Say It or Waive It? – Does failure to expressly reserve a third-party lien constitute a waiver of subrogation rights
As a win for employers and insurers, the answer is no! The Maryland Court of Special Appeals (“COSA”) has found that failure to reserve a third-party lien in a settlement agreement does not constitute a waiver of the right of subrogation. Rather, COSA opines that a waiver must be expressly outlined in an agreement to be enforceable.
In Conley v. Trumbull Insurance Co., 2022 WL 2800977, Claimant was injured while working as a supermarket employee due to the negligence of a third party. As a result, Claimant filed both a workers’ compensation claim and a claim against the third party. While the third-party claim was pending, Claimant and the employer/insurer reached a settlement agreement. An Agreement of Final Compromise and Settlement (“AFCS”) was filed with and approved by the Workers’ Compensation Commission. The AFCS did not expressly reserve or waive the employer/insurer’s third-party lien – it did not mention the lien at all. After Claimant settled his suit with the third party, the insurance carrier sought reimbursement from the third-party settlement, which is typical practice. Claimant argued that he was not obligated to reimburse the employer/insurer because the employer/insurer waived its right to subrogation by failing to explicitly reserve its lien in the agreement. The Circuit Court for Baltimore County disagreed with the claimant, holding that the third-party lien was not waived merely because it was not mentioned in the agreement. The claimant appealed to the Court of Special Appeals.
In an unreported opinion, COSA affirmed the lower court’s decision. COSA cited Maryland Code Labor and Employment, Section 9-902 in its reasoning. Notably, COSA explained that the October 2018 amendment of LE § 9-902, subsection (g) was added to the statute to require an employee who recovers as a result of a third-party suit to reimburse the employer/insurer if the employer/insurer “has not waived third-party reimbursement.” COSA held that before this amendment and pursuant to LE § 9-104, an employer’s subrogation interest was not waivable – even by agreement.
Despite the favorable outcome of the case, The Honorable John J. Nagle, III, Judge of the Circuit Court of Baltimore County, did note that it might be best practice for carriers to add language in all applicable settlement agreements, which unmistakably reserve its subrogation right. As the COSA opinion is unreported and cannot be cited as authority in any Maryland Court, insurers should heed Judge Nagle’s advice. It’s better to be safe than sorry.
Written by associate Stephanie Broznowicz.