RABINOWITZ, Chief Justice.
This appeal raises questions of whether an injured employee must reimburse his employer's workmen's compensation carrier for all benefits received upon obtaining a settlement from a third-party tort-feasor, and whether, under the exclusive remedy provisions of Alaska's Workmen's Compensation Act, an employee is barred from suing his employer's compensation carrier for intentional torts.
On May 2, 1970, Stafford sustained serious injuries while attempting to shut off a shredder, which had been manufactured and distributed by W.W. Grinder Corporation and Alaska Greenhouses, Inc. At the time of the injury, Stafford was acting in the course and scope of his employment for G.B. Bordewick Co., Anchorage, Alaska, which was insured by Westchester.
On June 2, 1971, Stafford commenced an action against W.W. Grinder and Alaska Greenhouses, Inc., alleging that while operating the shredder he had suffered substantial injuries by virtue of its defects. Westchester filed a complaint in intervention in this case on September 14, 1971. Westchester alleged that it was the workmen's compensation carrier for Bordewick, and in such capacity had paid a substantial amount of compensation to Stafford for injuries sustained while using the shredder.
On March 12, 1972, Stafford settled his suit against W.W. Grinder and Alaska Greenhouses, Inc. for the sum of $137,500. On March 15, 1973, Stafford filed an answer and counterclaim to Westchester's complaint for intervention. In this answer, Stafford challenged Westchester's right to reimbursement. He further alleged that Westchester, through its agents, did wilfully, deliberately, and maliciously withhold Workmen's Compensation Act benefits in an effort to discourage Stafford from proceeding and securing compensation under the act. Stafford contended that this tortious conduct by Westchester precluded it from receiving any reimbursement of compensation payments from Stafford's settlement with the third-party tort-feasor, and entitled him to substantial damages for conscious infliction of mental injury. Stafford further asserted that Westchester's malicious actions and the resulting injury should also be considered as constituting a defense of recoupment to Westchester's claim in intervention for reimbursement.
In preparation for trial, Stafford noticed the deposition of Charles Hagans, attorney for the Bordewick Co. and Westchester, for March 30, 1973. Westchester then filed a motion for a protective order against the taking of Hagans' deposition based primarily on the attorney-client privilege. The superior court denied Westchester's motion on the basis that Westchester had waived the attorney-client privilege.
Stafford's first contention on appeal is that the superior court erred in limiting the testimony that Stafford proposed to elicit from Westchester's attorney, Charles Hagans, in a prospective deposition. We find no evidence in the record to support this assertion. After denying Westchester's motion for a protective order, the superior court stated it might sustain an objection, if areas of confidentiality not previously waived were the subject of questioning at the time of Hagans' deposition. However, the court repeatedly stated, "I'm not prohibiting anything at this time, because I do not know what the line of testimony is going to take." We hold, therefore, that there was no error as
Stafford next argues that the superior court erred in awarding Westchester complete reimbursement for benefits paid, and further, if reimbursement was appropriate, Westchester should have been required to pay to Stafford a pro rata share of his costs or expenses in obtaining a settlement from the third-party tort-feasor. It is provided in AS 23.30.015(g) of our compensation act that:
Stafford asserts first that a compromise settlement does not involve "recovery of damages" within the ambit of AS 23.30.015(g). Second, he contends that if Westchester is held to be entitled to reimbursement, it should bear a share of the expenses he incurred in effecting the settlement.
We find the first portion of Stafford's argument untenable. One of the dominant themes of Alaska's Workmen's Compensation Act is the avoidance of double recovery, which theme is reflected in the requirement of AS 23.30.015(g) that the total amounts paid by the compensation carrier be returned to it when damages are recovered by the employee from a third person. Professor Larson, in discussing this theme which is commonly found in compensation acts, states that the
This principle applies equally when a suit is settled as when a final judgment is rendered. The federal Longshoremen's and Harbor Workers' Compensation Act
Stafford argues alternatively that it would be just and equitable in the instant case to place the burden of attorney's fees and costs in effecting his settlement with the third-party tort-feasor either entirely or partially on Westchester, if Westchester is to share in the compromise settlement. Stafford cites Strachan Shipping Co. v. Melvin
In Davis v. United States Lines Co., 253 F.2d 262 (3d Cir.1958), the Third Circuit held that litigation costs should come out of the recovery against the third-party tort-feasor. In the Davis court's view, this result should be reached whether the employee or the employer brings the third-party suit. In Ashcraft and Gerel v. Liberty Mutual Insurance Co., 120 U.S.App. D.C. 51, 343 F.2d 333 (D.C. Cir.1965), Judge McGowan noted that the change in the federal workmen's compensation statute
Turning to the language of AS 23.30.015(g) of Alaska's Workmen's Compensation Act, it states that there will be total reimbursement after litigation costs are deducted.
Stafford's principal specification of error is that the superior court erred in dismissing his counterclaim against Westchester for intentional tortious conduct. The superior court dismissed Stafford's counterclaim on the ground that AS 23.30.155 provides the exclusive remedy for such conduct on the carrier's part. In regard to this issue, AS 23.30.155 of Alaska's Workmen's Compensation Act provides:
Penalty provisions are provided for in some states as a deterrent against delays in compensation payments.
AS 23.30.155 does not draw a distinction between wilful and negligent failure to make compensation payments, and thus either type of failure should come within its ambit. Stafford could, therefore, recover for wilful and intentional misconduct by Westchester in failing to make payments, pursuant to the penalty provided for in AS 23.30.155.
We turn next to the question of whether the penalty provision of AS 23.30.155 is the sole remedy available to Stafford for Westchester's alleged improper conduct. The exclusive liability provision of Alaska's Workmen's Compensation Act (AS 23.30.055) provides in part:
The definition of who shall be classified as an employer is set out in AS 23.30.265(12) as being
Under our compensation act the carrier is considered a separate entity from the employer. Stafford recognizes that the principle of subrogation may be utilized to conclude that the carrier derives immunity from the exclusive remedy provisions in a damage action brought by the employee. However, Stafford argues that this immunity should not extend to intentional torts. This is supported by the decision of the Supreme Court of California in Unruh v. Truck Insurance Exchange,
In Unruh, the California Supreme Court reasoned that while the insurer obtained
Stafford also cites the case of Flamm v. Bethlehem Steel Co.,
Westchester argues that the penalty provisions of AS 23.30.155 for delay in payment of compensation constitute the exclusive remedy, and allowing suits under the guise of intentional torts should not be permitted. This approach was adopted in Ragsdale v. Watson,
We believe that AS 23.30.155 was envisioned by Alaska's legislature to cover situations where the employer or carrier negligently, or wilfully, failed to make timely compensation payments, but that this section was not intended to operate as the exclusive remedy for all intentional wrongdoings. In so holding we adopt the reasoning of Unruh. In circumstances where there is tortious conduct that goes beyond the bounds of untimely payments, the immunity from suit provided by the Workmen's Compensation Act is lost.
Westchester's cross-appeal involves the superior court's refusal to award it any attorney's fees, pursuant to Civil Rule 82(a). We find that the court erred in its determination, based on an incorrect interpretation of our decision in Malvo v. J.C. Penney, Inc., 512 P.2d 575 (Alaska 1973). In Malvo, we held that to award full compensation for attorney's fees to J.C. Penney, Inc. was unjustified where there was "no indication from the record that Malvo did not have a good faith claim...."
The superior court interpreted Malvo to require that no attorney's fees should be awarded when the losing party brought the action in good faith. We did not intend that attorney's fees should be denied to the prevailing party, but rather, that the schedule of Civil Rule 82(a) providing for partial compensation should be followed.
On remand, the attorney's fee award must be recomputed as Westchester prevailed on the reimbursement issue, but Stafford prevailed on the exclusive remedy issue. The superior court shall determine whether Westchester or Stafford can be considered a prevailing party. Then, if it can be concluded that either party has prevailed, the attorney's fees should be awarded in accordance with Civil Rule 82(a).
Affirmed in part, reversed in part, and remanded.
BOOCHEVER, J., not participating.
ERWIN, Justice, with whom CONNOR, Justice, joins (concurring in part, dissenting in part).
While I specifically concur with the result reached in this case, I do not agree with the conclusion that an employer's compensation carrier does not have to pay its pro rata share of the legal costs incurred by an employee in obtaining a recovery from a third-party tort-feasor. I read AS 23.30.015(g)
The Alaska Workmen's Compensation Act was patterned after the federal Longshoremen's and Harborworkers' Compensation Act. It has been the state's policy to update the Alaska act to parallel changes
The Longshoremen's and Harborworkers' Act does not specifically address itself to the question whether legal costs must be shared when the employer's compensation carrier is reimbursed out of a recovery obtained by the employee from the third-party tort-feasor.
When the employee's recovery is insufficient to both cover his legal costs and fully reimburse the employer's carrier, however, the carrier is reimbursed out of the recovery only to the extent possible after the recovery has been diminished by the employee's legal expenses.
In 1965, House Bill 176 was submitted to the Alaska Legislature by Acting Governor Hugh J. Wade to bring the Alaska Workmen's Compensation Act into line with the federal Longshoremen's and Harborworkers' Compensation Act. In his letter accompanying the bill, Acting Governor Wade stated:
However, a committee substitute bill introduced by the House Judiciary Committee was enacted by the legislature in lieu of House Bill 176. This substitute bill contained an entirely new section g — now AS 23.30.015(g) — which was not in the federal act:
It is conceded that it is possible to read AS 23.30.015(g) to support the federal view, for the statute, when literally read, stipulates that the employee is required to reimburse the employer's carrier only to the extent that the recovery is sufficient to do so after "deducting all litigation costs and expenses." However, I do not believe this literal reading to be consistent with the legislative intent. If the legislature had wished to follow the federal interpretation, there would be no need to codify it. They could have safely relied upon federal case law, as they have done to elaborate upon and define other sections of the Alaska Workmen's Compensation Act. It thus appears that if the addition of AS 23.30-015(g) is to be accorded a meaningful justification, it must be construed to reject the federal view on sharing legal fees. However, since nothing more can be logically deduced from the legislative history of this provision, it remains to be decided whether it requires the sharing of legal expenses. In my view it does, for if any other reading is given to the provision the carrier is unjustly enriched at the injured employee's expense.
I can perceive of no legislative goal for permitting an employer's compensation carrier to secure a windfall profit at the employee's expense. Compensation premiums are based on actuarial estimates of the number of accidents of each type in a given industry. They are not usually computed with any possible recovery from third-party sources in mind, because the mathematical probability of such a recovery is difficult to determine. And even when they are, the amount of estimated recovery must, of necessity, be conservative. Thus, when the carrier recovers from a third-party tort-feasor because of the employee's suit, the recovery is in the nature of an unexpected return, for the premium paid by the employer is normally based upon a projected injury loss without regard to possible third-party claims.
If an employer or compensation carrier need not pay his pro rata share to recover this unanticipated return, the entire burden of the litigation must be borne by the employee, and the carrier takes the benefit of both the employer's premium and the employee's litigation effort without a corresponding detriment. In my opinion, this is in the nature of an unjust enrichment.
Although we might agree with our concurring colleagues as to the desirability of proration, we are of the belief that decision of this question is committed to the legislature and must await resolution in that forum.
1965 Journal of the Alaska House of Representatives, Supp. 13, at 242-1.
Anno., 2 A.L.R.3d 1441, 1443 (1965).