In Auto Owners Insurance, Petitioner settled a third-party claim for $5 million. The claim was brought against third parties involved in a workplace accident that left Petitioner disabled and receiving ongoing workers’ compensation benefits.
Auto Owners Insurance Company, the employer’s workers’ compensation insurance carrier, began paying Petitioner’s medical and wage benefits, but stopped paying ongoing benefits once the third-party settlement had been reached. At that point, $2.1 million had been paid to Petitioner’s attorneys for attorney fees and other expenses associated with the third-party action. Additionally, the insurer paid $1.57 million in medical and indemnity benefits.
The Workers’ Compensation Act allows for, and requires, that employers and carriers share in the recovery a Petitioner obtains resulting from third-party settlement. Utah Code subsection 34A-2-106(5) governs the disbursement of a third-party recovery. When an injured worker obtains a third-party settlement, the carrier is entitled to recover benefits it has already paid, and it can also use the recovery amount as a credit against future benefits owed to Petitioner.
A dispute regarding disbursement arose between Petitioner and the carrier in determining the carrier’s proportionate share of the attorney fees associated with the third-party settlement. Specifically, the Utah Supreme Court (the Supreme Court) was asked to decide if anticipated future liability should be factored when calculating the carrier’s share of the legal bill.
Petitioner argued that under Utah Code subsection 34A-2-106(5), both past and anticipated future benefits must be used to calculate the carrier’s proportionate share of expenses incurred in securing the third-party settlement.
In contrast, the carrier took a narrower view, arguing that future medical costs are too uncertain and should not be included in any calculations determining the carrier’s proportionate interest in the recovery. Relevant to this case, a medical panel opined that Petitioner was entitled to $7 million in future benefits over his estimated 40-year life span.
In other words, Petitioner argued that the carrier’s proportionate share should be made up of $1.57 million of past paid benefits plus at least the $7 million in future benefits, divided by the amount of gross recovery ($5 million), which equals more than 100% of proportional costs, meaning that the carrier is responsible for the total $2.1 million is legal fees and costs.
The carrier argued that its proportionate share should be made up of the $1.57 million in past paid benefits divided by the amount of gross recovery ($5 million), making its proportionate share 31.6% of the $2.1 million in legal expenses, or about $679,000.
The Supreme Court agreed with Petitioner, holding that where a carrier is seeking both reimbursement and offset, the carrier’s proportionate share of the legal expenses of any third-party action must include consideration of past and future benefits.
Despite the carrier’s argument that future benefits are uncertain, the Supreme Court explained that the language in Utah Code subsection 34A-2-106(5) accommodates the anticipated amount of future benefits when calculating the carrier’s proportionate share of legal expenses.
The Supreme Court spent a shorter time discussing the second issue of the carrier’s objection to being ordered to pay $571,523.29; a payment the carrier characterized as an “advance of benefits”, but which the Supreme Court explained was actually a reimbursement to Petitioner for the carrier’s proportionate share of legal expenses. The Supreme Court explained that Petitioner had already paid all legal expenses of the third-party action from the settlement recovery. Because the carrier’s share of those expenses exceeded what it was owed in past benefits paid, the carrier now owed Petitioner the balance as a reimbursement.
The Supreme Court calculated this total by taking the $1.57 million in past benefits for which the carrier was entitled to reimbursement and subtracted the total legal expenses for which it was responsible ($2.1 million), leaving $571,523.29 as the reimbursement for the carrier’s unpaid proportionate share of fees.
Therefore, the carrier’s offset against future benefits is calculated to be $3.4 million. This is the total that the carrier may use toward payment of future workers’ compensation benefits owed to Petitioner. If and when this amount is exhausted, the carrier must resume paying Petitioner’s benefits out of pocket.
This opinion makes clear that when a carrier is seeking reimbursement for past benefits paid or an offset on benefits owed under Utah Code subsection 34A-2-106(5), carriers and employers must consider not only past benefits paid, but future benefits as well.
The Supreme Court also makes clear that before a carrier or employer can offset future benefits against a third-party settlement recovery, it must reimburse Petitioner for its proportionate share of legal expenses.
Auto Owners Insurance v. Labor Commission, Case No. 20241315, Filed Feb. 26, 2026, 2026 UT 3.
Want to know more? Contact Jakub Lewandowski at jlewandowski@pollartmiller.com
