Workers’ Compensation Subrogation Changes: Economic vs. Non-economic And What It Means For Your Recovery

Over the last ten years, and as described in the Colorado Supreme Court’s decision in Volunteers of America Colorado Branch v. Gardenswartz, 242 P.3d 1080 (Colo.2010), the Courts have become increasingly concerned that defendants in lawsuits were benefiting where the plaintiff claiming Injured parties were only able to seek damages for those amounts paid by the health insurer and accepted by medical providers as damages. Known as the “Billed v. Paid” issue, several courts determined that this “benefit” of a reduced price for medical services was a contractual benefit that should not assist defendants. Therefore, presenting evidence of the amount paid to a jury was therefore a violation of Colorado’s collateral source rule’s contract exception.

Phantom Damages

To that end, in Gardenswartz, and in part codified by Colorado’s Made Whole Statute, C.R.S. § 10-1-135, defendants in Colorado are unable to present any evidence to a jury regarding the amount paid by an insurer or accepted by a provider to litigate the issue of, “reasonable medical costs”. An example shows how this creates “phantom damages”:

Billed medical expenses:                                                                                                                                                                     $300,000

Health Insurer pays:                                                                                                                                                                             $100,000
(pursuant to a contract with the medical provider)

At trial, plaintiffs now seek recovery of the full $300,000 and if successful, recover $200,000 of “phantom damages” that no party ever incurred, or paid.

Workers’ compensation liens and payment of medical bills under the Workers’ Compensation Act (Act) had been treated differently than general health insurance for a number of reasons. Colorado appeals courts have described the Colorado Workers’ Compensation Subrogation Statute by stating, “This provision creates two claims – “one ‘owned’ by the employee and one ‘owned’ by the carrier.” Sneath v. Express Messenger Serv., 931 P.2d 565, 568 (Colo. App. 1996). “Each of the parties may prosecute his or its own individual claim” independently of the other. Id.; see also § 8-41-203(1)(e)(II).

Therefore, the employer/carrier can recover its own claim by presenting evidence of how much it paid in medical benefits. If the employer/carrier did not prosecute its own claims, some courts did not permit plaintiffs to seek the type “phantom damages” created by the Gardenswartz decision, however some did.

Pollart Miller had been successful in negotiating “early” settlements of employer and carrier workers’ compensation liens by arguing that settlement of the lien claim, extinguished any claim by the injured employee for all past medical damages at trial. With a settlement, the defendant removed from the evidence all the Billed v. Paid issues by resolving all past claims for medical damages with the employer / carrier.

This was a significant benefit to defendants in general because it reduced their potential exposure and eliminated the concern that these exaggerated phantom damages would be presented to the jury.

Scholle v. Delta Air Lines, Inc. (May 2019)

The issue has now been further thrown into question by the Colorado Court of Appeals. In Scholle, 2019 COA 81M (Colo.App.2019), the Court found that evidence of the fact that the plaintiff’s medical expenses were paid by the plaintiff’s employer under the Act, were inadmissible pursuant to the Collateral Source Rule, C.R.S. § 13-21-111.6. This decision could therefore, have a significant impact on workers’ compensation subrogation in Colorado.

First, the decision eliminates many of the arguments that were successful in enticing a defendant to settle early with the workers’ compensation carrier or employer. Although a defendant is still afforded a set-off for the full amount of the lien if they do settle, the fact that an injured party is still able to present evidence of the phantom damages to the jury, makes such early settlements less valuable for the defendant.

Second, lien holders should be much more aggressive on the back end of any settlement process. In Colorado, when an injured employee settles, the workers’ compensation lien holder can only recover its lien from the employee’s economic damages recovery. When a dispute over how much a settlement is comprised of economic damages versus non-economic damages the parties only option would be to have a Jorgensen hearing, wherein a court is supposed to determine the amount of actual economic and non-economic damages were suffered and then apportion the settlement amount accordingly.

Now that the injured employees are making claims for sometimes as much as three times the amount of medical damages as those paid under workers’ compensation, there are much stronger arguments to be made that any settlement reached by the claimant is comprised of a larger percentage of economic damages than non-economic damages.

The decision has been appealed to the Colorado Supreme Court, who will hopefully shed light on this issue moving forward.


  • All cases are fact specific and how a lien holder should prosecute its own claim given the decision in Schoelle remains in flux. Depending on the amount of the lien, and the type of injuries however, Pollart Miller still recommends that the lien holder participate in the litigation so as to avoid an automatic reduction of the lien amount from anywhere from 30-45% as a result of the injured employee’s attorney’s fees and costs. By intervening, prosecuting or participating in the litigation, this automatic loss of value can be avoided.
  • Now, however, it benefits the workers’ compensation carrier to participate jointly with the plaintiff to ensure that the amount of economic damages includes these “phantom damages.” Why? Because when it comes time to apportion the settlement between economic versus non-economic damages, the workers’ compensation carrier can (in theory) recover a larger percentage of the settlement funds based on this increase in value of the injured employees economic damages.

Claim Handling Tip: This is a complex area, and it is important to outline your strategy early in the process to ensure the best opportunity for maximum recovery.

Ryser v. Shelter Mut. Ins., No. 18CA0748 (Colo. Ct. App. June 13, 2019)

Would you like to know more? Contact Ian Mitchell or 877-259-5693.


From the September 2019 Newsletter