State Government

Unusual Workers' Comp Suit May Raise Your Premiums

A Mexican laborer who suffered a heat stroke while picking tomatoes on a Sampson County farm has become the central figure in an unusual legal battle between trial lawyers, insurance companies and some of the biggest hospitals in North Carolina. At stake are huge sums of insurance money and the puzzling question of whether defense attorneys should be paid by clients they don’t represent.

At issue is the proper scope of contingency fees – the common practice in which attorneys represent defendants for no money up front in return for a percentage of any financial award won in court. That was the arrangement between the Kinston law firm of White & Allen and the family of J. Carmen Fuentes, the laborer who became ill while picking tomatoes in Sampson County in 1998.

White & Allen represented Fuentes in his workers’ comp claim before the N.C. Industrial Commission. At the conclusion of those proceedings, the commission determined that Companion Property and Casualty, the farmer’s insurance carrier, should pay Fuentes $24,000 as compensation for lost wages. Of that, the Industrial Commission said 25 percent should go to White & Allen as the firm’s contingency fee.

As that case was going forward, UNC Hospitals was pondering what to do about the $363,000 in expenses it had incurred in treating Fuentes, who was taken there after he became ill. Doctors at the hospital also were left holding $44,000 in bills for treating the laborer.

However, their concerns were eased when White & Allen won their workers’ comp case because the Industrial Commission also ordered the insurance carrier to pay the hospital and doctors’ bills.

That action seemingly left everyone happy – the injured worker had been compensated for lost wages, the hospital and doctors had been paid for his medical treatment, and the defense attorneys had received their contingency fee. But the defense attorneys weren’t happy because 25 percent of $24,000 didn’t come close to recouping their considerable investment in time, money and expertise in the case. They wanted a cut of the $410,000 the hospital and doctors got.

White & Allen made their claim to a share of the $410,000 in a lawsuit filed in Sampson County Superior Court. The defense attorneys argued that if they hadn’t done such a good job of representing Fuentes in his workers’ comp case, the hospital and doctors would have recovered a much smaller settlement from the insurance carrier, if anything at all.

To the surprise of many legal observers, Superior Court Judge Russell J. Lanier Jr. accepted that argument and ordered UNC Hospitals and UNC Physicians & Associates to give a quarter of everything they received in the settlement to White & Allen. That set off a howl in the medical community.

Columbia, S.C.-based Companion Property, joined by UNC Hospitals, appealed the Sampson County judge’s ruling to the N.C. Court of Appeals this past January. Siding with them were Duke University Medical Center, Memorial Mission Hospital, Carolinas Medical Center, Moses Cone Hospital, Baptist Hospitals, Wake Med, the N.C. Hospital Association and the N.C. Medical Society.

In May, a unanimous Court of Appeals tossed out the Sampson County judge’s ruling but left the waters muddied. In an opinion written by Judge Douglas McCullough and concurred in by Chief Judge Sid Eagles and Judge Rick Elmore, the court said it was improper to compensate White & Allen by reducing the amount paid to the hospital and the doctors. But the appeals court said there may be a way around the problem.

“Upon the proper findings of fact as to the work and the special nature of the case, the trial court could order that (Companion Property and Casualty) should pay (White & Allen) an amount based upon a percentage of the $410,000 medical compensation. This amount would be over and above what was ordered by the Industrial Commission to be paid by (Companion).”

Specifically, the appeals court said the Sampson County judge “is not prohibited from utilizing a percentage of the medical compensation as a basis for a fee.”

The ruling satisfied UNC Hospitals and the other healthcare providers, because it meant their insurance payments wouldn’t be reduced. That left the insurance company holding the tab for paying the additional legal fees.

In a petition for discretionary review, Companion asked the N.C. Supreme Court to step in and reconsider the novel finding by the Appeals Court. To the surprise of many, the high court agreed. Oral arguments were scheduled before the Supreme Court in late November or early this month, with an opinion possible by January.

Raymond Evans, general manager of the North Carolina Rate Bureau in Raleigh, an industry group, said business people should be concerned by the implications of this case. “If an award by the Industrial Commission can be increased by 25 percent to pay attorneys’ fees on the medical part of the settlement – and the medical makes up 50 percent of most insurance companies’ losses – then it doesn’t take much math to figure out that the premiums that businesses pay now are deficient by 10-20 percent.

“These kinds of things have an impact on premiums,” Evans continued. “If this is upheld, this won’t show up in the loss experience until two years from now. But sooner or later these amounts that insurance companies are ordered to pay out will be recovered in the premiums paid by somebody.” — Steve Tuttle

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