The Sumwalt Group Wins Supreme Court Case Limiting Reimbursement of Workers Compensation Liens from Some Out-of-State Insurance Payments
On August 14, 2020, the Supreme Court of North Carolina filed its decision in Walker v. K&W Cafeterias, Inc. (No. 99PA19-1), which eliminated a North Carolina workers’ compensation lien from the settlement of a South Carolina Wrongful Death lawsuit.
North Carolina workers’ compensation laws provide for a right of reimbursement–called “subrogation”–whenever an injury at work is caused by the fault of someone other than the employer, and the worker prosecutes a personal injury claim–called a “third-party claim”–against that person in addition to the workers’ compensation claim against the employer. In contrast, South Carolina law provides that underinsurance motorist payments in personal injury cases are not subject to subrogation. The Supreme Court resolved this conflict in Walker, where underinsurance motorist payments were made under a South Carolina insurance policy in a third-party claim. The Walker Court concluded that North Carolina courts and the Industrial Commission had no authority to regulate the payment of insurance payments made under another State’s laws. This means that South Carolina law is superior to the conflicting law of North Carolina when it comes to insurance payments made under South Carolina law. For this reason, the workers’ compensation insurance company could not get reimbursed from South Carolina underinsurance motorist payments.
The Walker decision carries out our basic rules of federalism set up in our United States Constitution and the different State constitutions. Although the Supreme Court of North Carolina did not cite it as authority, the United States Supreme Court reached the same conclusion in a case that every first-year law student knows–Pennoyer v. Neff, 95 U.S. 714 (1878)–which North Carolina courts have always followed. In Pennoyer, the United States Supreme Court held “(1) that every state possesses exclusive jurisdiction and sovereignty over persons and property within its territory; and (2) that a state cannot exercise direct jurisdiction over persons or property without its territory.” Holt v. Holt, 41 N.C. App. 344, 349-350, 255 S.E.2d 407, 411 (1979). Because the South Carolina underinsurance motorist proceeds were paid under a South Carolina insurance policy subject to the regulation by South Carolina authorities, Walker held that the North Carolina legislature and courts could not override the superior authority of South Carolina authorities to regulate insurance in South Carolina.
Vernon Sumwalt was the lead lawyer in Walker, both at the trial and appellate levels in North Carolina.