12.3.3 Insurer's Lien, Credits, and Subrogation

• Jurisdiction: Arizona

. Under the existing statutory subrogation mechanism, the compensation carrier is given both a lien to the extent of all compensation and medical benefits paid and a credit against future benefits to the extent of the claimant’s net recovery in a third-party action.^[228] The credit acts like a deductible that the claimant must meet in order to obtain further benefits upon reopening.^[229]

Section 23-1023 (C) defines the phrase “amount actually collectable’’ as “the total recovery less the reasonable and necessary expenses, including attorney fees, expended in securing the recovery.’’ Since postjudgment interest which accumulated while the verdict was on appeal was not expressly excluded from the “amount actually collectable’’ in the statute, it was found to be subject to the carrier’s lien. The claimant’s attempt to exempt it from the carrier’s lien on the theory that it represented damages resulting from the loss of the use of the money for a period of time, was rejected.^[230]

Interest which has accrued on a settlement prior to disbursement, however, is not part of the “amount actually collectable’’ and is not subject to the carrier’s lien.^[231]

The “amount actually collectable’’ is not segregable into damages for economic loss versus damages for pain and suffering so as to exclude the latter from the carrier’s lien.^[232] Nor, on a medical malpractice recovery, can the “amount actually collectable’’ be divided between damages before and after the malpractice.^[233] The carrier’s lien, fair or not, attaches to the entire recovery even though a portion of the lien represents premalpractice benefits.

The compensation carrier’s lien also attaches to a widow’s unmatured death benefit claim even though the widow’s benefits are based upon an independent statutory right.^[234]

It has already been established that the carrier’s lien does not attach to a legal malpractice recovery against the attorney who mishandled the third-party claim,^[235] to the settlement of a nonindustrial accident where the effects are intertwined with those of the industrial injury,^[236] or to an uninsured motorist through a policy procured by the employer or by the claimant.^[237]

It has also been held that the lien does not attach to a recovery from the Arizona Property and Casualty Insurance Guaranty Fund,^[238] which covers claims against insolvent insurers, because under the definition of “covered claim’’ in A.R.S. § 20-661 (3), amounts due insurers as subrogation recoveries are expressly excluded. There is also a specific offset for workers’ compensation benefits so as to prevent a double recovery.^[239]

Although the compensation carrier has no obligation to reduce its lien as a condition of a third-party settlement,^[240] as a practical matter it is rare that a carrier will refuse to do so where third-party liability is questionable and a partial recovery looks better than none. The situation calls for great tact and discretion by the claimant’s attorney in negotiating with the carrier. While few carriers steadfastly refuse to reduce a lien on any condition, even the more reasonable ones can be offended by too aggressive an approach.

In the face of complete intransigence, the plaintiff’s attorney might be reduced to scrutinizing the lien with a view toward eliminating at least those items of a strictly...