Can a Maryland state employee deduct attorney's fees before repaying the state for accident leave pay?

Plain-English summary

The State Highway Administrator asked the Attorney General about Article 64A, §37(g) of the Maryland Code, which gave a state employee who was injured on the job full-pay accident leave for up to a year, and which let the State recover ("subrogate") its payments if a third party caused the injury and the employee later won damages from that third party. The specific question was whether the employee could keep back a proportional share of the attorney's fees spent winning that third-party recovery, out of the money that would otherwise go entirely to the State.

The opinion concluded the employee could withhold a proportional share of attorney's fees. The accident leave statute itself was silent on fees, unlike Maryland's Workers' Compensation Law, which explicitly allowed the same kind of deduction. Rather than reading that silence as barring a fee deduction, the opinion reasoned that the same equitable purpose (making sure the party who paid for the litigation that benefits the State does not bear the entire cost alone) applied equally under §37(g), drawing on a 1901 Maryland insurance-subrogation case and a substantial line of out-of-state workers' compensation decisions that had reached the same result even where their statutes were also silent on fees. The opinion noted that the State could avoid this outcome in a given case by choosing to intervene or actively participate in the third-party lawsuit itself.

Currency note

This opinion was issued in 1991 and interpreted Article 64A, §37(g) of the Maryland Code as it then existed. The opinion's own editor's note records that these provisions were later recodified into Title 9, Subtitle 7 of the State Personnel and Pensions Article, so the specific section numbers cited here no longer describe current law. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis further since that recodification. Treat this page as historical context, not current legal advice. Verify the current State Personnel and Pensions Article provisions and current case law before relying on any specific rule described here.

Common questions

If a Maryland state worker got hurt on the job and sued the person responsible, did the state take all the money back?
According to this 1991 opinion, no. The Attorney General concluded the employee could withhold a proportional share of the attorney's fees spent winning the third-party recovery before reimbursing the State for the accident leave pay it had already provided.

Why did the opinion allow a fee deduction when the accident leave statute never mentioned attorney's fees?
The opinion reasoned that the General Assembly's silence on fees in the accident leave statute did not signal an intent to deny them, especially since the closely related Workers' Compensation Law expressly permitted the same kind of deduction. It found the same equitable purposes at work in both statutes and traced the same result across analogous Maryland, and out-of-state, subrogation cases.

Could the State ever avoid having its recovery reduced by attorney's fees?
The opinion noted this could happen if the State had good cause to intervene in the third-party lawsuit or was asked to actively participate in it. In that situation, the State or its insurer would be entitled to credit for a portion of the attorney's fees rather than bearing a full proportional deduction passively.

Background and statutory framework

Article 64A, §37(g), enacted by Chapter 800 of the Laws of Maryland 1978, gave a state employee accident leave with full pay for up to a year for an on-the-job injury that would be compensable under Maryland's Workmen's Compensation Law, without using up the employee's accumulated sick leave. Chapter 95 of the Laws of Maryland 1981 later added §37(g)(4), giving the State a subrogated right to recover its accident-leave payments from any recovery the employee won against a third party responsible for the injury. The opinion observed that the parallel Workers' Compensation Law, in Article 101, §58, expressly authorized an injured employee to deduct a proportional share of attorney's fees from the State's subrogated recovery, but the accident leave statute's own legislative history said nothing about fees one way or the other.

To fill that gap, the opinion relied on Svea Assurance Co. v. Packham, 92 Md. 464 (1901), where the Maryland Court of Appeals held an insured could retain reasonable litigation expenses out of a fund recovered for insurers' benefit rather than absorbing those costs alone, reasoning it would be "a harsh rule" to require otherwise. The opinion found the same equitable logic reflected in a wide range of other states' workers' compensation subrogation cases, both where the statute was silent about fees, such as Transport Indemnity Co. v. Garcia, 89 N.M. 342 (1976), and Seligman Distributing Co. v. Brown, 360 S.W.2d 509 (Ky. 1962), and where courts applied a "common fund" theory even under statutes that addressed fees only partially, such as Quinn v. State, 125 Cal. Rptr. 1, 539 P.2d 761 (1975), and Cooper v. Argonaut Ins. Co., 556 P.2d 525 (Alaska 1976). The opinion also noted that Texas and New Jersey had each amended their own subrogation statutes to make apportionment of attorney's fees explicit after courts initially read an earlier silent version to disallow it, in Hartford Ins. Co. v. Branton & Mendelsohn, 670 S.W.2d 699 (Tex. App. 1984), and Travelers Insurance Co. v. Lumber Mutual Cas. Ins. Co., 20 N.J. Super. 265 (1952), which the opinion treated as persuasive support for reading the same result into Maryland's own silent accident leave statute.

Citations and references

Statutes:

• Article 64A, §37(g) of the Maryland Code, the accident leave and subrogation provision construed throughout the opinion
• Chapter 800 of the Laws of Maryland 1978, the law enacting §37(g)
• §37(g)(1), granting full-pay accident leave for a compensable on-the-job injury
• Article 101 of the Code, the Maryland Workmen's Compensation Law referenced as the compensability standard for accident leave
• §37(g)(2), allowing up to one year of accident leave without affecting accumulated sick leave
• §37(g)(3), precluding an employee on accident leave from also receiving temporary total workers' compensation benefits
• Chapter 95 of the Laws of Maryland 1981, the law adding the State's subrogation right
• §37(g)(4), the subrogation provision letting the State recover its payments from a third-party recovery
• Article 101, §58, the Workers' Compensation Law provision expressly allowing a proportional attorney's fee deduction
• Rule 1.5 of the Rules of Professional Conduct, cited on the requirement that attorney's fees not be unconscionable or unreasonable
• Article 101 §67, cited in a footnote comparing the compensability standards of the two statutes
• Title 9, Subtitle 7 of the State Personnel and Pensions Article, the later recodification of these provisions noted in the opinion's editor's note

Cases:

• Collins v. United Pacific Insurance Co., 315 Md. 141, 153, 553 A.2d 707 (1989), Maryland Court of Appeals decision cited on the standard for reasonable attorney's fees
• Svea Assurance Co. v. Packham, 92 Md. 464, 48 A. 359 (1901), Maryland Court of Appeals decision allowing an insured to retain litigation expenses from a fund recovered for insurers' benefit
• Police Comm'r v. Dowling, 281 Md. 412, 379 A.2d 1007 (1977), Maryland Court of Appeals decision cited on inferring legislative intent from statutory silence
• Hardin v. Mass Transit Admin., 277 Md. 399, 354 A.2d 817 (1976), Maryland Court of Appeals decision cited alongside Dowling on statutory silence
• Transport Indemnity Co. v. Garcia, 89 N.M. 342, 552 P.2d 473, 476 (1976), New Mexico Supreme Court decision requiring proportionate fee-sharing under a fee-silent subrogation statute
• Seligman Distributing Co. v. Brown, 360 S.W.2d 509 (Ky. 1962), Kentucky court decision holding it inequitable for an employer to avoid attorney's fees after declining to intervene
• Moody v. Arabie, 498 So. 2d 1081 (La. 1986), Louisiana Supreme Court decision holding a fee-silent statute requires apportionment
• Cooper v. Argonaut Ins. Co., 556 P.2d 525 (Alaska 1976), Alaska Supreme Court decision requiring prorated attorney's fees to avoid a windfall to the employer's insurer
• Quinn v. State, 125 Cal. Rptr. 1, 539 P.2d 761 (1975), California Supreme Court decision applying the common fund theory to require fee-sharing among fund beneficiaries
• Hartford Ins. Co. v. Branton & Mendelsohn, 670 S.W.2d 699, 701 (Tex. App. 1984), Texas appellate decision describing the legislature's amendment to allow fee apportionment after judicial silence
• Travelers Insurance Co. v. Lumber Mutual Cas. Ins. Co., 20 N.J. Super. 265, 89 A.2d 717, 719 (1952), New Jersey appellate decision describing a similar statutory amendment history
• Becker v. Huss Co., 402 N.Y.S.2d 980 (N.Y. 1978), New York state court decision cited alongside the Texas and New Jersey line of cases
• Pope v. Pennsylvania Thresherman & Farmers Mut. Cas. Ins. Co., 176 Pa. Super. 276, 107 A.2d 191 (1954), Pennsylvania appellate decision cited on the same legislative-amendment pattern

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1991/Volume76_1991.pdf (this opinion appears at printed pages 323-329 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

PERSONNEL

Attorneys - Fees - State Employee on Accident Leave Who
Recovers Damages From Third Party May Withhold
Proportional Share of Attorney's Fees From State's
Subrogated Share of Recovery

                         August 6, 1991

Mr. Hal Kassoff
State Highway Administrator

   You have requested our opinion on the scope of Article 64A,

§37(g) of the Maryland Code, which grants an employee who sustains
an accidental personal injury in the actual performance of the
employee's job accident leave with full pay for up to one year.
Specifically, you ask whether a State employee who is awarded accident
leave under that section may withhold the proportional share of
attorney's fees expended to recover the State's subrogated interest when
the employee recovers damages from a third party. If we conclude that
the employee may not withhold attorney's fees, you also ask about the
effect of the employee's decision to pursue a cause of action against a
third party without attempting to recover accident leave as a part of the
employee's damages.

   For the reasons stated below, we conclude that an employee who

recovers against a third party may withhold a proportionate share of the
attorney's fees expended for that recovery.1 In light of this conclusion,
we need not address your second question.

                                I

                          Background

 Article 64A, §37(g) was enacted by Chapter 800 of the Laws of

Maryland 1978. The bill's title indicated that the provision was enacted

   1
      This conclusion is consistent with earlier advice given by Assistant

Attorney General Omar Melehy in a memorandum to your Assistant Director for
the Division of Accounting and Operations.

essentially for the purpose of "providing for accident leave with full pay
for State employees sustaining certain injuries or accidents while
performing their jobs, subject to certain conditions ...." A committee
note on the bill acknowledged that, under the law at the time,
"employees injured on the job received full pay only for the duration of
their accumulated sick leave time." Once sick leave was depleted, "the
employee [could] only receive two thirds of his average weekly salary
from the State Accident Fund." Bill file for Senate Bill 214 (1978
Session).

   Section 37(g)(1) provides for accident leave with full pay:

             An employee who in the actual performance
        of his job duties sustains an accidental personal
        injury which would be compensable under the
        Maryland Workmen's Compensation Law in
        Article 101 of the Code, shall be granted
        accident leave with full pay if, after medical
        examination, a physician certifies that the injury
        or accident disables the employee.

Moreover, accident leave permits a qualified State employee to receive
full pay for up to one year without affecting the employee's accumulated
sick leave time. §37(g)(2).2

   Chapter 95 of the Laws of Maryland 1981 amended §37(g) to

provide State subrogation to the rights of the employee if the employee's
injury was caused by a third person. Codified as §37(g)(4), this section
provides:

              If a compensable injury under this
        subsection is caused by a third person other than
        the State, the State as employer, after giving
        written notice to the injured employee, shall be
        subrogated to the rights of the employee to the
        extent of any compensation paid or owed under
        this subsection. If, within 90 days of the receipt


 2
   Also, an employee receiving accident leave is precluded from receiving

temporary total benefits under the Workers' Compensation Law. §37(g)(3). As
introduced, the 1978 legislation provided that "[i]n no event shall any employee
receive workmen's compensation pay while receiving accident leave." This
provision was amended to preclude only temporary total benefits. Therefore,
presently an eligible employee could be receiving both accident leave and medical
benefits under Article 101, §37. If necessary, at the end of the year, the
employee may seek temporary total benefits.

       of the written notice, the employee fails to
       enforce the claim against the third person, or
       give written notice of an intent to do so, the
       State may bring an action, or join in an action,
       in its own name and for its own benefit. An
       action brought by the State under this subsection
       is not a bar to any other claim related to the
       occurrence.

   The legislative history of this provision is silent about attorney's

fees. A Department of Personnel note pointed out that in a number of
instances employees injured by third parties went on accident leave
rather than sue for lost wages. Bill file for Senate Bill 41 (1981
Session). Effectively the State paid for injuries caused by others, yet the
State had no standing to seek recovery from the third party. The
primary purpose of this legislation, then, was to give the State the right
to pursue a cause of action when the employee did not seek recompense
from the third party. Concomitantly, in the event that the employee
does choose to pursue a cause of action against a third party and is
successful, the statute allows subrogation to the amount recovered, thus
preventing the employee from securing a double recovery.

                                II

                            Analysis

   Neither when the accident leave statute was enacted, nor later

when it was subsequently amended, were attorney's fees addressed. In
comparison, the General Assembly made explicit in the Workers'
Compensation Law that an injured employee who recovers against a
third party may deduct attorney's fees from the State's subrogated
amount, proportional to the workers' compensation award. See Article
101, §58.3 The question is whether we should infer a contrary
legislative determination from the absence of a comparable directive in
the accident leave law.

  3
      Of course, the attorney's fees must not be unconscionable or

unreasonable. See Collins v. United Pacific Insurance Co., 315 Md. 141, 153,
553 A.2d 707 (1989); Rule 1.5 of the Rules of Professional Conduct.

   In our opinion, even though the overall purposes of the two

statutes are different, the purpose of subrogation in both is the same.4
And, in our view, that purpose is better served by construing the
accident leave statute to authorize deduction of attorney's fees when the
State benefits from an employee's recovery from a third party.5

    We have found one Maryland case on an analogous problem,

Svea Assurance Co. v. Packham, 92 Md. 464, 48 A. 359 (1901), to be
instructive. In that case, an insured recovered about $17,000 from nine
insurers for merchandise damage caused by fire. In a subsequent suit by
the insured against a third party, the insured settled his suit for a
judgment that appropriated $9,000 for loss of merchandise and $9,000
for loss of profits, the latter item not being covered by the policies. The
insured had a one-third contingent fee arrangement with his attorney.
The insurers' policies provided subrogation to the insured's right of
action but were silent about attorney's fees. The insured proposed to
distribute among them, pro rata, the $9,000 recovered less expenses of
the suit.

   The Court of Appeals held that the insured was entitled to retain

reasonable expenses of litigation.6 The Court wrote: "It would, indeed,
be a harsh rule if [the insured] must be required to incur costs and
expenses in the recovery of money for the benefit of insurers, without
reimbursing himself out of the fund so recovered." 92 Md. at 477. We
think that the same equitable principles applied in the Svea case would
apply with equal force in a case under §37(g).

  To be sure, it was significant to the Court's decision that several

of the insurers participated in the suit and agreed to the insured's
proposed settlement. Nevertheless, even without these factors, the result
should be the same in a case under §37(g). Presumably the State has an

  4
     As we understand it, in order for an injury to be compensable under

§37(g), a much closer nexus between the employment and cause of injury is
necessary. Compare Article 64A, §37's language, "an employee, who in the
actual performance of his job duties ..." with Article 101 §67's language
"accidental injuries arising out of and in the course of employment ...."
5
The General Assembly's silence on the issue of attorney's fees may
simply mean that the General Assembly assumed that subrogation was to include
the apportionment of attorney's fees. See Police Comm'r v. Dowling, 281 Md.
412, 379 A.2d 1007 (1977); Hardin v. Mass Transit Admin., 277 Md. 399, 354
A.2d 817 (1976).
6
The insured was entitled to retain the full sum for loss of profits since
the insurers' right of subrogation did not relate to that claim.

opportunity to intervene or participate in the third party action. If the
State chooses not to participate, the insured's right to attorney's fees
should not be affected.

   We find additional support for our conclusion in cases from other

jurisdictions addressing the apportionment of attorney's fees under the
subrogation provisions of their workers' compensation laws. Our
research has uncovered two types of cases.

    In the first type, the workers' compensation statute is silent about

attorney's fees. For example, in Transport Indemnity Co. v. Garcia, 89
N.M. 342, 552 P.2d 473, 476 (1976) the New Mexico Supreme Court
held that when "no guidance is given, ... fundamental fairness must be
the guideline." Accordingly, the employer's insurance carrier was
assessed a proportionate share of the costs out of the worker's recovery
against a third party. Similarly, in Seligman Distributing Co. v. Brown,
360 S.W.2d 509 (Ky. 1962), the court held that "regardless of the
amount recovered, where the employer or its insurer has a reasonable
opportunity to intervene in the employee's action against a third party
tort feasor but chooses not to do so it would be inequitable to require the
employer to bear the attorney's fees ...." 360 S.W.2d at 511. See also
Moody v. Arabie, 498 So. 2d 1081 (La. 1986) (statute silent about fees
held to require apportionment).

   In a second type of case, the subrogation statute allows for the

assessment of attorney's fees but does not directly address whether those
fees should be apportioned between the employee and the employer. A
common argument of the employer in these cases is that the attorney's
fee should be deducted as a first lien from the full recovery, and the
surplus should then be applied to reimburse the employer for any
damages awarded. This theory has been rejected by several state courts.
For example, in Cooper v. Argonaut Ins. Co., 556 P.2d 525 (Alaska
1976), the statute at issue provided that an employee who won a
sufficiently large judgment should pay to the employer all amounts paid
out by the employer "after deducting all litigation costs and expenses."
The court held that the statute required the attorney's fees to be prorated
between the employee and the employer. In support of its holding, the
court rejected any notion that the Alaska Legislature intended the
employer's insurance carrier "to secure a windfall profit at the
employee's expense." 556 P.2d at 527.

  To like effect is Quinn v. State, 125 Cal. Rptr. 1, 539 P.2d 761

(1975). In that case, the California court invoked what is known as "the
common fund" theory, holding that "one who expends attorneys fees in
winning a suit which creates a fund from which others derive benefits
may require those passive beneficiaries to bear a fair share of the

litigation costs." 539 P.2d at 764. In support of this holding, the court
reasoned that fairness to a successful litigant, who might otherwise
receive no benefit because the recovery could be consumed by expenses,
mandated this result. Moreover, this result prevents an unfair advantage
to others who are entitled to share in the fund and who should bear their
share of the burden of its recovery. Finally, apportionment of costs
encourages the attorney for the successful litigant to be more willing to
undertake and diligently prosecute proper litigation for the protection of
the fund. 539 P.2d at 765. See generally Dawson, Lawyers and
Involuntary Clients: Attorney Fees From Funds, 87 Harv. L. Rev. 1597
(1974).

    Interesting legislative developments occurred in several states

whose original subrogation statutes were silent about attorney's fees.
For example, in Texas, an early version of the workers' compensation
statute did not address attorney's fees. The court construed this silence
to mean that those fees could not be deducted. To remedy this
unintended result, the Texas Legislature amended the statute to make
explicit its original intention and allow for the apportionment of
attorneys fees. See Hartford Ins. Co. v. Branton & Mendelsohn, 670
S.W.2d 699, 701 (Tex. App. 1984).

   A similar development occurred in New Jersey. An early version

of that state's statute allowed the employee to recover against the third
party only, effectively leading to a "double recovery." A subsequent
amendment required reimbursement in full but was silent with regard to
attorney's fees. This omission led courts to disallow attorney's fees.
Finally, the statute was again amended to allow apportionment of fees
between an employee and employer. "It is reasonable to assume that the
change was effected to remedy the inequity." Travelers Insurance Co.
v. Lumber Mutual Cas. Ins. Co., 20 N.J. Super. 265, 89 A.2d 717, 719
(1952). See also Becker v. Huss Co., 402 N.Y.S.2d 980 (N. Y. 1978);
Pope v. Pennsylvania Thresherman & Farmers Mut. Cas. Ins. Co., 176
Pa. Super. 276, 107 A.2d 191 (1954).

   These cases are persuasive support for our view that the accident

leave statute allows apportionment of attorney's fees in third party
recovery cases. Otherwise an employee would be forced to bear the full
costs of litigation to recover compensation paid by the employer. That
result not only would be inequitable but would act as a disincentive for
employees to seek the very recovery from a third party out of which the
State would be reimbursed.

   As we read §37(g), its purpose is twofold. Primarily, it provides

an employee benefit by granting full pay while preserving an employee's
sick leave in the event of an accident. As amended, a second purpose

of the legislation emerged - to create a right of action on behalf of the
State against a third party tortfeasor. Without this provision, the State
had no way to recover the sums expended. In our opinion, it furthers
both purposes to allow an employee to apportion the costs of litigation
when the State benefits by that litigation.7

                                III

                           Conclusion

   In summary, it is our opinion that when an employee recovers

damages against a third party tortfeasor and subsequently reimburses the
State for payments under the accident leave statute, the employee may
withhold a proportionate share of attorney's fees expended in recovering
those sums.

                                               J. Joseph Curran, Jr.
                                               Attorney General

                                               Mary O'Malley Lunden
                                               Staff Attorney

Jack Schwartz
Chief Counsel
Opinions & Advice

Editor's Note:

   The provisions discussed in this opinion have been recodified in

Title 9, Subtitle 7 of the State Personnel and Pensions Article.

   7
      In the event the State or its insurer had good cause to intervene or was

asked by the injured employee's attorney to actively participate, the State or the
insurer should receive credit for a portion of the attorney's fees.