Torts - Cases, Principles, and Institutions Fifth Edition, 2016a

Witt & Tani, TCPI 10. Damages
insureds. Is there a reason to prevent an insured from purchasing a policy that exchanges a subrogation
claim in return for a lower price?
In any event, subrogation claims are often quite difficult to win. Tom Baker’s qualitative study of
plaintiffs’ lawyers revealed some surprising results about the actual role of parties insuring the plaintiff
who have subrogated claims of some kind. In Connecticut, where Baker did his study, state law provides
that workers’ compensation insurers have a lien on all tort damages recovered by a plaintiff who has also
received workers’ compensation benefits for the injury in question. Such a plaintiff, by the terms of the
Connecticut statute, will only be able to capture tort damages over and above whatever amount the
compensation insurer’s claim. Nonetheless, in practice, workers’ compensation insurers share the
damages with plaintiffs according to what lawyers in the field call “the rule of thirds.” Baker explains
through the voice of one of his interview subjects:
That means that whatever money that the defendant was going to put up is split three
ways. The plaintiff’s attorney gets a third, which statutorily he gets fees and costs
firsts. The comp carrier gets a third of whatever that money off their lien, and then
the plaintiff puts a third in his pocket.
Baker, Blood Money, New Money, supra, at 304. But if the compensation insurers could by law
take a plaintiff’s recovery up to the full amount of the benefits they have paid out to the plaintiff
in compensation benefits, why do they compromise their subrogation claims? The answer lies in
the institutional structure and pervasive weakness of subrogation claims. In a workers’
compensation setting or in any other subrogation setting, the insurer usually needs the plaintiff for
the claim to be successful. The insurer needs the plaintiff to attend depositions and to go through
the hassle of the litigation. It needs the plaintiff to serve as a witness at trial. And it needs the
plaintiff to serve more generally as a charismatic and sympathetic claimant before the jury. If the
insurer will take the entirety of the damages awarded (or, more typically, the entirety of the
settlement value), then the insurer will have an awfully hard time getting the plaintiff to go
through with the litigation in a manner that maximizes the insurer’s recovery.
And so insurers share the proceeds with their insureds, even when the insurer is legally
entitled to it. The effects of insurance benefits running to the plaintiff in advance of the resolution
of a tort claim may be even more significant. Here is Tom Baker again, now describing the way
in which an insurer or some other collateral benefits source of support for the plaintiff transforms
“the dynamics of the tort settlement process.” The term “new money” in the following passage
refers to settlement amounts or damages awards allocated to the plaintiff over and above any
collateral benefits the plaintiff has already received, as opposed to settlement amounts or damages
allocated as reimbursement to the insurer or other provider of the collateral benefits in question:
[I]f the plaintiff has little or nothing to lose by going to trial, the plaintiff will go to
trial; and trial poses substantial risks for the defendant, the defendant’s liability
insurance carrier, and the [workers’ compensation carrier]. The defendant and the
liability insurance company face the risk of a generous jury verdict, and the comp
carrier faces the risk of a defense verdict. To get the certainty that settlement
provides, both are willing to pay additional new money to the plaintiff. The result
is, at least according to these respondents, that cases with workers compensation
liens settle for a larger amount than cases without them.
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