Mass. High Court Bars Recovery of Workers’ Comp Costs in Tort

June 4, 2008

A Massachusetts employer is not entitled to recover any increased workers’ compensation costs from a third party responsible for injuring its employee.

The Massachusetts Supreme Judicial Court ruled that the state’s economic loss doctrine bars the recovery in tort of losses that are purely economic and where there is no personal injury or property damage.

R.L. Whipple Co., Inc. employed Paul Landry who was injured when a Dumpster owned by Pondview Excavation Corp. rolled off a truck. Landry filed a workers’ compensation claim, which was covered by Whipple’s insurer. Under the subrogation provisions of the state’s workers’ compensation statute, when Landry settled his suit against Pondview, the insurer recovered the full amount it had paid to Landry.

The issue of whether an employer can maintain a negligence claim to recover its increased workers’ compensation insurance costs from the third party who injured its employee was a case of first impression for the courts.

Whipple sued Pondview, asserting that Pondview’s negligence caused its Whipple’s insurance costs to increase in two ways: first, Whipple did not receive an anticipated return of a portion of its 2001 premium; and second, its premiums for the years 2001, 2002, and 2003 increased because of an “experience modification.”

The latter was dismissed as an issue because, as a result of the recovery by the insurer from the settlement, the experience modification was reversed. Thus, only the 2001 dividend loss remained.

Pondview sought summary judgment on Whipple’s negligence claim on the ground that it owed no duty to Whipple. It also argued that the state’s workers’ compensation act foreclosed Whipple’s claim. The Superior Court judge granted the motion on the ground that no duty was owed. The Supreme Court has now affirmed that ruling.

The high court noted that every jurisdiction that has considered whether an employer may recover its increased workers’ compensation insurance costs from the tortfeasor who injured its employee “has found that no such claim can be maintained as a matter of law.” These other courts reached this conclusion either by employing tort principles (finding a lack of duty, that damages are too remote or unforeseeable, or that the action is barred by public policy), or through construction of the applicable workers’ compensation statute.

The Massachusetts high court said it reached the same result, but with different reasoning.

The court noted that Massachusetts generally follows the traditional rule “that purely economic losses are unrecoverable in tort … actions in the absence of personal injury or property damage.” Because Whipple seeks to recover purely economic damages, its claim is barred by the economic loss doctrine, according to the ruling.

The court found that dividend loss Whipple seeks to recover was the result of contract terms it negotiated with its insurer. Whipple itself has suffered no personal injury. Whipple’s loss also does not arise from the personal injuries sustained by Landry.

Likewise, the court added, Whipple has suffered no property damage. “To find otherwise would require resorting to archaic concepts of the servant as chattel that have no place in our modern jurisprudence or society,” the decision stated.

The case is R.L. Whipple Co. Inc. vs. Pondview Excavation Corp.,
No. 07-P-1214. April 14, 2008. – June 4, 2008.

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