Date: Feb 27, 2026

Future Benefits Count in Fee Apportionment Under Utah Workers’ Compensation Third-Party Recoveries; Employer Must Pay Its Share Before Taking an Offset

Introduction

In Auto Owners Insurance v. Labor Commission, 2026 UT 3, the Utah Supreme Court interpreted Utah Code section 34A-2-106(5), which governs how proceeds from an injured worker’s third-party tort recovery are distributed between (1) the worker and (2) the employer/insurer that has paid (and may continue to owe) workers’ compensation benefits.

Eduardo Narciso, an employee of HB Construction, suffered catastrophic injuries in a workplace accident and received workers’ compensation benefits paid by HB and its carrier, Auto Owners (collectively, “Employer”). Narciso also pursued a tort claim against third parties involved in the incident and settled for $5 million. The settlement generated substantial attorney fees and costs (about $2.15 million), all paid from the recovery.

The dispute centered on two questions: (1) when calculating Employer’s proportionate share of the “reasonable expense” (including attorney fees) of obtaining the third-party recovery, must the Labor Commission consider only workers’ compensation benefits already paid, or also the value of anticipated future benefits that Employer seeks to offset? (2) if the employee paid all fees up front from the recovery, must Employer reimburse its share before it can apply the recovery as an offset against future benefits?

Summary of the Opinion

The Court affirmed the Commission. It held:

When an employer/insurer seeks to use a third-party recovery to offset future compensation liability, the phrase “as their interests may appear” in Utah Code section 34A-2-106(5)(a)(i) requires the Commission to consider not only past paid benefits but also anticipated future benefits in determining the employer/insurer’s proportionate share of the third-party action’s reasonable expenses (including attorney fees).
Where the employee paid all third-party litigation expenses from the recovery, the employer/insurer must bear its proportionate share of those expenses before taking an offset against future benefits. The order requiring Employer to pay $571,523.29 was not an “advance of benefits,” but a reimbursement/credit to the employee for fees paid on Employer’s behalf.

Analysis

Precedents Cited

Esquivel v. Lab. Comm'n, 2000 UT 66, 7 P.3d 777
This was the opinion’s central interpretive anchor. The Court treated Esquivel as establishing the operative framework for section 34A-2-106(5): third-party proceeds must (a) allocate litigation expenses proportionately, (b) reimburse past compensation payments (net of the employer’s fee share), and (c) then apply remaining amounts to offset future compensation obligations. Importantly, Esquivel recognized that a third-party recovery functions both to reimburse what has been paid and to offset what will be owed, and that the employer/insurer must “first bear a proportionate share of the expenses” of obtaining the recovery. Here, the Court applied that logic to confirm that “interest” can include future liability when an offset is claimed.
Dale T. Smith & Sons v. Utah Lab. Comm'n, 2009 UT 19, 218 P.3d 580
Cited for core statutory interpretation methodology: begin with the legislature’s words and read the statute as a whole. The Court used this approach to harmonize the fee apportionment clause in subsection (5)(a) with reimbursement in (5)(b) and the forward-looking offset in (5)(c).
Petersen v. Utah Lab. Comm'n, 2017 UT 87, 416 P.3d 583
Cited for the standard of review: agency interpretations of law are reviewed for correctness. This framed the Court’s analysis as an independent interpretation of section 34A-2-106(5), not deference to the Commission.
Granite Sch. Dist. v. Young, 2023 UT 21, 537 P.3d 225
Cited for the proposition that subsection (5)(b) provides the right to reimbursement for compensation payments already made. The Court used this to underscore the temporal distinction in the statute: reimbursement is backward-looking, while offset is forward-looking—both of which inform what “interests” are at stake.
Anderson v. United Parcel Serv., 2004 UT 57, 96 P.3d 903
Cited to reinforce that subsection (5)(c) addresses “any obligation thereafter accruing” and thus expressly contemplates future compensation liability being reduced or satisfied by the remaining balance of the third-party recovery.

Legal Reasoning

The Court’s reasoning proceeds in three connected steps.

1) Reading subsection 34A-2-106(5) as an integrated distribution scheme

The Court emphasized that subsection (5) prescribes a sequence: first allocate “reasonable expense” proportionately (5)(a); then reimburse past compensation payments net of the employer’s share of fees (5)(b); then pay the balance to the employee to reduce or satisfy future compensation obligations (5)(c). This sequencing matters because the employer/insurer’s “interest” in the recovery is not limited to recouping past payments; it also includes the statutory right to use the recovery to offset future liability.

2) Interpreting “as their interests may appear” to include future liability when offset is claimed

The key interpretive question was whether “interests” must be limited to fixed, already-known amounts (past paid benefits). The Court rejected Employer’s demand for certainty. It reasoned that the phrase “may appear” does not require absolute precision; it contemplates assessment of interests as they reasonably present themselves at the time of allocation, even though future developments (e.g., longevity and medical needs) involve uncertainty.

Critically, the Court tied the meaning of “interests” to what the employer is claiming from the recovery: if the employer seeks an offset against future benefits, then the employer’s interest necessarily includes the value of that future liability being avoided or deferred. On that view, it would be mismatched to let the employer take the benefit of an offset for future obligations without sharing in the cost of generating the recovery that funds that offset.

3) Treating the reimbursement order as a fee credit—not an advance of benefits

Employer argued it was being forced to “advance benefits” by paying $571,523.29. The Court characterized this as a category error. Because Narciso’s attorneys’ fees and costs were paid entirely from the recovery, subsection (5)(a)(ii) and Esquivel v. Lab. Comm'n require that the employer’s fee obligation operate as a credit in the employee’s favor. Thus, the payment was a reimbursement for Employer’s unpaid share of litigation expenses—an amount Employer had to bear before invoking the recovery to offset future benefits.

Impact

Fee allocation will reflect the offset being claimed. Employers/insurers in Utah cannot calculate their proportionate fee share by looking only at past paid benefits if they also seek to reduce or eliminate future compensation payments through an offset.
Greater financial pressure on employers/insurers to evaluate third-party recoveries realistically. Where future benefits are large (catastrophic injuries), the employer’s interest may exceed the recovery, potentially making the employer responsible for up to the full amount of reasonable fees (as occurred here when the proportionate share exceeded 100%).
Procedural leverage shifts toward injured workers in subrogation disputes. Employees who fund the third-party litigation costs from the recovery can require the employer/insurer to “true up” its share before the carrier can pause or delay ongoing benefit payments by applying an offset.
Settlement structuring and life-care evidence may become more central. Because “anticipated future benefits” can drive the “interest” calculation, parties may invest more in life expectancy, life-care planning, and medical cost projections in Commission proceedings that follow third-party settlements.
Limits of the holding. The Court’s reasoning is anchored to cases where the employer/insurer affirmatively seeks an offset for future liability; the decision does not suggest that future benefits must be quantified for all purposes in all workers’ compensation contexts, only for determining “interests” in the third-party recovery allocation when an offset is pursued.

Complex Concepts Simplified

Third-party recovery: Money the injured worker recovers from someone other than the employer (e.g., a subcontractor or product manufacturer) who contributed to the injury.
Reimbursement (subsection (5)(b)): Paying back the employer/insurer for workers’ compensation benefits already paid—after subtracting the employer/insurer’s proportional share of attorney fees and costs.
Offset (subsection (5)(c)): Using what remains of the third-party recovery to reduce or eliminate the employer/insurer’s obligation to pay future workers’ compensation benefits until that balance is exhausted.
“Reasonable expense … charged proportionately … as their interests may appear” (subsection (5)(a)(i)): The costs of obtaining the third-party recovery (especially attorney fees) must be split between the worker and employer/insurer based on how much each stands to benefit from the recovery. If the employer/insurer will use the recovery to avoid paying future benefits, that future avoided payment is part of its “interest.”
Credit/reimbursement to the employee for fees: If the employee paid all the lawyer fees out of the settlement, the employer/insurer must repay the employee for the employer/insurer’s share before taking the benefit of reimbursement/offset. This is not an early payment of workers’ compensation benefits; it is repayment of litigation costs.
Gross vs. net recovery: “Gross recovery” is the total settlement/judgment amount before attorney fees and costs. “Net recovery” is what remains after those expenses are deducted. The statute’s distribution steps begin from the gross recovery.

Conclusion

Auto Owners Insurance v. Labor Commission clarifies that, under Utah Code section 34A-2-106(5), an employer/insurer’s “interest” in a third-party recovery is not confined to reimbursement of past paid workers’ compensation benefits. If the employer/insurer seeks to offset future liability, then anticipated future benefits must be considered in calculating the employer/insurer’s proportionate share of the reasonable expenses (including attorney fees) of obtaining that recovery.

The decision also reinforces a sequencing rule with real financial consequences: when the employee has funded the third-party action’s expenses out of the recovery, the employer/insurer must pay (or credit) its share of those expenses before it can apply the recovery to reduce future benefit obligations. In practical terms, the opinion tightens the link between the benefit an employer/insurer claims from a third-party recovery and the share of litigation costs it must bear to obtain it.