included in calculating the company's proportionate share of expenses related to the third-party recovery. Calculating 31.6% of $2,149,618.89, the ALJ determined that Employer's share of the legal expenses equaled $679,279.57.

On review, a Commissioner disagreed with the ALJ, reasoning tort recovery aided the company by providing funds to cover its liability for the worker's substantial workers' compensation benefits and that the company had to pay its share of attorney fees and costs to obtain the tort recovery.

On remand, ALJ recalculated the company's proportionate share of legal expenses and order the company to pay the worker $571,523.29 to reimburse him for the share of the company's expenses that the worker paid and that exceed the company's credit for past paid benefits.

The ALJ then determined the company's total subrogation offset to be $3,421,904.31 and explained that the company was not responsible for additional workers' compensation benefits until the $3,421,904.31 was exhausted through payment of industrial-related benefits.

The Appeals Board upheld the ALJ's calculations, and the company appealed to the Utah Supreme Court, which addressed the issued of whether, under Utah law, an employee's anticipated future medical costs are considered when determining an employer's proportionate share of reasonable legal expenses of the third-party action.

Rule of Law

When an injured employee obtains damages from an action against a third party for its role in causing an industrial accident, Utah Code subsection 34A-2-106(5)(a)(i) instructs that the "reasonable expense of the action, including attorney fees, shall be paid and charged proportionately against the parties as their interests may appear."

What the Utah Supreme Court Said

The Utah Supreme Court sided with the worker and held that the company's proportionate share of the legal expenses of the worker's third-party action included consideration of past and future benefits.

The court highlighted that Utah law instructed that "reasonable expense of the action, including attorney fees, shall be paid and charged proportionately against the parties as their interests may appear" and that "may appear" was language that "contemplated and tolerated some uncertainty" in how events unfold after a third-party recovery is obtained.

"We think it thus follows that a carrier's 'interests' includes consideration of both past paid and future unpaid benefits when the carrier seeks both reimbursement for benefits previously paid and an offset against benefits to be paid in the
future," the court wrote.

Workers' Comp 101: in Esquivel v. Labor Commission, 7 P.3d 777 (Utah 2000), the minor heirs of a fatally injured employee were entitled to benefits from the employer's insurer until the youngest child turned 18 In addressing how the tort recovery would be disbursed between the heirs and the insurer under subsection 106(5), the Utah Supreme Court explained that "a third-party recovery must reimburse the employer or insurer for workers' compensation sums already paid as well as offset for future liability of sums owed." And in determining the insurer's interest in the recovery for purposes of calculating its proportionate share of the associated legal expenses, we accounted for the insurer's future liability and declined to include the insurer's past payments only because the insurer had waived its interest in those payments. Thus, the Utah Supreme Court implied that an employer's "total interest" usually will be based on past payments and future liability. Finally, the Utah Supreme Court also accounted for subsection 106(5)(a)(i), stating that to obtain the recovery, "the employer or insurer must first bear a proportionate share of the expenses."

According to the court, because the company sought both reimbursement and offset, the Commission did not err when it considered both past payments and future liability in determining the company's proportionate share of legal expenses for the third-party action.

"The Commission correctly reasoned that [the company's] 'share of attorney fees and costs to obtain the tort recovery ... necessarily include[d] consideration of the cost of [the worker's] future benefits because [the company's] interest in the tort recovery includes an offset against the cost of paying those future benefits."

Verdict: The Utah Supreme Court left the ALJ's calculation undisturbed.

Takeaway

In Utah, when an employer or carrier seeks to offset future benefits by the third-party recovery, the statute's reference to the parties' interests as they "may appear" requires the Commission to account for future anticipated benefits when determining an employer's proportionate share of expenses of a third-party action.

Share This Article: