On August 20, 2026, the Supreme Court of Kentucky, in K-VA-T Food Stores Inc. v. Blackburn, clarified when an employer can seek subrogation from an employee’s third-party settlement pursuant to Kentucky statute 342.700, which permits an employer or insurer to recover up to the amount of workers compensation (WC) benefits paid or payable, less a pro rata share of the attorney fees and expenses incurred by the employee.
In this case, an employee who sustained a compensable injury and was receiving WC benefits, settled a claim against a liable third-party tortfeasor. Applying Kentucky statute 342.700, the Workers’ Compensation Board ruled that after deducting the employer’s pro rata share of attorney fees and expenses from the settlement proceeds, the employer was entitled to immediate reimbursement for benefits it had already paid and a credit against future benefits.
The appellate court disagreed, holding that an employer may only recover from third-party settlement proceeds when the amount of benefits paid exceeds its pro rata share of attorney fees expenses. The appellate court found that the employer was not entitled to immediate reimbursement because its share of attorney fees and expenses was higher than the value of the benefits it had paid.
In reviewing the case, the Supreme Court explained that as amended in 2018, Kentucky statute 342.700 expressly entitles an employer to recover amounts it has paid and amounts it is obligated to pay in the future. The court noted that the statute does not have a “fee-first” threshold that would indicate subrogation is barred unless the benefits paid exceed the fees incurred. Therefore, the court held, after deducting an employer’s pro rata share of attorney fees and expenses from a third-party settlement, the employer is entitled to immediate recoupment of benefits it has already paid and, if applicable, a credit for benefits payable in the future.
With this decision, the Supreme Court reversed the appellate court’s ruling insofar as it concluded that the employer may begin to recover only when the benefits it has paid exceed the pro rata share of its attorney fees and expenses.
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