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Philadelphia denied cut of lawsuit settlement from cop hit by drunk driver

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The city of Philadelphia did not have a right to subrogate a third-party liability award that was paid to a city police officer, even though the city was paying him benefits similar to workers compensation, a Pennsylvania appellate court has ruled.

James Stermel worked for the Philadelphia Police Department and pulled over a speeding driver in June 2006, court records show. While sitting in his police cruiser on the side of the road, Mr. Stermel's car was rear-ended by an intoxicated driver.

The accident caused Mr. Stermel to miss 21 weeks of work because of a back injury, according to court filings. The city of Philadelphia, which is self-insured, accepted liability for Mr. Stermel's injury and acknowledged he would be entitled to $745 in weekly workers comp benefits — the maximum benefit allowable under Pennsylvania law — while he was out of work.

The city also acknowledged that, rather than paying workers comp benefits to Mr. Stermel, it would pay benefits under the Pennsylvania Heart and Lung Act, records show. While the maximum workers comp benefit would have replaced about 53% of Mr. Stermel's salary during his recovery, the Heart and Lung Act allows public safety employees to continue receiving their full salary while temporarily disabled due to a work injury.

Pennsylvania law says that public safety employees are entitled to receive both workers comp and Heart and Lung Act benefits, but that workers comp benefit payments must be turned over to the claimant's employer in such cases, records show.

Because of this, self-insured public employers usually do not pay workers comp benefits in cases where Heart and Lung Benefits are being paid, since the benefits would be paid directly back to them rather than to an insurer, according to court filings. However, such employers issue a “notice of compensation payable” to show the claimant's injury is compensable.

Pennsylvania workers comp law says that employers have the right to subrogate third-party tort judgments for workers comp benefits paid to a claimant, according to court records. The Heart and Lung Act doesn't include a similar provision, but Pennsylvania courts previously have construed that Heart and Lung Act payers have a right to subrogation.

Mr. Stermel returned to work in October 2006 and stopped receiving Heart and Lung Benefits at that time, according to court filings. He also filed a third-party tort lawsuit against the driver who hit his car and the bar that served alcohol to that driver. Mr. Stermel recovered at total of $100,000 from the defendants.

The city of Philadelphia later filed a subrogation petition against Mr. Stermel's recovery, seeking $7,244 in medical payments and $20,499 in wage loss payments, according to records. A Pennsylvania workers comp judge sided with the city and said Philadelphia was allowed to subrogate Mr. Stermel's judgment.

On appeal from Mr. Stermel, the Pennsylvania Workers' Compensation Appeal Board reversed the judge's decision. The board found that employers that pay Heart and Lung Benefits don't have a right to subrogate a motor vehicle tort recovery.

However, the city of Philadelphia requested a rehearing in Mr. Stermel's case, and the workers comp appeal board reversed its prior decision. It found in the rehearing that, based on previous case law, two-thirds of the Heart and Lung benefits paid by Philadelphia represented workers comp benefits. Therefore, the board found the city had a right to subrogation.

A three-judge panel of the Pennsylvania Commonwealth Court unanimously ruled Thursday that the city of Philadelphia could not subrogate Mr. Stermel's tort award. The court found that Pennsylvania's Heart and Lung Act does not provide subrogation rights like those afforded under the state workers comp law.

The notice of compensation payable, “which was issued unilaterally by employer, does not transform Heart and Lung benefits into workers' compensation; they are separate,” the ruling reads. “For its own reasons, the General Assembly has decided to treat Heart and Lung benefits differently, at least with respect to subrogation from a claimant's tort recovery arising from a motor vehicle accident.”