Nelson v. Sentry

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

BRUCE NELSON, Plaintiff/Counterdefendant/Appellant,

v.

SENTRY INSURANCE A MUTUAL COMPANY,
Defendant/Counterclaimant/Appellee.

No. 1 CA-CV 14-0574
FILED 11-24-2015

Appeal from the Superior Court in Maricopa County
No. CV2013-008149
The Honorable David O. Cunanan, Judge Pro Tem

AFFIRMED

COUNSEL

Aiken Schenk Hawkins & Ricciardi, P.C., Phoenix
By Philip R. Rupprecht
Counsel for Plaintiff/Counterdefendant/, Appellant

Bauman Loewe Witt & Maxwell, P.L.L.C., Scottsdale
By Christopher J. Brennan
And
Nielsen Zehe & Antas, P.C., Chicago, IL
By Christopher L. Valleau
Counsel for Defendant/Counterclaimant, Appellee
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MEMORANDUM DECISION

Judge John C. Gemmill delivered the decision of the Court, in which
Presiding Judge Diane M. Johnsen and Judge Kent E. Cattani joined.

G E M M I L L, Judge:

¶1 Appellant Bruce Nelson appeals the trial court’s grant of
summary judgment in favor of Sentry Insurance Company (“Sentry”),
directing that Nelson pay $414,282.96 to satisfy Sentry’s workers’
compensation lien. For the following reasons, we affirm.

BACKGROUND

¶2 At all times pertinent to this proceeding, Nelson was a
minister and grief counselor with Hospice of the Valley, a Phoenix hospice
care service. Sentry was Hospice of the Valley’s workers’ compensation
insurance carrier. In September 2010, Nelson was acting within the scope
of his employment with Hospice of the Valley when he was injured in a
serious car accident. Nelson was on his way to a patient visit when his car
was struck by a vehicle driven by an 18-year-old driver who failed to yield
when making a left turn. Nelson was severely injured, underwent multiple
surgeries during a 12-day hospital stay, and underwent several weeks of
recovery at a rehabilitation center.

¶3 During the initial stages of his treatment, Nelson’s medical
bills were paid by Cigna Health Insurance (“Cigna”), his personal medical
insurance carrier. Cigna realized that because Nelson was traveling for the
benefit of his employer, Hospice of the Valley, at the time of the accident,
Sentry rather than Cigna was responsible for payment of Nelson’s accident-
related medical expenses. Sentry took over payment of Nelson’s medical
expenses and ultimately disbursed $414,282.96 in medical and indemnity
payments.

¶4 Nelson asserted a third-party claim against the driver of the
other vehicle. In May 2011, Nelson sought and received prior approval
from Sentry to settle his claim for $1.55 million. Sentry informed Nelson
that its authorization of the agreement was subject to the satisfaction of
Sentry’s workers’ compensation lien under Arizona Revised Statutes
(“A.R.S.”) section 23-1023. Sentry also explained that the amount of the lien

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currently totaled $398,213.03, but because it was still in the process of
making payments, it was likely the amount of the lien would increase.

¶5 Nelson finalized the settlement agreement in June 2011. Of
the $1,550,000 settlement total, Nelson’s attorney placed $428,213.03 in trust
to satisfy Sentry’s lien. Of that amount, $398,213.03 was earmarked for
Sentry and $30,000 was initially earmarked for “Cigna (Trust holdback
potential lien).” Following the settlement disbursement, in August 2011,
Nelson requested that Sentry confirm the total amount of its lien. Sentry
responded by informing Nelson that it did not yet know the full amount
because there was still confusion over the amount owed Cigna.

¶6 More than two years later, in April 2013, Nelson informed
Sentry that he was prepared to issue a check for $398,213.03, the amount
Sentry claimed in its initial letter. The next day, Sentry informed Nelson
that the lien amount had increased to $414,282.96.1 Nelson responded that
it was too late for Sentry to increase the lien and demanded that Sentry
provide additional documentation to support the purported increase. Over
the next few months, the parties attempted to resolve the dispute, but were
unable to reach an agreement. Nelson filed an action for declaratory
judgment in July 2013. Sentry answered Nelson’s action and
counterclaimed for declaratory relief, contending it was entitled to the full
amount of its lien.

¶7 Nelson and Sentry then filed cross-motions for summary
judgment. Nelson argued that a workers’ compensation lien is subject to a
one-year statute of limitations under A.R.S. § 12-541 and asserted that
because Sentry did not demand a sum certain on its lien for more than two
years, its claim was barred on limitations grounds. Sentry argued that no
statute of limitations applies to workers’ compensation liens. Sentry also
argued that Nelson was estopped from asserting the statute of limitations
defense and no claim or controversy existed or accrued until Nelson first
refused to satisfy the lien in April 2013.

¶8 The trial court found in favor of Sentry, ruling that no time
limit applies to lien rights under § 23-1023(D). The court entered judgment
in favor of Sentry and directed Nelson to pay the lien. Nelson timely
appeals, and this court has jurisdiction under A.R.S. § 12-2101(A).

1 After the trial court’s ruling on the parties’ summary judgment motions,
the parties stipulated that the amount of Sentry’s workers’ compensation
lien totals $414,282.96. The amount is not in dispute on this appeal.

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DISCUSSION

¶9 We review de novo a trial court’s grant or denial of summary
judgment, and we view the evidence and all reasonable inferences
therefrom in the light most favorable to the party against whom judgment
was entered. Felipe v. Theme Tech Corp., 235 Ariz. 520, 528, ¶ 31 (App. 2014).

¶10 Arizona’s workers’ compensation statutes create a lien in
favor of the workers’ compensation insurance carrier for recovery of the
amount paid when a third party compensates an insured for his injuries.
A.R.S. § 23-1023(C)–(D). In relevant part, A.R.S. § 23-1023(D) provides:

If the employee proceeds against the other person,
compensation and medical, surgical and hospital benefits
shall be paid as provided in this chapter and the insurance
carrier or other person liable to pay the claim shall have a lien
on the amount actually collectable from the other person to the
extent of such compensation and medical, surgical and hospital
benefits paid. This lien shall not be subject to a collection fee.
The amount actually collectable shall be the total recovery less
the reasonable and necessary expenses, including attorney
fees, actually expended in securing the recovery.

(Emphasis added.)

¶11 The trial court found, and the parties agree, that when Nelson
recovered damages from the other driver, Sentry obtained a lien under §
23-1023 on a portion of those damages. On appeal, Nelson argues the trial
court erred when it found Sentry’s right to recovery under the statute was
“absolute” and not subject to any statute of limitations. We review de novo
the trial court’s interpretation of a statute, City of Phoenix v. Harnish, 214
Ariz. 158, 161, ¶ 6 (App. 2006), and look to the plain meaning of the
statutory language as the best indicator of its meaning, New Sun Bus. Park
v. Yuma Cty., LLC, 221 Ariz. 43, 46, ¶ 12 (App. 2009).

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¶12 Nelson asserts that workers’ compensation liens are
statutorily created rights such that collection on a lien must be “commenced
and prosecuted within one year after the cause of action accrues.” See
A.R.S. § 12-541(5). Sentry argues that if a statute of limitations applies, it is
a two-year time limit under A.R.S. § 12-542(1). Sentry claims workers’
compensation lien rights are identical to and indistinguishable from
subrogation rights, and thus, the two-year limit for filing tort claims should
apply.

¶13 In analyzing this appeal, we distinguish between the
existence of Sentry’s lien under the statute and the necessity of an action to
enforce or collect the lien. As a matter of statutory application, no statute
of limitations applies to the creation and perfection of the lien. Section 23-
1023(D) states plainly that an insurer “shall have a lien on the amount
actually collectable from the other person” after a third-party claim is paid.2
When Nelson received his settlement proceeds from the other driver in June
2010, Sentry’s lien right attached automatically as a matter of law. See Carter
v. Indus. Comm’n, 182 Ariz. 128, 130 (1995) (“[L]ien credits against future
benefits attach when and to the extent an employee receives settlement
payments,” even if the payments are graduated payments made over a
period of time.); cf. Grijalva v. Ariz. State Comp. Fund, 185 Ariz. 74, 77 (1996)
(explaining that a lien under A.R.S. § 23-1023 attaches when a third-party
claim is settled, even if the defendant was not “actually culpable”). Sentry
had to do nothing more to “perfect” its lien.

¶14 The remaining question, therefore, is whether Sentry timely
sought judicial enforcement of its lien. Under these facts, we need not
decide whether any potential statute of limitations applies to a § 23-1023(D)
lien enforcement action. Any applicable limitations period did not begin to
run until April 2013, when Nelson announced he would refuse to satisfy
Sentry’s lien, and Sentry counterclaimed approximately three months later.

2 In contrast, Arizona law provides detailed requirements for the perfection
and enforcement of other third-party liens, such as a mechanic’s or
materialmen’s lien. See A.R.S. §§ 33-992.01–992.02; -993. Whereas those
statutes outline steps that a lienholder must take to provide notice to the
other encumbered party and to perfect, record, and enforce the lien, the
workers’ compensation lien statute contains no additional requirements for
attachment or perfection.

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¶15 The Arizona Supreme Court has explained that a limitations
period is meant to “protect defendants and courts from stale claims where
plaintiffs have slept on their rights.” Gust, Rosenfeld & Henderson v.
Prudential Ins. Co., 182 Ariz. 586, 590 (1995) (citing Ritchie v. Grand Canyon
Scenic Rides, 165 Ariz. 460, 464 (1990)). But a plaintiff who does not know
or have reason to know a cause of action exists cannot be said to have slept
on his or her rights. Doe v. Roe, 191 Ariz. 313, 322, ¶ 29 (1998). A statute of
limitations does not begin to run until the plaintiff “knows or with
reasonable diligence should know” that a claim exists. Id.; see also Gust,
Rosenfeld & Henderson, 182 Ariz. at 590.

¶16 Until this dispute arose in April 2013, both Sentry and Nelson
acted in a manner entirely consistent with the existence and enforceability
of Sentry’s lien. Sentry made clear that its approval of Nelson’s settlement
agreement with the other driver was contingent upon satisfaction of
Sentry’s lien under § 23-1023. Counsel for Nelson placed into trust a lump
sum of money for the specific purpose of satisfying Sentry’s lien. Counsel
for both Sentry and Nelson communicated periodically regarding the lien
and agreed to extend their informal deadlines3 for finalization in September
2012. In October 2012, Sentry was still communicating with Cigna to
determine the actual amount of the payments made on Nelson’s behalf.
And, as late as April 2013, Nelson was prepared, and in fact offered, to pay
the lien in the amount Sentry had claimed at the time of the settlement.
Nelson did not dispute Sentry’s entitlement to the settlement proceeds until
Sentry informed him that the final amount of the lien was greater than
Nelson’s offer of payment. Thereafter, Nelson argued that Sentry had lost
the right to enforce the lien in its entirety.

¶17 Sentry was not required to initiate litigation to protect its lien
right until a dispute arose over Sentry’s entitlement to reimbursement. Any
potentially applicable limitations period did not begin to run until Nelson
refused to pay the purported lien amount. Sentry’s July 2013 counterclaim
for collection of its lien was therefore timely. The trial court did not err.

3 The parties refer to this extension as an agreement to “extend the statute
of limitations.” They do not, however, reference any statutory basis for the
purported statute of limitations. Sentry argues that because Nelson agreed
to an extension of this deadline, he is estopped from asserting a statute of
limitations defense. We need not address this argument because, as we
decide herein, Sentry filed suit approximately three months after
discovering that Nelson was no longer agreeing to satisfy the lien.

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CONCLUSION

¶18 Because Sentry filed its counterclaim seeking reimbursement
promptly after the dispute over its lien arose, we affirm the trial court’s
grant of summary judgment in Sentry’s favor. As the successful party on
appeal, Sentry is entitled to its taxable costs on appeal, upon compliance
with Arizona Rule of Civil Appellate Procedure 21.

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