Chapter 9 Third-party Actions

• Library: The Law of Workers’ Compensation Insurance in South Carolina (SCBar) (2019 Ed.)

Chapter 9 Third-Party Actions

I. Introduction

When an employer and their employee have accepted the provisions of the South Carolina Workmen's Compensation Act, the rights and remedies thereby guaranteed to the employee in case of injury or death by accident are exclusive as against the employer.¹

However, when the compensable injury or death is due to the tortious conduct of a third party, a right of action at law against the tortfeasor is preserved in the Workers' Compensation Act to the employee or to the person liable for the payment of compensation benefits (hereinafter referred to as "the carrier").² Similarly, the fact that a third party may ultimately be legally liable for the compensable injury does not affect the employee's right to compensation under the Act.³

[A] claimant has three remedies for job-related injuries.

(1) To proceed solely against the employer thereby allowing the employer-carrier the opportunity to pursue reimbursement against the third party for its obligated payments.
(2) To proceed solely against the third-party tortfeasor under Section 42-1-550 by instituting and prosecuting an action at law; and
(3) To proceed against both the employer-carrier and the third-party tortfeasor by complying with Section 42-1-560.⁴

A practitioner of workers' compensation law, whether representing claimants or carriers, must therefore also be aware of the developing law regarding negligence, breach of warranty, intentional torts, and products liability in order to recognize and properly handle or refer third-party actions as an adjunct of any workers' compensation practice. Perhaps the most common third-party action is a work-related automobile accident, but the practitioners must also be alert to products actions, environmental pollutants, toxic injuries, negligence actions against independent contractors, and those agents in joint ventures who may be in horizontal or vertical privity with the employer.

In order to prevent a double recovery by the injured employee, the Act provides for the reimbursement of the carrier to the extent of its compensation outlay from the damages recovered in any third-party suit or settlement agreement.⁵ The employee is then entitled to the excess of these damages over the amount of compensation that he receives or is paid on his behalf.⁶ The respective shares of the recovery due to the employee and the carrier are subject to certain adjustments, which are discussed later in this chapter.

II. Parties to a Third-Party Proceeding

An action against a third party may be instituted by either the injured employee, or, in case of death, by his personal representative or other person so entitled to proceed, or, in certain circumstances, by the carrier responsible for payment of compensation benefits.⁷

III. Employee's Remedies Against Third Parties

A. General

An injured employee, or, in the event of death, his personal representative, may recover, in addition to any workers' compensation benefits, damages from a third-party tortfeasor by maintaining a civil action similar to other civil proceedings brought in the Court of Common Pleas and governed by the South Carolina Rules of Civil Procedure.

B. Employee's Right to Maintain Suit and Receive Workers' Compensation Benefits; Election of Remedies

1. General

The employee may institute the third-party action at any time prior to, but not later than, one year from the acceptance of liability or payment of an award by the carrier or "within thirty days prior to the expiration of the time in which such action may be brought... ."⁸ The institution of a civil action against a third party by an employee does not bar a subsequent workers' compensation claim where the statutory notice requirements are met; likewise, the acceptance of a workers' compensation award by an employee does not extinguish his rights to proceed against a third party.

Sections 72-123 through 72-126 were repealed in 1969, and was subsequently replaced with current Section 42-1-560. This section contains no election of remedy clause and specifically states:

[t]he injured employee or, in the event of his death, his dependents, shall be entitled to receive the compensation and other benefits provided by this Title and to enforce by appropriate proceedings his or their rights against the third party....⁹

Under the current code provisions, the carrier's rights against third parties, with few exceptions, are still derivative by way of subrogation. However, certain safeguards, including the employee's responsibility to provide notice of the institution of the third-party action, have been incorporated into the current third-party provisions which protect the carrier's ability to obtain reimbursement for benefits paid while allowing the injured employee to pursue both his statutory and common law remedies. Thus, the need for the election of remedy restriction is eliminated. The carrier is also protected from insufficient settlement agreements between the employee and the third party by requiring the employee to obtain the written consent of the carrier before accepting any compromise settlement.¹⁰ If the employee fails to obtain consent from the carrier such settlement is deemed to be invalid against the carrier who may then proceed directly against the third party to obtain any deficiency.¹¹

2. Exception for Intentional Torts

As stated elsewhere,¹² under most circumstances an employee is precluded under the exclusive remedy provision of the Act¹³ from filing a first- or third-party action against his employer. However, the Supreme Court has held that the Act does not preclude a remedy in tort where an intentional assault on the employee is committed by an alter ego of the employer.¹⁴ In Boulware v. Mills, the court of appeals held in such cases that "the employee has the option to claim workers' compensation or sue his employer under the common law."¹⁵

3. Immunity from Liability on Certain Construction Contracts

In 1996, the General Assembly added Section 42-1-660.¹⁶ This section provides that no architect, engineer, land surveyor, or landscape architect who is retained to perform professional services on a construction project is liable in any action brought pursuant to Section 42-1-560 for any injury resulting from the employer's failure to comply with safety standards on a construction project for which compensation is payable, unless responsibility for safety practices is specifically assumed by contractor or by direct supervision or continual direction of the injured employee relative to the segment of the job which results in the injury.¹⁷ The statute goes on to provide, however, that the immunity provided by this section does not apply to negligent preparation of design plans or specifications.¹⁸

C. Employee's Duty to Provide Notice; Forms

The Workers' Compensation Act requires that certain notices be given, and the Workers' Compensation Commission provides official forms for the giving of these notices as follows: Form S-1 is used by the employer to notify the employee that it is proceeding with a third-party action; S-2 is used by the employee to notify the carrier and the Commission that he is proceeding with a third-party action; S-3 is also used by the employer when notifying the employee it is entitled to file a third-party action; and an S-4, Court Certificate, which should be served along with either S-1 or S-2. A carrier is required to notify third-party defendants of its lien and claim.¹⁹ If the carrier fails to do so, they may not complain, at least to the third-party defendant, about not receiving any share of the proceeds.²⁰

By requiring an employee to give notice of a third-party action within 30 days of filing to the Commission, the carrier is allowed to participate and take necessary steps to ensure that the ensuing litigation is pursued diligently and effectively. Failure to comply with the notice requirement of the Act can be a bar to workers' compensation benefits. In Hudson v. Townsend Saw Chain Company, the court of appeals rejected the lower court's finding that notice of third-party action is required only in situations in which an employee pursues a workers' compensation claim simultaneously with a third-party action, and held that:

[I]rrespective of whether an employee pursues a third-party action either before or simultaneously with filing a workers' compensation claim, the employee, to preserve his or her claim to workers' compensation, must provide the notice required by Section 42-1-560(b). If the employee fails to give the notice required by Section 42-1-560(b) and prosecutes the third-party action to final determination, either before or simultaneously with filing a workers' compensation claim, the employee will be regarded as having elected his or her remedy and will be barred from receiving workers' compensation benefits.²¹

Notice is required even where the carrier is not prejudiced by the lack of notice.²²

Moreover, § 42-1-560(b) must be strictly followed in order for the claimant to preserve her right to proceed against both an employer and a third party.²³

The purpose of the notice requirement is as follows:

By giving the notice required by Section 42-1-560(b), the employee makes it possible for the employer and the carrier to offer the employee meaningful assistance in the prosecution of the third-party claim for the purpose of enhancing the employee's chances of recovery against the third party. [T]he employee also affords the employer and the carrier an opportunity to lend support to an effort that could possibly lead to the recovery by the carrier of some or all the amount that might later be paid as compensation to the injured employee under the Workers' Compensation Act.²⁴

The employee is required only to properly notify the carrier of the timely filing of a third-party action — he is not required to obtain the carrier's consent.²⁵

D. Time Limitations for Instituting Suit

Section 42-1-560(b) of the Code specifies that...