12.3.2 Assignment of Rights and Reassignments

• Jurisdiction: Arizona

. The original third-party statute required a mutually exclusive election to take compensation benefits or sue the negligent third party.^[201] If compensation was elected, the third-party claim was automatically assigned to the state for the benefit of the compensation fund and could be prosecuted or compromised by the Industrial Commission. This was before the Industrial Commission and the State Compensation Fund became separate state agencies.

In 1965, the statute was amended to allow the claimant to both accept compensation and pursue the third party. The carrier was given a lien on the third- party recovery to the extent of compensation and medical benefits paid.

A 1969 amendment to A.R.S. § 23-1023 (B), in addition to removing the “election’’ language altogether, automatically assigned an unprosecuted third-party claim to the compensation carrier after one year. The statute was found to be constitutional against the argument that it deprived or limited the claimant’s right to a full recovery of tort damages.^[202]

While the statute was silent regarding the carrier’s right or ability to return the worker’s claim, practitioners and carriers fashioned a workable procedure. The practice of reassigning third-party claims in the second year gradually developed and was formally approved by the court of appeals in a 1973 case.^[203] The traditional public policy reasons against the assignment of tort claims (i.e., to prevent the trafficking in actions for pain and suffering by the unscrupulous) were found not to be applicable when the claim was simply being given back to the person who experienced the pain and suffering.^[204]

The court also held that after obtaining a reassignment, the claimant could recover all of his or her damages from the tortfeasor rather than just the amount of compensation and medical benefits that the carrier would have been limited to recovering had not reassigned the claim.^[205]

In 1980 the pendulum swung back the other way. The supreme court considered a case in which the claimant had filed the third-party claim in the second year but did not obtain a reassignment until after the two-year statute of limitations on tort claims had expired.^[206] Since the assignee can stand in no better position than the assignor, the attempted retroactive reassignment must fail. In so ruling, the supreme court expressly disavowed approval of the original court of appeals ruling in the 1973 case and stated that: “It is an open question whether a claim may be reassigned and what interest is conveyed thereby.’’^[207]

A year later, the supreme court put an end to the practice of reassignment altogether by holding that an unliquidated claim for damages arising out of a tort is not assignable.^[208] The court strongly suggested that legislative amendment of the statute would be necessary to allow reassignments, and expressed scant sympathy for a claimant who could not file a third-party suit within a year.^[209]

Responding promptly, the legislature amended A.R.S. § 23-1023 (B) to allow reassignment of the claim by the carrier to the claimant in the second year,^[210] expressly stating that the reassignment vests in the claimant the same rights to pursue the claim as had existed in the first year.

The supreme court upheld the constitutionality of the legislative amendments^[211] and later the retroactive application of the amendments to claims based upon reassignments that were still pending at the time of the earlier opinion.^[212] Since then, the practice of reassigning claims has continued.

As a practical matter, the claimant should not rely on his or her ability to obtain a reassignment of the third-party claim as an excuse not to file suit in the first year. A...