RENDERED: AUGUST 20, 2026
TO BE PUBLISHED
Supreme Court of Kentucky
2025-SC-0335-WC
K-VA-T FOOD STORES INC. APPELLANT/CROSS-APPELLEE
ON APPEAL FROM COURT OF APPEALS
V. NO. 2024-CA-1498
WORKERS' COMPENSATION NO. WC-22-92472
CHANTELLA BLACKBURN APPELLEE/CROSS-APPELLANT
AND
HONORABLE JOHN B. COLEMAN, APPELLEES ADMINISTRATIVE LAW JUDGE; AND
WORKERS' COMPENSATION BOARD
AND
2025-SC-0367-WC
CHANTELLA BLACKBURN CROSS-APPELLANT
ON APPEAL FROM COURT OF APPEALS
V. NO. 2024-CA-1498
WORKERS' COMPENSATION NO. WC-22-92472
K-VA-T FOOD STORES INC.; CROSS-APPELLEES HONORABLE JOHN B. COLEMAN,
ADMINISTRATIVE LAW JUDGE; AND
WORKERS' COMPENSATION BOARD
OPINION OF THE COURT BY JUSTICE BISIG
AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
Pursuant to Kentucky Revised Statute (KRS) 342.700(1), employers and
workers’ compensation insurers are permitted to recover workers’
compensation benefits paid to an injured employee from a third party who is
deemed liable for the injury. At issue in this appeal is the application of this
statute, particularly in light of a 2018 amendment imposing responsibility on
the employer or insurer for a pro rata share of the employee’s legal fees and
expenses incurred by pursuing the third-party action.
Chantella Blackburn, who was injured while working for K-VA-T Food
Stores, received workers’ compensation benefits from her employer. Blackburn
also pursued a third-party claim against a store vendor whose actions played a
role in causing her injury. Ultimately, Blackburn recovered $295,000 via
settlement with the vendor. K-VA-T then sought reimbursement via
subrogation by way of KRS 342.700(1). The Administrative Law Judge (ALJ),
Workers’ Compensation Board (Board), and Court of Appeals reached differing
conclusions regarding the applicability and timing of K-VA-T’s obligation to pay
a pro rata share of Blackburn’s legal fees and expenses. After review, we agree
with the ALJ and Board that K-VA-T is entitled to immediate reimbursement
for the benefits it has paid to Blackburn that are duplicated by the settlement
she obtained, though only after first reducing the settlement proceeds that KVA-T may reach in subrogation by the amount of K-VA-T’s pro rata share of
Blackburn’s legal fees and expenses.
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FACTS AND PROCEDURAL HISTORY
On February 1, 2022, Chantella Blackburn suffered a work-related
injury when she fell from a step ladder onto a third-party vendor’s cart,
injuring her right wrist and other body parts. Blackburn pursued a workers’
compensation claim, and an ALJ awarded her disability benefits based on a 6%
impairment rating. She received temporary total disability benefits, permanent
partial disability benefits of $17.08 per week for 425 weeks, and future medical
expenses for 780 weeks.
Blackburn also initiated a negligence claim against the third-party
vendor, claiming her injury was caused by her stepping down off the step
ladder and onto the cart being used by the vendor. The negligence claim was
ultimately settled for $295,000. Because the settlement did not allocate
damages, the ALJ determined one-third of the settlement represented pain and
suffering and subtracted that amount from the total award, leaving
$196,666.66 remaining as damages that duplicated the workers’ compensation
benefits Blackburn received. 1
In allocating the settlement award, the ALJ referenced the
agreement between Blackburn and her attorney, which was for a 40%
attorney’s fee, thus reducing the amount of duplicative damages by
$78,666.66, leaving $118,000 available for subrogation. The parties do not
1 Pain and suffering cannot be recovered in workers’ compensation, so damages
for those amounts cannot be reached in subrogation.
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dispute the ALJ’s allocation of the settlement funds. 2 Finally, the ALJ noted
the legal expenses Blackburn incurred in pursuing recovery from the thirdparty vendor, which was $1,797.54. The ALJ reduced the available
subrogation amount by the percentage of the settlement reflecting pain and
suffering (one-third), leaving $117,400.82 available for subrogation.
Because K-VA-T had already paid medical expenses of $19,776.54 and
income benefits of $5,469.89, totaling $25,246.43, the ALJ concluded that KVA-T was entitled to recover that amount from the settlement funds.
Additionally, the ALJ awarded K-VA-T a remaining credit of $92,154.39 against
future benefits owed to Blackburn (amount available for subrogation
($117,400.82) minus amount already paid in medical expenses and benefits
($25,246.43) equals available future credit of $92,154.39). Blackburn filed a
petition for reconsideration, arguing that K-VA-T cannot recover the amounts it
already paid from the proceeds of the settlement. Further, she contended that
the subrogation credit was calculated incorrectly.
On appeal to the Workers’ Compensation Board, the majority affirmed in
part, vacated in part, and remanded the claim to the ALJ. The Board
concluded that the ALJ erred by applying different percentages to the
attorney’s fees and expenses. While the ALJ subtracted two-thirds of the
attorney’s fees from the amount available for subrogation, the ALJ only
2 Where a civil action fails to apportion the settlement proceeds between
compensable and non-compensable items of damage, the ALJ has the authority to determine the appropriate amounts to be apportioned between pain and suffering, lost wages, and medical expenses. Whittaker v. Hardin, 32 S.W.3d 497 (Ky. 2000).
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subtracted one-third of the legal expenses. The statute states that the
employer is entitled to part of the recovery in a third-party claim, “less a pro
rata share of the employee’s legal fees and expenses.” KRS 342.700(1).
Therefore, the Board reasoned that the amount available for subrogation had to
be reduced by an additional $599.18 because the employer is responsible for
two-thirds of the legal expenses. Further, a majority of the Board agreed with
the ALJ that K-VA-T is entitled to recoup the benefits paid immediately, and
that the remaining credit becomes effective when it is awarded. One Board
member dissented, asserting that the ALJ incorrectly calculated the
subrogation credit and that K-VA-T had to first pay income and medical
benefits totaling its pro rata share of Blackburn’s legal fees and expenses
before it could recoup its subrogation credit.
On appeal, the Court of Appeals affirmed in part and reversed in part. At
the outset of its analysis, the Court of Appeals acknowledged that the sole
issue on appeal is whether K-VA-T is entitled to recover immediately the
amounts it paid to Blackburn, or whether KRS 342.700(1) permits recovery
only after the amount K-VA-T has paid exceeds its share of Blackburn’s legal
fees and expenses. While the Court of Appeals recognized that in Mastin v.
Liberal Markets, 674 S.W.2d 7 (Ky. 1984), this Court held that an employer is
entitled to immediate restitution as to the amount of a settlement that
duplicated the employee’s workers’ compensation benefits, two cases rendered
after Mastin proceeded on the assumption that the claimant’s legal expenses
were deducted from the subrogation credit, not from the settlement. AIK
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Selective Self Ins. Fund v. Bush, 74 S.W.3d 251 (Ky. 2002); AIK Selective SelfIns. Fund v. Minton, 192 S.W.3d 415 (Ky. 2006). Notably, KRS 342.700(1) was
amended in 2018 after the Court rendered both Bush and Minton to include
language explaining that the employer was entitled to a subrogation credit “not
to exceed the indemnity and medical expenses paid . . ., less a pro rata share
of the employee’s legal fees and expense.” The amendment expressly added
the “pro rata share” language. The Court of Appeals concluded that K-VA-T
could recover only when the benefits it paid exceeded Blackburn’s pro rata
share of the legal fees and expenses. K-VA-T now appeals to this Court.
ANALYSIS
At the outset, we note that Blackburn argues an ALJ does not have
jurisdiction over an employee’s personal funds obtained outside the scope of
KRS Chapter 342. She contends that by awarding subrogation to K-VA-T
directly against her civil settlement, the ALJ acted outside her authority. We
disagree.
The right to subrogation credit in a workers’ compensation case is
purely statutory. See KRS 342.700. Thus, because the statutory
right to subrogation falls within the workers’ compensation chapter,
then by definition, the administrative law judge has jurisdiction to
resolve any subrogation issues.
Whittaker v. Hardin, 32 S.W.3d 497 (Ky. 2000). As such, it was entirely
permissible for the ALJ to award subrogation against the civil settlement
because that is precisely what KRS 342.700 allows.
An injured worker in Kentucky is permitted to pursue both a workers’
compensation claim and a third-party tort claim, provided she does not “collect
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from both.” KRS 342.700(1). Since 1916, Kentucky workers’ compensation
law has consistently allowed an employer or workers’ compensation insurer to
recover from a third-party tortfeasor. While an employee has historically been
permitted to assert claims against both his employer and a third party, “to the
extent he collects from one he may not collect from the other.” Book v. City of
Henderson, 176 Ky. 785, 197 S.W. 449 (1917). Simply stated, the statute does
not allow double-dipping,
As explained in Mastin v. Liberal Markets, 674 S.W.2d 7 (Ky. 1984), the
purpose of KRS 342.700(1) is to prevent dual recovery and ensure fairness to
both the employee and employer. In that case, Melody Mastin was employed
by Liberal Markets when she inhaled insecticide sprayed by Rose
Exterminators at her place of employment. Id. at 9. Mastin pursued a
workers’ compensation claim and also filed a products liability claim against
Rose Exterminators. Id. She ultimately settled her claim against Rose
Exterminators for $50,000. Id. When Liberal Markets learned of the
settlement, it suspended further payments of workers’ compensation benefits
and requested immediate reimbursement for the amounts it previously paid.
Id.
The Court was tasked with determining whether Liberal Markets was
entitled to restitution from Mastin for amounts previously paid, or only a credit
against future payments. Id. at 11. Mastin argued that KRS 342.700 only
entitled the employer to reduce its future liability, and not to a subrogation
credit against present liability. Id. The Court explicitly rejected Mastin’s
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proposal, emphasizing that the statute states an employee “shall not collect
from both” and that Mastin had done just that. Further, nothing in the statute
limited an employer’s right of reimbursement to future payments.
While the Court remanded the case back to the trial court to allocate the
settlement for each of the elements of damages (i.e., to determine what portions
of the settlement compensated the employee for lost wages, medical expenses,
and pain and suffering), it nonetheless stated that the employer was
entitled to immediate statutory subrogation as to such amount of
her settlement as duplicate worker's compensation benefits. The
appellees have overpaid to this extent and are entitled to restitution
as soon as the trial court can decide the factual questions
underlying the amount subject to restitution.
Id. at 14. In sum, the Court held that once the employee has recovered
damages duplicating workers’ compensation benefits received, the employer is
entitled to immediate restitution for those duplicative amounts. Further, the
Court emphasized that the purpose of KRS 342.700(1) is to prevent double
recovery and to ensure fairness to both the employee and employer. Id. at 11.
In AIK Self Selective Insurance Fund v. Bush, 74 S.W.3d 251, 252 (Ky.
2002), the Court was again tasked with interpreting and applying KRS
342.700(1). Bush was injured at work and later filed a tort action against a
doctor whom he claimed was negligent in providing treatment for his injury,
thereby exacerbating his injury and prolonging his disability. Id. A jury
apportioned fault for Bush’s workplace injuries, determining that the doctor
was 25% at fault, leaving the employer 75% at fault. Id. at 253. The Court
held that the employer could only recover 25% of the compensation benefits
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paid to prevent double recovery, limited to damages duplicative of
compensation – past and future lost wages and medical expenses. Id. at 255.
However, the Court then held that if the employee’s legal fees and expenses
exceeded the employer’s subrogation claim, no recovery was available. Id. at
258. Four years later, this Court again required an employer’s recovery in a
subrogation claim to be reduced by the workers’ entire amount of legal fees and
expenses incurred in pursuing recovery from a tortfeasor. AIK Selective SelfInsurance Fund v. Minton, 192 S.W.3d 415 (Ky. 2006).
The interpretation utilized by this Court in Bush and Minton was based
on a then-existing version of KRS 342.700(1), which required that the entirety
of an employee’s legal fees and expenses be carved out from the employer or
insurer’s subrogation recovery. Stated differently, if the employee’s legal fees
and expenses in pursuing a third-party claim exceeded the employer or
insurer’s subrogation interests, the subrogation claim was “wiped out.” Minton,
192 S.W.3d at 417. Thus, the statute paired with this Court’s interpretation in
the Bush and Minton opinions significantly limited an employer’s subrogation
rights.
In 2018, the General Assembly amended KRS 342.700(1) to instead
impose proportional subrogation. The statute reads:
Whenever an injury for which compensation is payable under this
chapter has been sustained under circumstances creating in some
other person than the employer a legal liability to pay damages, the
injured employee may either claim compensation or proceed at law
by civil action against the other person to recover damages, or
proceed both against the employer for compensation and the other
person to recover damages, but he shall not collect from both. If
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the injured employee elects to proceed at law by civil action against
the other person to recover damages, he shall give due and timely
notice to the employer and the special fund of the filing of the action.
If compensation is awarded or paid under this chapter, the
employer, . . ., having paid the compensation or having become liable
therefor, may recover in his or its own name or that of the injured
employee from the other person in whom legal liability for damages
exists, not to exceed the indemnity and medical expenses paid
and payable to or on behalf of the injured employee, less a pro
rata share of the employee's legal fees and expense.
(Emphasis added). Based on this amendment, the statute currently explicitly
provides that an employer or insurer may recover compensation benefits “less a
pro rata share of the employee’s legal fees and expense.” The implementation
of a pro rata share is intended to reflect only that portion of the fees that were
used to obtain damages that are duplicative of the workers’ compensation
award. For example, pre-2018, if an employee obtained a $300,000 third-party
settlement, with attorney’s fees of $100,000, and the employer had paid
$100,000 in medical expenses, the employer had a right to subrogate
$100,000. But because the employer was responsible for the entirety of the
legal fees and expenses, the employer’s subrogation lien was effectively
extinguished, and the employer could not recover because the attorney’s fees
equaled the lien. However, with the 2018 amendment, the employer’s lien is
reduced only by its pro-rata share of the legal fees and expenses. If an
employer was only responsible for one-third of the $100,000 in legal fees
($33,333), then they have a recoverable subrogation amount of $66,667.
Here, the parties agree that K-VA-T is only responsible for its pro-rata
share of the legal fees and expenses, but dispute the point at which those fees
are accounted for. K-VA-T argues that, as the ALJ and the Board concluded,
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the legal fees should be taken off the top of the settlement. So, considering the
amount of the settlement that is duplicative of workers’ compensation benefits
($196,666.66), the ALJ took the attorney’s fees off the top and thereby reduced
that amount available for subrogation by 40%, given the contingency fee
agreement Blackburn maintained with her attorney. Upon subtracting K-VAT’s share of legal expenses ($1,198.36 (which is two-thirds of $1,797.54)),
$116,801.64 is available in subrogation. The math is more simply described as
follows:
Settlement amount $295,000.00
Portion of settlement duplicative of $196,666.66
workers’ compensation benefits
Subtract K-VA-T’s pro rata share of $118,000.00
attorney’s fees ($196,666.66 -$78,666.66)
Subtract K-VA-T’s pro rata share of $116,801.64
legal expenses ($118,000 - $1,198.36)
Total amount available in subrogation: $116,801.64
Blackburn agrees that K-VA-T’s pro rata share of legal fees and expenses
is $79,865.03. But conversely, Blackburn asserts the legal fees and expenses
should not be taken off the top of the settlement amount, and instead that KVA-T is not entitled to immediate recoupment nor credit for the duplicative
amounts until it has paid benefits or expenses equal to its responsibility of the
legal fees and expenses. Thus, she advocates for a different formulation in
which the employer’s responsibility of legal fees and expenses ($79,865.03) is
subtracted from the amount of benefits the employer has already paid
($25,246.43), resulting here in a negative number: -$54,618.60. She posits
that the fact that the number is negative means that, even though K-VA-T has
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already paid $25,246.43 in benefits to Blackburn, only after K-VA-T has paid
an additional $54,618.60 in benefits (for a total paid of $79,865.03 – its pro
rata share of legal fees and expenses), will K-VA-T be entitled to a credit against
any further benefits payable. In simplest terms, Blackburn advocates for an
approach under which an employer may only begin to recover in subrogation
when its benefits paid exceed its pro rata share of legal fees and expenses.
The resolution of this issue requires statutory interpretation. This Court
has held that when interpreting statutes, we must
look first to the plain language of a statute and, if the language is
clear, our inquiry ends. We hold fast to the rule of construction that
“[t]he plain meaning of the statutory language is presumed to be
what the legislature intended, and if the meaning is plain, then the
court cannot base its interpretation on any other method or source.
In other words, “we assume that the ‘[Legislature] meant exactly
what it said, and said exactly what it meant.”
Univ. of Louisville v. Rothstein, 532 S.W.3d 644, 648 (Ky. 2017). The statute
allows an injured worker to claim workers’ compensation or proceed against a
third party, so long as the worker does not recover from both. Tracking
through the language further, if workers’ compensation is awarded, (1) the
employer, who has paid compensation or becomes liable for compensation; (2)
may recover from the liable third party; (3) not to exceed the indemnity and
medical expenses paid and payable to the injury employee – “paid” clearly
contemplating amounts already received from the employer and “payable”
indicating the amounts an employer is liable to pay in the future; (4) less a pro
rata share of the employee’s legal fees and expenses. The statute explicitly
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entitles the employer to recovery for amounts it has paid and amounts it is
liable to pay in the future.
Notably, there is no “fee-first” threshold included in the statute – it does
not state that subrogation is barred unless benefits paid exceed fees incurred.
Instead, it mandates proportional reduction – “less” means subtraction, and
“pro rata” means allocation. Neither of these terms authorize the extinction of
an employer’s statutory right to subrogate when the legal fees and expenses
exceed benefits paid. Further, “not to exceed” establishes a cap and ensures
the employer only benefits by way of the amounts it has paid or is liable to pay.
The statute instructs that if workers’ compensation is awarded, the employer
may recover from the liable party. It explicitly states that the employer’s
recovery cannot exceed the indemnity and medical expenses paid and payable
– meaning the amounts paid or the amounts of the workers’ compensation
award – less a pro rata share of the employee’s legal fees and expenses. In
sum, the statute directs an ALJ to first look to the amounts an employer has
paid or been ordered to pay, then deduct the employer’s share of the legal fees
and expenses. Had the legislature wanted the statute to operate in the way
that Blackburn proposes, it could have read indemnity and medical expenses
paid, rather than also including “payable” expenses.
Blackburn’s interpretation would effectively rewrite the statute by
inserting a prerequisite the Legislature did not include nor intend. That
interpretation would also allow Blackburn to retain the entire duplicative
portion of her $295,000 civil settlement while continuing to receive workers’
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compensation benefits without any corresponding reduction – a result explicitly
contemplated and prohibited by the statute. Allowing an employee to continue
receiving compensation payments as if no civil recovery occurred is not
proportional allocation, but effectively serves as immunity from subrogation,
which certainly cannot be what the legislature intended.
We must give effect to the 2018 amendment to KRS 342.700(1), which is
a clear expression of the legislature’s intent to help preserve an employer’s
right to subrogate. Requiring immediate restitution gives effect to the
amendment that was implemented to address the inequity in the subrogation
process. In Bush and Minton, the employer’s subrogation rights were
eliminated because of its obligation to pay legal fees and expenses. By
amending the statute to only obligate an employer for its share of the legal fees
and expenses, the legislature expressed its desire to keep this avenue of
redress open for employers. While we recognize the beneficent purpose of the
workers’ compensation system, i.e., to protect and aid injured workers, 3 this
particular statute is designed specifically to (1) prevent an employee’s double
recovery, and (2) give the employer an express right to subrogate when it
performed its required duties under the workers’ compensation system – paid
benefits to injured employees. Moreover, our interpretation also serves the
statute’s purpose insofar as it obligates the employer to first fully account for
3 Ky. Uninsured Emps.’ Fund v. Hoskins, 449 S.W.3d 752, 762 (Ky. 2014).
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its pro rata share of legal fees and expenses before proceeding in subrogation
against the remaining settlement funds.
The Court of Appeals returns to Bush and Minton to reach the conclusion
that the amount in legal expenses should be deducted from the employer’s
subrogation credit, not from the settlement. The appellate court noted that
those cases did not address the issue directly. The problem with reliance upon
Bush and Minton is that those cases predated the 2018 statutory amendment,
which was specifically aimed at increasing the amount an employer can claim
in subrogation by making an employer only responsible for its share of legal
fees and expenses.
While the Mastin case also predates the 2018 amendment, the principles
announced in Mastin were unaffected by the statutory change. An employer is
still entitled to immediate restitution for amounts it already paid that were
subsequently recovered from a third party. Applying this principle
undoubtedly carries out the legislature’s expressed intention in enacting KRS
342.700(1), which is to prevent an employee from doubly recovering.
CONCLUSION
When applying KRS 342.700(1), the ALJ must first determine which
amounts are duplicative of workers’ compensation damages – the amount
subject to subrogation. Then, the ALJ must reduce the amount subject to
subrogation by the employer’s share of attorney’s fees and legal expenses – the
amount the employee owes in attorney’s fees and expenses from obtaining the
recovery amount that is duplicative of workers’ compensation benefits. After
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subtracting the employer’s pro rata share of legal fees and expenses, the
remaining amount is what is ultimately available to the employer in
subrogation.
We thus conclude that when applying KRS 342.700(1), an employer or
insurer’s responsibility of attorney’s fees is initially subtracted from the amount
available in subrogation from amounts an injured worker recovers from a third
party. The employer or insurer is entitled to immediate recoupment of benefits
already paid, and, if applicable, a credit for benefits payable in the future. As
such, we reverse the Court of Appeals insofar as it concluded that K-VA-T may
begin to recover only when the benefits it has paid exceed the pro rata share of
legal fees and expenses. We reinstate the opinion of the Board, which remands
the claim to the ALJ for correction of the ALJ’s mathematical error.
All sitting. All concur.
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COUNSEL FOR APPELLANT/CROSS-APPELLEE, K-VA-T FOOD STORES INC.:
Denise M. Davidson
Davidson & Associates
W. Barry Lewis
Lewis & Lewis Law Offices
COUNSEL FOR APPELLEE/CROSS-APPELLANT, CHANTELLA BLACKBURN:
Pierre J. Coolen
Morgan & Morgan
COUNSEL FOR AMICUS, KENTUCKY WORKERS’ ASSOCIATION:
Eric M. Lamb
Lamb & Lamb, PSC
ADMINISTRATIVE LAW JUDGE:
Hon. John B. Coleman
WORKERS’ COMPENSATION BOARD:
Hon. Michael Wayne Alvey, Chairman
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