Utah Supreme Court Ruling Alters Workers' Compensation Cost Responsibilities
The Utah Supreme Court recently issued a pivotal ruling impacting how workers' compensation insurers handle legal cost responsibilities in cases involving third-party lawsuits. On February 26, 2026, the court ruled against Auto Owners Insurance Company, setting a precedent for determining insurers' shares of legal costs when injured workers secure settlements from third parties.
This case began in 2013 when Eduardo Narciso, an employee of HB Construction, suffered a severe injury resulting in permanent disability. Auto Owners, responsible for HB Construction's workers' compensation, covered Narciso's medical and wage benefits. Narciso later pursued a third-party lawsuit related to the incident, securing a $5 million settlement in 2018. Despite this settlement, Auto Owners stopped benefit payments, sparking a legal debate over the settlement's distribution.
Legal Cost Allocation under Utah's Workers' Compensation Act
Utah's Workers' Compensation Act stipulates that financial recovery from a third-party lawsuit must be shared proportionally among all financially interested parties. This includes insurers recouping paid benefits and using settlements to offset future obligations. The crux of the dispute was whether the insurer's legal cost share should account solely for payments already made or also future liabilities.
Auto Owners contended that only past payments should be considered due to future cost uncertainties, assessing their legal cost share at around 31.6% based on incurred expenses. Narciso argued that the calculation should encompass significant future care costs exceeding $7 million, thus increasing Auto Owners' legal cost share.
Supreme Court Decision on Comprehensive Cost Evaluation
The Utah Supreme Court supported Narciso, ruling that insurers seeking reimbursement for past benefits and future offsets must consider both past and future commitments in their share of legal costs. The court highlighted the statute's accommodation for uncertainty in cost projections, dismissing Auto Owners' limited interpretation.
Additionally, the court mandated a $571,523.29 reimbursement by Auto Owners for legal costs already covered by Narciso, exceeding recovered past benefits. The decision requires insurers to settle their legal fees share prior to utilizing third-party settlements for future liability offsets.
Following this ruling, Auto Owners' future payment offset was established at $3,421,904.31, allowing this amount to be used before resuming direct benefit payments. This verdict clarifies that workers' compensation insurers in Utah must engage in comprehensive assessments of both past costs and future exposure when dealing with third-party settlements.